AFTER A DISCUSSION OF THE ROLE OF THE INTERNAL AUDIT, THE BOOKLET NOTES RELEVANT FEDERAL REGULATIONS AND LAWS. IN ORDER TO APPRAISE PERFORMANCE, THE SCOPE OF THE AUDIT SHOULD ENCOMPASS THREE MAJOR AREAS: AN EXAMINATION OF FINANCIAL TRANSACTIONS, ACCOUNTS, AND REPORTS; A REVIEW OF EFFICIENCY AND ECONOMY IN THE USE OF RESOURCES; AND AN ASSESSMENT OF PROGRAM RESULTS. THE INTERNAL AUDITOR'S PROFESSIONAL QUALIFICATIONS AND LOCATION IN THE ORGANIZATIONS ARE DESCRIBED, EMPHASIZING THAT THE AUDITOR SHOULD REPORT TO THE HIGHEST PRACTICAL ORGANIZATIONAL LEVEL. GUIDELINES CONCERNING MANAGEMENT OF THE INTERNAL AUDIT COVER PROFESSIONAL STANDARDS, AN AUDIT MANUAL, PLANNING, SUPERVISION, AND DOCUMENTATION. THE FORM, DISTRIBUTION, TIMELINESS, AND CONTENT OF AUDIT REPORTS ARE DETAILED. THE BOOKLET ALSO STATES THAT INTERNAL AUDITORS SHOULD FOLLOW-UP THEIR RECOMMENDATIONS TO DETERMINE IF CORRECTIVE ACTION HAS BEEN TAKEN. FINALLY, THE RELATIONSHIP OF INTERNAL AUDITING TO CONTRACT AUDITS PERFORMED BY AGENCIES AND TO THE GAO IS EXPLAINED. THE APPENDIXES CONTAIN A SUMMARY OF 1972 GOVERNMENTAL AUDIT STANDARDS AND EXCERPTS CONCERNING INTERNAL AUDITS FROM A 1963 HOUSE OF REPRESENTATIVES REPORT ON EFFICIENCY AND ECONOMY IN THE DEPARTMENT OF COMMERCE. (MJM)