internal controls, the internal audit activity What is internal auditing? provides assurance to management and the Performed by professionals with an in-depth audit committee that internal controls are understanding of the business culture, systems, effective and working as intended. The internal and processes, the internal audit activity provides audit activity is led by the chief audit executive assurance that internal controls in place are (CAE). The CAE delineates the scope of adequate to mitigate the risks, governance activities, authority, and independence for processes are effective and efficient, and internal auditing in a written charter that is organizational goals and objectives are met. approved by the audit committee. The Institute of Internal Auditors (IIA) has An effective internal audit activity is a valuable developed the globally accepted definition of resource for management and the board or its internal auditing, as follows: equivalent, and the audit committee due to its understanding of the organization and its culture, Internal Auditing is an independent, objective operations, and risk profile. The objectivity, skills, assurance and consulting activity designed to and knowledge of competent internal auditors add value and improve an organization's can significantly add value to an organization's operations. It helps an organization accomplish internal control, risk management, and its objectives by bringing a systematic, governance processes. Similarly an effective disciplined approach to evaluate and improve the internal audit activity can provide assurance to effectiveness of risk management, control, and other stakeholders such as regulators, governance processes. employees, providers of finance, and shareholders. Independence is established by the organizational and reporting structure. Objectivity As the primary body for the internal audit is achieved by an appropriate mind-set. The profession, The IIA maintains the International internal audit activity evaluates risk exposures Standards for the Professional Practice of relating to the organization's governance, Internal Auditing and the profession s Code of operations and information systems, in relation Ethics. IIA members are required to adhere to to: the Standards and Code of Ethics. Effectiveness and efficiency of operations. Reliability and integrity of financial and What is internal audit? operational information. The role of internal audit is to provide . Safeguarding of assets. independent assurance that an organisation’s . Compliance with laws, regulations, and risk management, governance and internal contracts. control processes are operating effectively. Internal auditors deal with issues that are Based on the results of the risk assessment, the fundamentally important to the survival and internal auditors evaluate the adequacy and prosperity of any organisation. Unlike external effectiveness of how risks are identified and auditors, they look beyond financial risks and managed in the above areas. They also assess statements to consider wider issues such as the other aspects such as ethics and values within organisation’s reputation, growth, its impact on the organization, performance management, the environment and the way it treats its communication of risk and control information employees. within the organization in order to facilitate a good governance process. Internal auditors have to be independent people who are willing to stand up and be counted. Their The internal auditors are expected to provide employers value them because they provide an recommendations for improvement in those independent, objective and constructive view. To areas where opportunities or deficiencies are do this, they need a remarkably varied mix of identified. While management is responsible for skills and knowledge. They might be advising the 1 project team running a difficult change programme one day, or investigating a complex more than 36,000 miles. It was also one of the largest overseas fraud the next. independent developers and producers of electricity in From very early on in their careers, they talk to the world, serving both industrial and emerging executives at the very top of the organisation markets. Enron was also a major supplier of solar and about complex, strategic issues, which is one of the most challenging and rewarding parts of their wind renewable energy worldwide, managed the role. largest portfolio of natural gas-related risk What is the difference between internal and external audit? management contracts in the world, and was one of the world's biggest independent oil and gas exploration Internal auditors are often confused with external auditors, but there are significant differences companies. In North America, Enron was the largest between the two groups. Internal auditors look at all the risks facing an organisation and what is wholesale marketer of natural gas and electricity. being done to manage these risks. External auditors on the other hand look at financial Enron pioneered innovative trading products, such as accounts. So internal audit’s role is broader and might, for example, include auditing the gas futures and weather futures, significantly reputational risk that a company could be damaged by using cheap labour in foreign modernizing the utilities industry. After a surge of countries. It could also include auditing operational risks such as poor health and safety growth in the early 1990s, the company ran into procedures, or strategic risks such as the board stretching company resources by producing too difficulties. The magnitude of Enron's losses was many products. hidden from stockholders. The company folded after a failed merger deal with Dynegy Inc. in 2001 brought to light massive financial finagling. The company had ranked number seven on the Fortune 500, and its there are 3 types of Audit : failure was the biggest bankruptcy in American history. 1. Internal audit ( first party audit),to ensure implementing, maintaining and improvement of the system audited. Company Origins 2.Customer audit ( second party audit), to evaluate the suppliers performance and compliance for Enron began as Northern Natural Gas Company, standards. organized in Omaha, Nebraska, in 1930 by three other 3.External audit (third party audit), to ensure implementing and documenting according to companies. North American Light & Power Company standards. and United Light & Railways Company each held a 35 ENRON percent stake in the new enterprise, while Lone Star Gas Corporation owned the remaining 30 percent. The Before filing for bankruptcy in 2001, Enron Corporation company's founding came just a few months after the was one of the largest integrated natural gas and stock market crash of 1929, an inauspicious time to electricity companies in the world. It marketed natural launch a new venture. Several aspects of the Great gas liquids worldwide and operated one of the largest Depression actually worked in Northern's favor, natural gas transmission systems in the world, totaling however. Consumers initially were not enthusiastic 2 about natural gas as a heating fuel, but its low cost led wells. Another subsidiary, Northern Plains Natural Gas to its acceptance during tough economic times. High Company, was established in 1954 and eventually unemployment brought the new company a ready would bring Canadian gas reserves to the continental supply of cheap labor to build its pipeline system. In United States. addition, the 24-inch steel pipe, which could transport Through its Peoples division, the parent company six times the amount of gas carried by 12-inch cast acquired a natural gas system in Dubuque, Iowa, from iron pipe, had just been developed. Northern grew North Central Public Service Company in 1957. In rapidly in the 1930s, doubling its system capacity 1964, Council Bluffs Gas Company of Iowa was within two years of its incorporation and bringing the acquired and merged into the Peoples division. first natural gas supply to the state of Minnesota. Northern created two more subsidiaries in 1960: Public Offering in the 1940s Northern Gas Products Company (later Enron Gas Processing Company), for the purpose of building and The 1940s brought changes in Northern's regulation operating a natural gas extraction plant in Bushton, and ownership. The Federal Power Commission, Kansas; and Northern Propane Gas Company, for retail created as a result of the Natural Gas Act of 1938, sales of propane. Northern Natural Gas Producing regulated the natural gas industry's rates and Company was sold to Mobil Corporation in 1964, but expansion. In 1941, United Light & Railways sold its the parent company continued expanding on other share of Northern to the public, and in 1942 Lone Star fronts. In 1966, it formed Hydrocarbon Transportation Gas distributed its holdings to its stockholders. North Inc. (later Enron Liquids Pipeline Company) to own and American Light & Power would hold on to its stake until operate a pipeline system carrying liquid fuels. 1947, when it sold its shares to underwriters who then Eventually, this system would bring natural gas liquids offered the stock to the public. Northern was listed on from plants in the Midwest and Rocky Mountains to the New York Stock Exchange that year. upper-Midwest markets, with connections for eastern In 1944, Northern acquired the gas-gathering and markets as well. transmission lines of Argus Natural Gas Company. The Growth through Acquisitions following year, the Argus properties were consolidated