High performance internal audit teams: Business alignment

1. Engaging purpose
2. Clear operating model
3. Business acumen

Engaging purpose

High performing internal audit teams have a compelling purpose. This sets out why the internal audit function exists. It establishes the direction for a functional strategy and details the outcomes that need to be true for this purpose to be achieved. This is distinct from the audit strategy – what you are going to audit and why – which is likely to be found in an internal audit plan of some sort. Internal audit functions with a clear purpose and aligned strategy respond faster to change, keep investing, and are likely to outperform peer functions in both the impact and efficiency of their work; all of which are key if you are to deliver the highest level of value possible.

So how do you create an internal audit functional strategy that lasts, that people care about, and that accelerates innovation and change? The key is to start with your purpose - the reason why you exist as a function. Purpose compels people to act and gives us all meaning in what we do. In this context, a great purpose will:

• Be externally focused - it speaks to the unique relationship you have with your stakeholders and how you intend to bring value to their world;
• Stretch you - it is aspirational, ahead of you in the future, not already true. This challenges the internal audit team to innovate not just for today’s internal audit work but the internal audit work of the future; and
• Be worthwhile and meaningful for those that you wish to motivate - it acts as a call to action to the whole internal audit team, a statement that they will believe is worth pushing hard to achieve. It will win both hearts and minds.

Alignment at this level is powerful in harnessing both discretionary effort and creativity.

But what does this look like in practice? Here are some examples of internal audit purposes that I have seen in my work. They are all intended to achieve the same goal of delivering a simple but inspiring reason to do what we do every day. 

• Better insights, better outcomes
• Helping put people on a path to a better everyday life through insight, support, and challenge
• Faster and more effective improvement in controls
• Focus on what matters to make things better
• Contribute to the sustainable success of the group by promoting an effective framework of controls

‘Better insights, better outcomes’ was developed by a function that was striving to move away from internal audit work, which was dominated by testing compliance to the development of more strategic insights

The language of ‘outcomes’ was widely understood as it was at the heart of the organization’s strategic intent, so the internal audit function knew it needed to align with this. The purpose clearly signaled from the very top that compliance testing was not what the function was about. 

“Helping put people on a path to a better everyday life through insight, support, and challenge” was truly aligned with the purpose of the whole organization. It was all about working in often disadvantaged or challenged communities with an aim to improve the quality of life of all who the business engaged within those communities. It then looked to connect the work of the function to this higher organizational goal.

If functional internal audit strategy is something you are interested in exploring more of, download the report — Changing the internal audit function — which covers this area of internal audit purpose and strategy.

But well-intentioned purpose counts for nothing if it is not accompanied by two other elements key for business alignment – a clear operating model and deploying effective business acumen in your audit work.  

Clear operating model

High performance internal audit team’s operating models achieve four goals:

Business alignment

However the business organizes itself, it makes sense for the audit function to replicate this as much as its size will allow. This may be along geographical lines if you are a multinational business, along product lines if you have many product streams, or along operational lines with manufacturing and sales functions all being separate. Mirroring how the business organizes itself provides clarity both to the team and the business on how you are looking to bring value. 

Accountability

The boundary of the operating model should not stop at the internal audit team’s door. Successful risk management and control comes when everyone in the organization is clear about their accountability for risk and control. In short, everyone understands the role they play and the significant decisions they can take in effectively managing risks and determining and operating controls. One high performing organization identified that this lack of clarity was a major issue. The organization did not just raise this as an audit issue but stepped forward to work with business colleagues to ensure that roles were properly defined, including responsibility for control management across the organization, and gaps were properly closed. High performance audit teams sit in an organization where accountability for risk and control is clear and, where it is not, they step up and make it so.

Collaboration

The operating model needs to be clear as to the importance of collaboration and teamwork and provide the team direction on this. For internal audit teams, this is likely to include areas such as specialist teams and resource pools for larger functions that need significant resource flexibility. The way the team is organized needs to ensure efficient information sharing, collaboration, and problem-solving.

Caliber of people

The operating model also needs to be clear as to the caliber of people needed to make the function a success and truly deliver on its purpose. It is important that those running the function have the status and credibility to engage as equals with the businesses that they are reviewing. 

Business acumen

The final element of our business alignment characteristic is business acumen. High performance internal audit teams understand the business they are auditing. This means an intimate understanding of its products, customers, risks, and competition. There are a range of ways that high performing teams achieve this. First, they commit to the ongoing development of the team, this is non-negotiable. They also commit to ensuring everyone in the team has some business experience. This can be achieved in many ways, including direct recruitment, but progressive functions look to build a permanent two-way flow of talent both from audit into the business and from the business into audit. Some organizations establish schemes to achieve this flow. For example, one internal audit function established an ambitious goal that 50 percent of the function’s employees would have had a business secondment over a five-year period – known as ‘50n5’. This was backed by executive management and, as a result, they achieved this goal ahead of time. 

Having explored the first of the four characteristics of high performance internal audit teams – business alignment – the next article in this series will focus on the second characteristic – internal audit stakeholder relationship management - all with the aim of internal audit working together to the benefit of the entire range of internal audit stakeholders.