Scheduling Internal Audi Activities.

Abstract The determination of an audit schedule over a fixed future period constitutes a crucial part of the planning activities in an internal audit department. For each auditable unit, this problem basically revolves around tradeoffs between two types of costs: audit costs and the expected losses that accrue in the absence of auditing. Given data on risk scores, maximum allowable loss, and cost behavior, audit schedules can be determined through a variety of management science techniques. These range from traditional unconstrained optimization to systematic computations for balancing the cost tradeoffs. The objective of this paper is to demonstrate the relative application potential of these models by focusing on their structure, assumptions, and solution methods. The final choice of a model depends, inter-alia, on whether it yields a "good" allocation of audit activity over the planning horizon for the entire portfolio of auditable units taken together.