How to turn around an

Internal Audit Department

Thijs Smit

Madrid, October 2011

Summary

• Based on 33 years in Internal Audit

• Turned around Internal Audit in 5 companies

• There is no standard approach

• Every situation is unique

• Set of ground rules

• Success is based on tailor made design

Please join me on this interesting journey

Organizations

• TNT 19 years

• Corus 3 years

• Ahold 6 years

• SNS 5 years

• SHV 0,7 years

Evaluate 4 companies

• Company profile

• Status Internal Audit

• Action plan

• Follow up

Company profile 1990

• Former Dutch Post

• 60.000 employees

• Bureaucratic government agency

• Big changes

• Private company, listed in Amsterdam and New York

• New governance developed

• Internal Audit part of the new approach

Status Internal Audit

• Internal Audit decentralized

• 14 entities (districts and regions)

• Staff not professional

• New governance demanded centralization

Action plan

• One centralized Internal Audit

• More than 300 employees

• Fired most of the leadership

• 10 key people with in depth knowledge business

• Focus on quality improvement

• Training and education

• ISO certificate

• Execution took 2 years

Follow up

• 1993

– split between Post offices and logistics

– 100 people stayed in logistics

• 1995

– focus on cost cutting

– reduction of staff from 100 till 60

Company profile 1997

• Multy metal company

• 28.000 employees

• Steel and aluminium

• Listed company

• Long track record

Status Internal Audit

• Internal Audit used to be state of the art

• New Chief Auditor messed up

• Staff 25 people

• Framework was there

• Board wanted previous performance back

Action plan

• Entire management team stayed

• Clear leadership was needed

• Showed authority

• Improved performance immediately

• Relations with business units key point

• Performance on right level again within one year

Follow up 1999

• Merger Hoogovens and British Steel

• Corus new company with 80.000 employees

• Internal Audit staff of 80 people

• Focus on synergies

• Reduction of 25%

Company profile 2000

• Retail company with excellent supermarkets

• More than 500.000 employees

• Extremely rapid growth

• Expansion in food service

• Very decentralized company

• Operations in 30 countries

Status Internal Audit

• Excellent infrastructure

• On average good audit teams

• Decentralized structure

• Red flags too late reported

Action plan

• Some changes in leadership

• New structure developed

• Centralized approach in decentralized structure

• Reporting redesigned

• Plan executed in half a year

Follow up

2003

• Fully centralized Internal Audit

• Reduction of staff because of divestments

Company profile 2006

• Savings bank, more than 100 years old

• Insurance company, merger of several entities

• In total 8000 employees

• Weak governance

• Ambitious Board

• IPO planned

Status of Internal Audit

• Internal Audit consisted of 30 people

• Unprofessional approach

• Red flag of Dutch authorities

• Board did not support Internal Audit

• Customers dissatisfied

Action plan

• Replaced entire management team

• Support of HR to bring in new people

• Develop infrastructure

• After 2 years 70% staff turnover

• Comply with IIA standard in two years time

• Redesign took 2 years

Follow up

• 2009 financial crisis

• Centralization of all monitoring functions

• Head count of 95

• Reduced to 60 FTE

Main lessons for successful

turnaround of Internal Audit (1)

• Assess your own position

• Have sponsors in the company

• Evaluate leadership of Internal Audit

• Look for valuable knowledge in Internal Audit

• Staff should be above average

Main lessons for successful

turnaround of Internal Audit (2)

• Use momentum/flow of the company

• Fulfill expectations of key players

• Set clear targets with due dates

• Create sense of urgency

• Report on milestones

Closing remarks

• Keep on changing

• CAE is overdue in 5 till 7 years

• There are a lot of things to look after

• There are some basis rules

• However turn around is more art than science