Internal audit is an established independent, highly professional and objective, assessing and advisory activity, which is done in order to provide the management with services in order to create new value and improve the business. It achieves its objectives through a systematic and disciplined approach to the assessment and improvement of the effectiveness of the risk management, control, and management. The area of internal audit extends from reviews of financial statements, to verification and evaluation of the effectiveness and efficiency of the entire business process. Bearing in mind that the needs of the defense system are of the highest importance for any country, the necessity of establishing the internal audit is the most effective mechanism for financial and operational improvements in the business operations, aimed at increasing the combat readiness, with legal, dedicated, cost-effective and efficient use of budget funds. This paper presents the scope and legal base of the internal audit in the Ministry of Defense and the Serbian Armed Forces, on the general cognitive bases, through presenting the concept and importance of internal audit. It also points to the key areas of locating the internal audit in the defense system, which can contribute both to costeffectiveness and efficiency, and greater overall value.