Internal audit KPIs help organizations measure the effectiveness, efficiency, and strategic value of the audit function in supporting governance and decision-making.
What is Internal Audit KPI?
Internal audit Key Performance indicators (KPIs) are a set of metrics used to measure the effectiveness, efficiency, and added value of an organization's internal audit function.
KPI audit is an objective benchmark that shows how well the internal audit team performs its duties in supporting governance, internal control, and risk management.
In the context of audit management, KPIs serve as tools for continuous and in-depth evaluation of performance internal auditors, not only in terms of the number of audits completed, but also of the contribution of audits to the strategic decision-making of the company.
Read Also: ISO Internal Audit: definition, objectives, and Implementation Mechanism
Objectives of Internal Audit KPI in Audit Management
Internal audit KPIs not only measure technical activity, but also convey a message about the value that the audit function provides to the organization. The main objectives of internal audit KPIs include:
1. Provide Objective Performance Measurement
Internal audit KPI serves as an objective standard to assess the extent to which internal audit activities are successfully implemented.
With the right indicators, internal auditors can identify performance against the annual plan as well as reflect the effectiveness of corrective actions taken based on audit recommendations.
These measurements also help organizations to compare performance between periods or work units. That way, any deviation or decrease in performance can be diagnosed immediately and systematically corrected.
2. Encourage Audit efficiency and effectiveness
With properly designed KPIs, the internal audit process can be done faster and save resources.
For example, indicators such as the average time of completion of the audit and the correctness of the submission of reports are very helpful in evaluating the efficiency of the team of auditors.
Effectiveness is also reflected in the level of implementation of the resulting recommendations. If the KPI shows low results in this aspect, it means that there needs to be an improvement in the communication approach or the quality of the audit findings delivered.
3. Aligning audits with strategic objectives
Good KPIs are able to link internal audit activities with the strategic direction of the organization. That is, the indicators not only focus on the number of findings or reports, but also measure how much the audit contributes to the achievement of the company's long-term goals.
This includes indicators such as policy changes as a result of audits or the rate of adoption of recommendations in strategic planning. This alignment makes the audit function not just a control, but part of the driver of transformation.
Types of Internal Audit KPIs and their main indicators
Internal audit KPIs are divided into several main categories that reflect both the technical and strategic aspects of the audit implementation:
1. Execution Key Performance Indicators (KPIs)
- The number of audits completed on time, reflecting the efficiency of the audit process
- The percentage of audits according to the annual plan as a benchmark for execution discipline
- Average duration of completion of the audit to evaluate the speed of work of the team
- The number of audit findings per project indicating the depth and thoroughness of the audit
2. Value Indicators
- The level of implementation of audit recommendations by the auditee as a reflection of success
- Management satisfaction Feedback on the audit that illustrates the relevance and communication
- Cost savings from audit recommendations as a direct impact on organizational efficiency
- Policy changes triggered by audit results show the strategic role of audit
3. KPI Auditor (Individual)
- Competence and certification of internal auditors as an indicator of the quality of resources
- Compliance with the code of ethics to maintain audit integrity
- Participation in training or capacity building that reflects sustainable development
How to determine relevant Internal Audit KPIs
Determining the right KPIs requires a strategic and participatory approach so that the results truly reflect the performance and needs of the organization.
A. Based on risk and organizational strategy
In designing internal audit KPIs, organizations need to first understand the main risks faced and the strategic direction to be achieved.
The resulting KPIs must be aligned with high-risk areas so that audit efforts focus on the most crucial aspects.
With this approach, auditors not only carry out regular checks, but also provide added value in strategic decision-making. Risk-based KPIs also allow audits to be more adaptive to changes in the business environment.
B. Use the SMART principle
Prinsip SMART (Specific, Measurable, Achievable, Relevant, Time-bound) adalah kerangka penting dalam menetapkan KPI audit yang terukur dan relevan. Indicators formulated with this approach will be easier to evaluate periodically.
For example, setting an audit target of 90% completion as planned in 12 months is a SMART KPI. This helps organizations not only record audit activity, but also ensure the results have a real impact.
C. Engage Internal Stakeholders
The successful implementation of internal audit KPIs is strongly influenced by the active participation of internal stakeholders such as top management, audit committee, and related divisions. Involve them from the very beginning to determine the relevant and mutually agreed indicators.
This collaborative approach not only enhances the legitimacy of the audit results, but also ensures a commitment to follow up on the findings. In addition, feedback from stakeholders can be used to improve KPIs on a regular basis.
Internal Audit KPI Checklist for effective measurement
Audit KPI Checklist assists auditors and management in evaluating the overall success of the audit. Here are some important points that can be used:
- Have all the audits in the annual plan been completed and documented?
- Have the recommendations been implemented within a maximum of 3 months?
- Is the audit report delivered on time according to the target?
- What is the auditee's level of satisfaction with the audit process and results?
- Does the auditor team participate in training or capacity building on a regular basis?
Read Also: 10 examples of Internal Audit Checklist and its explanation
Challenges in the use of Internal Audit KPIs
Although KPIs are very useful, in practice there are several obstacles that often arise in the use of audit KPIs:
A. Focus too much on quantity
One common challenge in the use of audit KPIs is the excessive focus on the number of completed audits. In fact, quantity does not always reflect the quality or impact of the audit results on the organization.
If KPIs are too heavy to the numerical side, then the audit function is prone to losing strategic significance. Therefore, there needs to be a balance between quantitative and qualitative indicators for audit performance to be truly relevant and valuable.
B. Absence of Feedback from Auditees
Often in the practice of internal auditing, sound auditee not included in performance measurements. In fact, feedback from the auditee is an important reflection of the quality of communication, approach, and the results of the audit itself.
By adding indicators such as the level of auditee satisfaction or the level of acceptance of recommendations, the organization can get a more thorough and objective picture of the quality of internal audit services.
C. Mismatch of KPIs with strategic objectives
Some organizations use audit KPIs that are not aligned with the company's strategic vision and direction. This causes the audit function to get stuck on administrative routines and lose thrust in supporting changes.
Strategically relevant indicators will help internal audits be more adaptive to business dynamics and able to identify improvement opportunities that have a direct impact on the sustainability of the organization.
Case Study of effective Internal Audit KPI implementation
In a study in a national logistics company, the implementation of value-based audit KPIs has encouraged management to conduct operational efficiency based on audit findings.
KPIs used include the adoption rate of recommendations, cost savings, and influence on SOP changes. As a result, the audit function is involved earlier in strategic decision-making.
Practical recommendations from Audit practitioners
Arif Kamaluddin in his article emphasizes the importance of choosing KPIs that are not only administrative, but also strategically relevant.
KPIs should not only count the number of reports, but also assess whether the recommendations have a real impact on the organization. Corporate Investigation added that audit KPIs must be aligned with time efficiency, internal feedback, and policy improvements.
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What is KPI in audit? This question has been answered above, this audit plays an important role in assessing and improving the audit function as a whole, from the technical level to its strategic contribution.
By designing relevant and measurable indicators, organizations can make internal audits a driver of continuous improvement and strengthening governance. Optimize your organization's internal audit performance with Audithink.
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