The recent financial crisis and our industry responses have produced a surprising misconception – that risk is the opposite of reward. It is not – loss is the opposite of reward. Risk represents the possibility that a loss or reward will occur. For too long, audit leaders have been relegated to the tactical execution of the annual audit plan, however they are well-suited to provide risk insight given their unique visibility across the organisation’s activities. For audit executives, this point marks a critical distinction from the traditional audit role.
“Internal audit's ultimate value will be determined by strategic contributions to the business.”
Business success will be determined by risk intelligence at the strategic level rather than risk aversion on a tactical level. So too, internal audit's ultimate value will be determined by strategic contributions to the business rather than tactical accomplishments alone. Amid the economic uncertainties facing financial institutions and the mounting pressures bearing down on internal audit functions, this much is certain: audit executives have a unique opportunity to assume and/or solidify their role as a strategic business partner to the CEO and CFO.
Those who leverage this opportunity through strategic risk management endeavours, continuous auditing activities, board committee relationships and other strategic priorities[i] can help lead their companies to greater success while enjoying more rewarding career opportunities. Given the regulatory and economic conditions particularly for financial institutions, as well as the recent post Sarbanes-Oxley focus on internal controls management, all internal auditors will need to do more work with fewer resources. And on top of this, they must conduct their activities in increasingly complex data environments and work with operational partners whose demands for real-time audit and risk information are swiftly growing.
A critical juncture
Speaking to CEOs and CFOs about their top needs is a sure way to assess the current state of internal audit, the challenges that keep C-suite executives awake at night help explain why audit executives face a critical juncture. CEOs and CFOs say that they want their internal audit leaders to cut costs, reduce headcount, teach the business how to take ownership of internal controls monitoring, reduce compliance costs, 'find money - fast.' enable real-time auditing and risk management, redeploy current internal audit staff and, above all, add value. These demanding and, in some cases, seemingly contradictory requests should sound familiar to anyone who has served as a senior internal audit executive in recent years.
Efficiency demands confront everyone
The vast majority of CAEs and audit executives face a similar set of challenges that require them to ply their craft with greater efficiency and effectiveness. Addressing these widespread challenges, as The IIA President and CEO Richard Chambers laid out in a keynote address, requires numerous steps, including the following: aligning internal audit coverage to meet new expectations; realigning skills to address new requirements; coping with diminished resources; demonstrating value and adding to the bottom line; maintaining stature with the audit committee; and perhaps the most important: leveraging technology to achieve greater efficiencies.
Why is the final priority so important? Because technology can help internal audit functions achieve each of the other priorities. "When internal audit uses analytics and automation, it demonstrates its value as a highly effective and efficient contributor to the company's overall risk management program and its bottom line," notes Peter Millar, Director of Technology Application, ACL Services Ltd. and member The Institute of Internal Auditors advanced technology committee.
For example, BNP Paribas uses ACL technology to interrogate large data files and assess the rating model of corporate customers. In doing so, they verify the relevancy of each of these models. Previously a two-day task, using technology these results are now generated in a matter of hours. Furthermore, the solution automatically creates an audit trail for the user, mitigating the risk of non-compliance. BNP Paribas can see financial transitions across the business and highlight potential control point failures to generate a more accurate picture of corporate risk. Whether or not the current risks confronting CAEs today turn out to be rewards or losses tomorrow depends, largely, on how effective - and sustainable - their responses are today.
John Verver is the VP of Services and Product Strategy at ACL Services Ltd.
Verver has been involved in audit technology for over 30 years and an acknowledged thought leader on data analytics, continuous auditing and continuous monitoring. Verver is a frequent speaker at global conferences and was a key contributor to The IIA's Global Technology Audit Guide: Continuous Auditing. Prior to ACL, he spent 15 years with Deloitte.