High performing internal audit teams: Accountable and efficient

Up to this point we have explored the first three characteristics – business alignment, internal audit stakeholder relationship management, and empowering leadership. And I wanted to personally thank you for sticking with me throughout this journey. In this final installment we explore characteristics #4 – accountable and efficient and its components that include audit techniques, accountability reporting, and what it means to have an innovative mindset.

1. Audit techniques – Assurance plus
2. Accountability
3. Innovative mindset

Audit techniques – Assurance plus

High performance internal audit teams look to deliver value beyond traditional audit work. Internal audit should be the catalyst for management action that makes the business more secure and sustainable by having a constant focus on control improvement. To be successful requires deploying a range of internal audit ‘products’ such that the Internal Audit intervention is optimum for the risk and controls that we are looking to examine. These products typically should include:

• Change assurance – Ongoing audit work alongside business change programs. Auditors in the field alongside the change activity add value throughout the process in real-time.
• Data analytics work – Continually highlighting deficiencies when they occur. Even better if the analytics developed can be handed over to the business so they can own ongoing (and automated) assessment of their controls.
• Business monitoring or continuous auditing – Ongoing risk assessment work. This is an evolution of the audit from point-in-time judgment on controls to ongoing review and insight on the effectiveness of the control environment. This is done by identifying and monitoring key risk indicators that provide warnings of deficiencies as they happen.
• Flash audit work – Internal audit functions that do this type of ‘flash’ audit work are typically not engaged for more than a week. Reporting is often verbal, supported by a one-page memo, and cleared through internal audit sign-offs. Executive leadership values this approach with its pace and immediacy, allowing for quick change in the business and immediate impact. In high performance internal audit functions, auditors also embrace this pace of delivery that focuses on smaller, more targeted scopes.

In this context, high performance internal audit functions will see traditional full-scope audits operating increasingly as a smaller proportion of the overall book of work, completed each year, with these being increasingly accompanied by all the above activities.

Accountability

Just like any other business unit, it is important that the internal audit function is accountable for its performance. High performance teams recognize and welcome this scrutiny to ensure they are continually improving and not becoming complacent. To that end, they report to the Board on their performance on a periodic basis, the frequency being determined by their scale - the larger, the more frequent. This is not the regular reporting of audit findings that is about internal audit holding a mirror up to the business and showing what we see. This is holding the mirror up to ourselves and letting others see what we look like!

To be considered as truly high performing, internal audit functions should submit to the Board an Internal Audit ‘Annual Report’ (and for larger functions, I would expect this type of accountability reporting to be quarterly). Similar to the business, this annual report demonstrates what has happened in the prior year and then looks forward to the year ahead. This is the ideal vehicle to showcase the enhanced value that a high level of performance is bringing and establishes a firm reputation as adding value. 

Innovative mindset

High performance internal audit functions have a truly innovative mindset. All of us see in our work the pressure placed on our front-line colleagues to improve both the service or product they deliver with less headcount or overall lower budgets. Can we help them in this? We are in the privileged position of being able to spend time in all parts of our business, reviewing processes and practices and opining on their effectiveness from a control perspective. What would it take to extend this to also offer ideas and thoughts on areas in which they may improve their quality and/or efficiency? Perhaps drawing on the wider view we have around how other parts of the business are operating doing similar activities? Progressive internal audit functions identify simplification opportunities that they regularly share with the business. One high performing team has even gone as far as including a section on their audit report that identifies specific efficiency opportunities, thus encouraging auditors to consistently be on the lookout for additional opportunities as they conduct their work.

Could you do more to help the business in the relentless drive to be ever more efficient?

Similarly, high performance internal audit teams take innovation from their own function into the business, sharing the ideas and developments they have been working on. One area where I have seen this operating well is data analytics. A large internal audit function with a dedicated data analytics team has become widely accepted as being the organization’s center of excellence for the use of analytics and from this has shared utilities it has developed across the business which have been adopted to the wider business benefit.

Conclusion

This series of articles has set out to explore aspects of high performance internal audit teams. As such, I have suggested that internal audit functions that are considered high performing share four characteristics, they:

1. Ensure their activity is truly aligned with their organization and the value it is looking to create.
2. Operate internal audit stakeholder relationship management – all of internal audit working together to the benefit of the entire range of internal audit stakeholders.
3. Adopt an empowering leadership approach such that employees have the direction, support, and freedom to deliver to the highest standards.
4. Operate in an accountable and efficient manner – clearly transparent in their performance and the work they are doing to continually improve.

High performance internal audit (HPIA)

Whilst each characteristic is important, it is all four working together that drives the most successful internal audit functions forward. Those that succeed can deliver higher value for their organizations (and ultimately its customers). They consider themselves to be truly high performing. So, how do you stack up?