An effective investment audit program is crucial for companies and individuals to ensure their investments are managed properly and risks are controlled. By reviewing key aspects like investment policy, performance, reporting, risks and controls, an audit can identify issues and provide recommendations for improvement. This article summarizes main considerations for developing an investment audit program.
Ensuring Alignment of Investments with Strategies and Objectives
A key focus area of an investment audit is assessing if the current investments fit the organization’s financial strategies and objectives. Auditors will review the investment policy and portfolio composition to see if risk levels, diversification, expected returns and other metrics are in line. Any misalignments need to be identified.
Evaluating Investment Performance and Benchmarking
Another major task is benchmarking the performance of investments against appropriate benchmarks to identify underperformance. Common benchmarks include stock/bond market indexes, peer comparisons, and risk-adjusted returns. Performance issues need to be root caused.
Assessing Investment Risk Management Frameworks
Auditors have to check if proper investment risk management frameworks are in place, including risk identification, measurement methodologies, tolerance levels, reporting, and mitigation strategies. Any gaps have to be highlighted with recommendations.
Reviewing Investment Decision Making Processes
The audit should assess if robust investment evaluation and decision making processes are being followed consistently, including economic analysis, due diligence, committee reviews and approvals. Material deviations need to be flagged.
Evaluating Controls, Reporting and Monitoring
Audits also focus on effectiveness of investment reporting to stakeholders, monitoring of investment managers, and reliability of management information systems. Control weaknesses such as overdependence on few individuals must be covered.
An effective investment audit focuses on multiple key areas like policy alignment, performance, risk management, evaluation processes and controls to provide recommendations for safeguarding and improving investment governance.