Limitations of the Internal Audit Unit:

1. Employment Status: Internal auditors may be employees of the company they are auditing, creating pressure to not raise issues for fear of losing their jobs.
2. Involvement in Operations: In smaller entities, internal auditors may be part of the finance function and may be reluctant to report deficiencies in systems they are involved in.
3. Familiarity Threat: Long-standing relationships with colleagues may create a reluctance to raise concerns about friends or long-term associates.
4. Lack of Resources: Internal audit units are often underfunded and denied the necessary resources to operate effectively.
5. Lack of Qualified Personnel: Some internal audit units are not staffed with adequately qualified personnel, limiting their effectiveness.
   (5 points @ 1 mark each = 5 marks)

Steps to Ensure Independence:

1. Separate Reporting Channels: Establish independent reporting lines between the internal audit unit and the Audit Committee instead of administrative reporting to the CEO.
2. Independent Review: Engage an independent external body to review the work of the internal audit unit.
3. Outsourcing: Consider outsourcing the internal audit function to a third-party service provider to reduce bias.
4. Securing Resources: Liaise with management to ensure adequate funding and resources for the internal audit unit.
5. Qualified Staff: Ensure that the internal audit unit is staffed with qualified and competent personnel to perform their duties effectively.
   (5 points @ 1 mark each = 5 marks)