Internal Audit Tutorial 01 : Berkenalan dengan Internal Audit ( Apa, Siapa, Di Mana, Kapan, Kenapa)

Summary

This video discusses the challenges a growing company faces in managing its operations, staffing, and performance oversight. As the business expanded, the owner delegated more responsibilities to managers, resulting in a complex structure that strained the owner's ability to monitor daily activities. With the growing number of staff and evolving KPIs, issues such as inflated performance reports and lack of objectivity arose. The introduction of internal audits is suggested as a solution to improve oversight, verify reports, and enhance the company's internal controls and risk management processes.

Takeaways

• 😀 As the business grows, the owner delegates responsibilities to managers, leading to the expansion of staff and a more structured organization.
• 😀 The owner's role shifts from handling day-to-day operations to overseeing performance via Key Performance Indicators (KPIs) and Standard Operating Procedures (SOPs).
• 😀 Delegation of responsibilities to managers results in an increase in their authority and a greater sense of empowerment within the organization.
• 😀 Performance reporting becomes more difficult to verify as the organization expands, leading to potential conflicts of interest and manipulation of reports.
• 😀 The owner's ability to directly supervise daily operations diminishes due to the increased size of the workforce, necessitating changes in management structure.
• 😀 As the organization grows further, more divisions are added, and more staff are promoted, increasing the complexity of performance reporting and delegation.
• 😀 The gap between actual performance and reported performance grows as managers, with greater authority, may prioritize personal or divisional goals over organizational objectives.
• 😀 A key issue that arises is the difficulty of verifying performance reports, which may overstate actual achievements due to ineffective oversight and internal control.
• 😀 The need for internal audit functions arises to ensure that performance reports are accurate, and to strengthen governance, risk management, and internal controls within the organization.
• 😀 The failure to meet long-term vision goals, despite positive performance reports, illustrates the limits of owner oversight and the necessity of more robust internal auditing systems.

Q & A

What was the primary challenge faced by the business owner as the company grew?

The primary challenge faced by the business owner was the increasing complexity of managing a growing organization. Initially, the owner and a small team could handle operations, but as the business expanded, it became difficult for them to effectively oversee all operations and manage the growing workforce.

How did the business owner address the growing complexity of the organization?

The business owner addressed the growing complexity by promoting staff members to managerial roles, recruiting more supervisors and employees, and delegating operational control to the managers. They also implemented standard operating procedures (SOPs) to standardize performance and ensure quality.

What role did standard operating procedures (SOPs) play in the organization?

SOPs were critical in standardizing the quality and performance across the organization. They helped ensure systematic processes for handling tasks, which was necessary as the company grew and became more complex.

How did the delegation of authority affect the management structure?

As the authority was delegated to managers, they gained more power, which made them feel more influential. However, this also led to potential risks such as the misuse of power, as their oversight became less transparent and more difficult to verify due to the growing size of the organization.

What were the issues with the performance reporting system?

The performance reporting system became less effective as the organization grew. Reports were no longer directly submitted to the owner; instead, they were filtered through managers. This created a disconnect between actual performance and what was reported, leading to difficulties in verifying the accuracy of reports.

Why did the owner struggle to monitor daily operations effectively?

The owner struggled because of the increasing number of employees and the complexity of the organization. With a larger workforce, it became impossible for the owner to oversee the daily activities of every employee, which made direct control and oversight ineffective.

What challenges arose with the reward and punishment system as the organization expanded?

The reward and punishment system became problematic as it became harder to verify the accuracy of performance reports. Managers, who were responsible for evaluating performance, sometimes reported inflated results to receive higher rewards, which led to potential conflicts of interest and decreased objectivity in the system.

How did the organization’s growth impact the vision and overall performance?

Despite the organization's growth, the vision to expand internationally was not achieved, and it stagnated as a local business. The disconnect between actual performance and reported results, along with ineffective oversight, contributed to this stagnation.

What solution did the business owner consider to improve oversight and performance evaluation?

To improve oversight and performance evaluation, the business owner recognized the need to recruit a partner, specifically an internal audit function. This would help ensure proper evaluation of performance, management processes, and internal controls.

What is the significance of internal audits in the context of a growing organization?

Internal audits are essential in a growing organization to ensure transparency, verify performance data, and assess the effectiveness of management processes. They help maintain control over the organization's operations and prevent misuse of power by managers or other staff members.