Traditionally, the internal audit function focused on providing core assurance around business process risk and controls. But, with increasing market volatility and complexity, internal audit is being asked to deliver deeper insights and value beyond assurance, particularly in the areas of strategy execution, emerging risk, and increasing the use of analytics. Delivering on these new and increased expectations presents many challenges for internal audit departments today.
These responsibilities translate directly into an expectation that internal audit provide assurance to the Audit Committee (and more broadly to the Board of Directors) that key risks are identified and managed effectively. Without question, this independent assurance role is a basic expectation for all internal audit departments and is at the core of internal audit’s mandate. Other stakeholders, including regulatory bodies for regulated entities, have similar expectations of internal audit. Management, as one key stakeholder, looks to internal audit for similar assurances; however, increasingly, management expectations extend beyond this core assurance role in search of greater value — in effect, a greater return for the organisation’s internal audit investment. As context for this expanded expectation, one needs to look no further than what is transpiring in many organisations today—a laser focus on creating shareholder value in an uncertain and often challenging business climate.
Four major challenges internal audit departments must meet if they are to rise to the occasion and deliver on the increased value that board and management teams are expecting: managing talent, becoming a trusted advisor, meeting increased stakeholder expectations, and conquering technology demands and threats.
1. Developing a Workforce Strategy
The difficulties around staffing the internal audit department are well known these days: not enough qualified candidates with the unique set of skills required to be successful in the modern internal audit department. Salaries are also rising making it more expensive to find the right people. The critical skills and attributes needed in the internal audit department include analytical abilities, business knowledge, ability to communicate well, integrity, courage, conflict management skills, and many others.
Since it’s difficult to find all of these attributes, not to mention IT skills, in one person, His department takes a workforce strategy approach, ensuring that the needed skills are represented across the staff.
2. Becoming a Trusted Advisor
Among the most difficult of the challenges is building trust, especially since it can take a long time to build, but can be damaged in the blink of an eye. There are a lot of steps along the way, but that trust has to be earned. A few of steps along the way to earning trust include being transparent, fair, candid, and personable. He also advised those in the audience do more listening than talking. We have to be out walking around, asking questions, and then listening.
3. Delivering Added Value
Along with the mandate to become more of a trusted advisor, there are other increased stakeholder expectations that internal audit must meet, At the top of the list is providing more insight on risk and helping the company to be able to adapt to handle the forever changing nature of risk.
Among the risks that internal audit needs to be better equipped to provide assurance over, Some of them are regulatory compliance, third-party relationships, cyber security, emerging markets, and IT governance. To meet the challenge of providing more insight on such risks, the need to understand the business, forge strong relationships with business partners, and drive change. At the end of the day, we have to provide the insight to get them to that change.
4. Leveraging Technology
The final challenge is the need to do a better job at leveraging technology in internal audit including using data analytics. Technology back into the first challenge of finding the right people with the right skills. Indeed, many internal audit departments admit they are struggling to find good IT auditors. A solution is to hire people with technology backgrounds and then teach them how to be auditors. Half of our IT audit staff has no prior audit experience.
Data analytics is becoming an increasingly important tool for internal audit to leverage. After some early stumbles, the key is to focus more on the data. The help of some data scientists and put the focus on the data, rather than the tools.
There are a number of actions that internal auditors can take in response to the ongoing/emerging trends outlined above. The most important strategy for success is for auditors to keep their eyes and ears open and respond as quickly as possible when risks or opportunities materialize.
As always, I welcome your thoughts.