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Joel Kramer, managing director of the Internal Audit Division of the MIS Training Institute, speaks from experience on this topic as a former director of internal audit, "I have made every one of these mistakes," he says.
Mistake 1: Acting like a large department
"Many small departments try to act like big ones," says Kramer.
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Trying to make a small department look like a large one can add bureaucracy rather than value, according to Kramer.
He recalls one small audit department that required three complete work paper reviews before issuing the audit report.
"When people come from public accounting, they bring the public accounting mentality with them," he says.
"That was the case here."
He says there are three main ways to do more with less: improve productivity of processes; be more risk-based to eliminate audit steps and audits that do not focus on key risks; and make full use of technologies.
Mistake 2: Hiring the wrong people
Kramer says many internal audit shops focus too much on people from the Big Four firms, hire people who are not self-starters, are too compliance oriented or are too much of a specialist.
"A small department cannot afford a bad hire," Kramer says.
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"When you bring the people in-charge to the process, they feel really involved and have such different insights," Kramer says.
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They often result from a lack of focus on key risks and end up at least partly unread, according to Kramer.
"We ask, 'How long should an audit be?' I was brought up with asking, 'What is management's ability to absorb your findings?' An audit should be only as long as management's ability to absorb," Kramer says.
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"Some people do not fully retire," Kramer says.
"They want to continue using their brain.
There are wonderful people like this who could help."
Sometimes certain specialty firms conduct audits at a lower cost than the in-house audit shop.
"As an example, there are people who specialize in construction or derivative auditing who can be productive from the first day," Kramer says.
Mistake 5: Failing to effectively market
Kramer says many small audit departments do a poor job of promoting the ways in which the department adds value to the organization.
He suggests audit departments create an annual report of two to three pages to show what the department has brought to the company in the last year.
He also suggests using an Intranet, brochures and newsletters to promote the department.
This promotion can be done in a variety of ways, including by providing useful suggestions for employees.
"You could provide tips for traveling with a laptop computer, as an example," Kramer says.
"Or you could let them know, 'Here is why we need to ask this,' when you are looking at certain expenses."
Marketing resources can help polish up reports, especially with the help of a professional graphics department.
Attending the right meetings is important, too.
"You want to be strategic with meetings, so they help you better position the department," Kramer says.
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Kramer says when he was an internal audit director he developed an internal group that included the assistant controller and people from international marketing and the domestic manufacturing department.
They would meet periodically to discuss what his department was doing and tell him what was happening in their areas.
"I wanted to ensure I was using resources effectively," Kramer says.
"It worked very well.
He also suggests becoming active in the local chapter of The Institute of Internal Auditors (IIA) and attending MIS/IIA conferences and symposia as well as other events where fellow professionals would be present.
Professional training also can be used as a networking opportunity.
"Pick training where you can network," Kramer says.
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"People will share," Kramer says.
"Go to a class list of where you were in training and find someone there who could help you - be flexible.
Last year's risks are not necessarily this year's risks."
Mistake 8: Improperly using technology
Many small departments create too many forms and templates, flowchart too deeply, ban use of the Internet, and do not strategize retrieval packages, according to Kramer.
"There is good technology and bad technology," he says.
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"Audit committees need guidance from internal audit," Kramer says.
"If you want more resources, have your department report ready before the budget process, so they can see the value internal audit can provide."
Information overload is another problem.
"Many reports give too much information and too little knowledge," Kramer says.
"In the financial services industry now, people are going to be looking hard at this," noting collapses of major financial institutions or government loans and bailouts despite the reporting requirements of the Sarbanes-Oxley Act (SOX) and other laws and regulations.
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"It is important to have good people, address key risks and set doable goals for adding value," Kramer says.
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Kramer considers a small audit shop to be one with fewer than 10 employees.
He stresses, though, that even the largest companies can have small audit shops.
"A few years ago, I held seminars for a small department, which included people from Fortune 50 companies," he says.
"Sometimes you have small groups within a larger department that treat themselves as separate.
Usually this is done to focus resources on a particular area of the company, from either a business or geographic perspective.
He recalls one large US company that devoted a small audit group within a larger department to one small unit in Europe.
Kramer admits one potential benefit of a small operation can be the ability to run itself leaner than a large operation.
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