Internal audit: from back office to backbone

In today's fast-changing environment, internal audit is no longer a back office function. It is central to how organisations manage risk, protect value and sustain growth. This is especially true in Bangladesh, where rapid expansion, rising complexity and heightened scrutiny from global partners make strong internal assurance essential.

When done well, an internal audit identifies inefficiencies, tests compliance, and deters fraud. It is the quiet engine that keeps a company dependable in the eyes of investors, regulators and customers.

At its core, internal audit is about risk management. Companies face financial, operational, legal and cyber threats, magnified in economies where volatility in currency, commodities or regulation is common. Auditors do more than list hazards. They assess exposure, test safeguards and highlight what risks remain. This risk-based approach, now a global standard, shifts auditing from a checklist to a decision-making tool. By translating abstract risks into concrete control assessments, auditors help companies take strategic decisions with confidence.

A key task is testing internal controls, the approvals, reconciliations and data protections that keep operations secure. In Bangladesh's fast-growing sectors, expansion often outpaces these controls, leaving gaps that invite errors or breaches. Independent testing by internal audit detects weaknesses early and offers practical remedies, improving efficiency while strengthening safeguards.

Fraud prevention is where an internal audit's value is clearest. The Satyam scandal in India showed how manipulated accounts can destroy shareholder value and market confidence. Weak scrutiny and over-reliance on external audits proved inadequate. An empowered internal audit function could have served as an early warning. Similarly, Sri Lanka's central bank bond controversy revealed how governance failures and conflicts of interest can cause major damage. Both cases show that strong controls and independent oversight are not abstract ideals but shields against systemic shocks.

Financial accuracy is another pillar of credibility. Reliable records underpin sound decision-making, investor trust and regulatory compliance. In Bangladesh, where capital markets and international buyer relationships are maturing, accurate reporting is a competitive advantage. Internal audit assures that processes are sound and transactions are properly recorded, reducing the risk of restatements, fines or reputational loss. This is critical for exporters and firms seeking foreign investment.

Compliance is inseparable from performance. Companies must meet tax, labour, environmental and industry-specific rules or risk penalties and disruption. Internal audit tests compliance and recommends improvements that keep businesses aligned with laws and global standards. Governance is increasingly linked to financing and market access. In Bangladesh, development partners have made governance and accountability national priorities, tying them to fiscal and financial stability.

Operational efficiency is another overlooked area. Auditors examine workflows, uncover redundancies and cut waste. Their recommendations reduce costs, speed up processes and free management to focus on strategy. With modern data analytics, internal audit moves from hindsight to foresight, spotting trends, detecting weak points and suggesting automation opportunities.

Above all, an internal audit strengthens governance and accountability. In markets where many firms are family-run or closely held, an independent audit unit reporting to the board reassures shareholders that management actions align with long-term interests. This perspective fosters trust, enhances transparency and improves access to capital.

For Bangladesh to turn economic gains into lasting institutional strength, both private and public bodies must invest in credible internal audits. That means professionalising audit teams, equipping them with digital tools, granting independence and ensuring they report to boards empowered to act. Regional examples show how quickly damage can occur and how a stronger audit can restore confidence.

For a country integrating into global value chains and relying more on international finance, a robust internal audit is not just good governance. It is a strategic necessity.

The writer is chairman of Financial Excellence Ltd