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Internal audit should be an independent function or division within any public sector organisation. It should assists management by reviewing, assessing and helping to improve the internal control system. Internal auditors work with accounting officers and other managers to help to improve internal controls within their public-sector organisations and so reduce the risks the government faces in achieving its objectives to an acceptable level. Internal audit undertakes reviews of individual systems and processes. As a result, recommendations are made to the relevant accounting officer on how internal controls could be improved.

The scope of internal audit should be to cover the systematic review, appraisal and reporting of the adequacy of the systems of managerial, financial, operational and budgetary control and their reliability in practice, including:

• the relevance of established policies, plans and procedures, the extent of compliance with these
  
• the appropriateness of organisational, personnel and supervision arrangements
  
• the extent to which assets and interests are accounted for and safeguarded from losses of all kinds, arising from waste, extravagance, inefficient administration, fraud or other causes
  
• the appropriateness, reliability and integrity of financial and other management information and the means used to identify, measure, classify, report and act upon that information
  
• the integrity of computer systems, including systems under development
  
• the follow-up action taken to remedy previously identified weaknesses.

Institute of Internal Auditors (IIA)'s definition of internal audit
The most widely accepted formal definition of internal audit is:

"Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization's operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes."

• Standards for the professional practice of internal auditing (PDF)
• Institute of Internal Auditors 2003. The most widely accepted standards for internal audit are those produced by the Institute of Internal Auditors (IIA). The IIA issued its revised and updated International Standards for the Professional Practice of Internal Auditing, in December 2003
• UK Government Internal Audit Standards (PDF)
• HM Treasury 2001. These standards have gained wide acceptance across the public sector in the UK. They are used directly in central government and the health service and have been adopted for use in local government

• Co-operation between internal and external auditors (PDF)
• National Audit Office. Co-operation is essential to ensure the most efficient use of total audit resources. This following guide was agreed between the National Audit Office (NAO) and HM Treasury (ministry of finance) in the UK on this subject

The approach to be taken by internal audit
The approach to internal audit can include, for example:

• pre-audit, post-audit (vouching audit) and compliance audit
• systems audit and sampling – identify weaknesses rather than errors
• performance auditing or comprehensive auditing.

• The role of internal audit in government financial management: an international perspective (PDF)
• Jack Diamond, International Monetary Fund 2002. The internal audit function has received increasing attention as an important component of government financial management and a tool for improving the performance of the public sector. Recently, a consensus has been reached on the audit standards that governments should meet. This paper reviews these standards from an international perspective, noting that a large number of countries would face severe problems in meeting such standards. It is argued that internationally there are many different models for internal audit, and it may be necessary to take into account different audit traditions and different institutional capacities when introducing measures to strengthen internal audit in developing and transitional countries. The paper then discusses the main issues to be addressed in developing internal audit in such countries, and offers a framework for introducing much-needed reforms in this area

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