The evaluation of the effectiveness of internal audit function in the elementary insurance sector and an application

Insurance is an important sector which operates for compensating the damages of many probable risks on the assets and wealth of individuals and corporates depends on determined clauses. It is divided into two main branches which are life and elementary insurances. In this study, depending on the importance of the functions at the personal, social and economic life, the elementary branches have been selected which consist of the major area of insurance sector. Due to the nature of insurance sector and the coverages and their risks in elementary insurance branches, the sector companies encounter many risks which have diverse types and degrees. The effective management of these risks is a matter of vital importance. Otherwise, damaging effects are inevitable in terms of many areas mainly the underwriting, profitability, claim etc. and in fact the existences of the companies can be threatened. The responsible parties of effective managements of the risks and control environments are the top managements of insurance companies. However, the managements need the support functions for the mentioned activities. Internal audit function takes the lead of these support functions by providing assurance and advisory services in the companies for realizing their objectives. In this study, intended for generating effective internal audit functions in elementary insurance companies and thus to become a value-added function for realizing the objectives of these companies; a two gradual model have been generated. In first grade the necessaries related with organizational, structural and general applications of internal audit function have been determined. In second grade, the necessary criteria have been determined for supplying the effectiveness of internal audit in elementary insurance business processes by setting the risks, control activities and audit techniques of these criteria. Then the organizational structure, applications, activities and their effectiveness have been searched for the internal audit function of an elementary insurance company which operates in Turkey. The research has been done by using the observation, documental examination and interview data collection techniques which are classified in qualitative methods and then the results have been evaluated by using descriptive analysis method. As a general result of the study, it has been realized that the organization structure, applications and audit activities in business processes are not effective as a whole of the internal audit function of the sample company. Four main factors have been detected which cause the ineffectiveness of the internal audit function. These are; the factors related with the deficiencies of internal audit function's own mechanism and personnel, inadequate resource, time and authority allocation of the top management of the company related with the internal audit activities, the inadequacy in the regulations related with the internal audit activities and the inadequacy of legal and private external examinations for internal audit activities. By evaluating these factors at the last part of the study, the required actions and related internal and external parties have been determined and offered varied suggestions to the related parties for generating an effective internal audit function in the elementary insurance sector.