By Richard Chambers | October 13, 2014
Over the years, I have addressed many internal audit audiences around the world on the importance of aligning with stakeholder expectations. I often close my message by encouraging chief audit executives (CAEs) and internal auditors to shed the image of fault-finder and traffic cop (images for which too many suffer), and become trusted advisors who provide insight and foresight – not just hindsight. When I finish delivering my message, the question is invariably asked: “How do I start?”
The first steps in transforming an internal audit department’s image can be crucial. A false start, or one that is perceived as insincere, can render any efforts that come afterward as downright fruitless. If management and boards have come to perceive internal audit as a traditional “control assurance shop,” it’s hard to open their eyes to the potential value that internal audit can add – particularly without a change of internal audit leadership and/or staff. But personnel change is not a prerequisite to transforming internal audit’s image in an organization. I have seen many internal audit functions take bold and decisive steps to successfully rebrand their departments in the eyes of stakeholders.
Here are five steps I’ve identified to bring successful transformation:
1. Forge a strategic vision for change.
Transformation must be preceded by commitment. An informal or ad hoc decision by the CAE and staff to transform internal audit can result in a directionless effort. A formal strategic plan should embrace the need and desire to change. Aspirations and expectations of stakeholders should be solicited and form the basis for this vision. Of course, if stakeholders are not enlightened to internal audit’s potential value, their expectations will likely be constrained. The conversation must be open and candid, and internal auditors must have a thick skin if the assessment of current performance in not flattering. Open stakeholders’ eyes to emerging practices in the internal audit field before you settle on the direction internal audit will take to address their needs.
2. Invest in relationships.
The most critical component of “trusted advisor” is trust, and trust depends on a solid relationship. The CAE cannot alone build and sustain relationships. The entire internal audit team must be invested in the process. What gets measured gets done, so craft departmental and individual performance metrics around organizational relationships.
3. Expand the emphasis of internal audit reports.
No transformation will get very far when limiting the emphasis to strategy. Ultimately, it is the tactical initiatives that will define its success. One place where internal audit departments can make real progress is in the transformation of reporting. Too many internal audit reports remain focus on negative results from the past. Assurance should be accompanied by insight. I encourage internal auditors to open their audit reports with an overview of management’s accomplishments – observations on strong practices or results. Once a proper tone has been set, we can share findings and recommendations for improvements in a non-accusatory and constructive manner. Finally, I suggest closing the report with an appendix of corporate or industry leading practices for management’s consideration. While all of this may not sound very transformational, it signals a different approach that management will appreciate, and audit committees will find constructive.
4. Connect the dots.
One of the most common concerns of audit committee members is that internal audit is reluctant to summarize its body of work in a “what does it all mean” way. Some call this “connecting the dots.” In other words, if internal audit has issued 30 internal audit reports over the past year, how well controlled do they believe the company is? Some refer to these as opinions on the overall effectiveness of controls or risk management. Whatever it is called, it ultimately provides insight. Such assessments/opinions can prove valuable to management and the board. Naturally, we must qualify such opinions or assessments based on the overall scope of our work, but don’t underestimate the value they provide to stakeholders.
5. Continuously back up words with deeds.
I have offered two bold strategic moves and two tactical ones often seen in internal audit transformational initiatives. Whether your strategy aligns with these, there is one overarching imperative that will define success or failure. Chief audit executives and their staff must take a long-term view of transformation and continuously back up words with deeds. The temptation to slide back into a traditional mode will always be present. But once a course is set, stick to it. Be the agent of change in your department that you will recommend for others.
I welcome your thoughts and recommendations on bold steps internal audit can take in transforming itself to better serve stakeholders.