Imperatives for Internal Audit in the Public Sector · Public Sector Internal Audit Stakeholders’...
Transcript of Imperatives for Internal Audit in the Public Sector · Public Sector Internal Audit Stakeholders’...
Preparing for the FutureImperatives for Internal Audit
in the Public Sector
Richard F. ChambersCIA, QIAL, CGAP, CCSA, CRMA
President and CEO
The Institute of Internal Auditors
Copyright © 2018 The Institute of Internal Auditors, Inc. All Rights Reserved.
Overview
• Competing Expectations of Public
Sector Internal Audit
• Mounting Pressure on the Profession
• Imperatives for the Next Year and
Beyond
• The Internal Audit Leader of the Future
• Parting Thoughts
Copyright © 2018 The Institute of Internal Auditors, Inc. All Rights Reserved.
Public Sector Internal Audit Stakeholders’ Expectations
Management
• Expertise
• Advice/insight
• Foresight
• Risk-centric focus• Cybersecurity
• Public scrutiny
• Operations
• Technology
Oversight Bodies,
Public and Media
• Independence
• Proficiency
• Transparency
• Assurance
• Focus on compliance,
efficiency, integrity
Audit Committees
• Assurance
• Expertise
• Relationship acumen
• Communication
• Coordination with
other risk/control
functions
Achieving Alignment
Pressure Is Mounting
• Competing stakeholder expectations
• The “theater of politics”
• High degree of public scrutiny
• The volatility of risks
• Disruption driven by technology
• Looming uncertainties – Brexit
• Pressure on independence and objectivity
1. Maintain a Laser Focus on the
Horizon.
2. Take the Offense in the War for
Talent.
3. Sharpen and Deploy the Best
Navigation Tools.
4. Be a Beacon for Transformation.
5. Sail Toward the Storm.
Imperatives
For the Next Year
And Beyond
Maintain a Laser Focus on the Horizon
Maintain a Laser Focus on the Horizon
The Challenge for Internal Audit
• Risks are emerging at warp speed.
• Focusing on the horizon is essential to avoiding the post-crisis question:
“WHERE WERE THE
INTERNAL AUDITORS?”
The Imperative
• In focusing on the horizon:
– Continuously assess risks.
– Identify and swiftly respond to emerging risks.
– Deploy “Doppler Radar” to identify approaching storms.
Focus on the Horizon: Strategies for Success
Key Indicators of Emerging Risks
• Economic forecasts
• Geopolitical risks
• Known strategic business risks facing your organization
• New initiatives being planned
• Legislative and regulatory outlook
• Threats or opportunities facing other government entities
• Risks emerging as headlines via traditional or social media
Understand the Challenge
• How dynamic is your sector?
• Open a dialogue with management and other stakeholders.
– You need stakeholder support to focus on the horizon.
Take the Offense
In the War for Talent
Take the Offense in the War for Talent
The Challenge for Internal Audit• New risks mandate expertise in multiple areas.
• Experts are in high demand.
• And they demand the best opportunities.
The Imperative
• To engage in the war for talent:
– Understand stakeholder needs and expectations.
– Assess existing competencies.
– Develop and deploy strategies, including
• Talent sourcing
• Talent development
• Succession
– Continuously motivate and reward talent.
Gaps in Talent Yield Consequences
72%
Percent of CAEs who believe they have talent gaps to fill
62%
Perform work only to the extent of internal
competencies
37%
Delay work until competencies are
developed
28%
Exclude area from audit plan
In acknowledging talent gaps, CAEs say they are somewhat, very or extremely likely to:
The War for Talent: The Current Battlefield
Skills Being Actively Recruited
1 Analytical/Critical Thinking
2 Communication
3 Business Acumen
4 Data Mining and Analytics
5 Accounting and Finance
Skills Most Difficult to Recruit
1 Cybersecurity and Privacy
2 Data Mining and Analytics
3 Industry-Specific Knowledge
4 Innovative Thinking
5 Persuasion and Collaboration
What Skills Are in Demand? How Hard Are They to Find?
Sharpen and Deploy
The Best Navigation Tools
Sharpen and Deploy the Best Navigation Tools
The Challenge for Internal Audit
• Pace of growth has slowed.
• Environment is more complex.
• Expectations are at an all-time high.
The Imperative
• Audit smarter, better, and faster – and
continuously deliver impact.
• Deploy leading technologies and practices
to enhance capacity, effectiveness, and
value.
Deploy the Best Navigation Tools
Implementation of Technology
Solutions Full or Partial
1 Electronic workpapers 77%
2 Data analytics 62%
3
Automation of routine internal audit
tasks (e.g. robotics process
automation)
18%
4
Automation of analysis of evidence
(e.g. automated judgement, artificial
intelligence)
13%
New technologies create agile and future-focused functions
Today’s tools of the trade: Audit management systems Data analytics
Tomorrow’s tools of the trade: Robotics Artificial intelligence (AI)
Deploy solutions that will yield dynamic results/insights
Be a Beacon
For Transformation
Be a Beacon for Transformation
The Challenge for Internal Audit
• New market, value networks disrupting at record pace.
• Established market-leading firms, products, and
alliances facing lethal risks.
• Innovation is often the only path forward.
The Imperative
• Champion transformation built on innovative
thinking/actions.
• Provide stakeholders insight into best innovation
processes/frameworks.
• Shine a light on:– Disruptive threats
– Targets for transformation
– Risks and controls throughout transformation processes
Key Steps to Building an Innovative Mindset
• Empower staff to identify problems, risks, threats.
• Analyze first: Make sure you’re solving for the right
problem.
• Understand what is driving decision to innovate.
– Technological disruption
– Shareholder, regulatory pressure
– Disruptive innovation
– Staying ahead of the competition
• Understand your corporate culture.
• Start small and benchmark.
• Innovation must fit the overall business strategy.
“According to the consulting firm
McKinsey, 70% of business
transformations fail. . . . By
inserting itself at 7 steps of the
transformation process and
addressing these risks, internal
audit can assist management in
beating the odds and achieving a
successful transformation.”
James E. Schulien
“Seven Steps to Transformation”
Internal Auditor magazine, August 2017
Sail Toward
The Storm
Sail Toward the Storm
The Challenge for Internal Audit
• Tendency to avoid controversial topics, such as:
– Executive compensation
– Legal compliance
– Corporate culture
– Harassment/misconduct (gender, ethnicity, etc.)
• Looking the other way only compounds risks.
• Some internal auditors experience “courage deficit.”
The Imperative
• Internal auditors must:– Follow the risks – wherever they are.
– Be willing to push on closed doors.
– Summon the courage to sail toward (and even chase)
the storm.
Attributes of Courageous Internal Auditors
6 attributes of courage:
– Overcome fear.
– Be passionate.
– Persevere in the face of adversity.
– Stand up for what’s right.
– Expand your horizons.
– Face suffering with dignity or faith.
Speak truth to power.
The Internal Audit
Leader of Tomorrow
The Internal Audit Leader of Tomorrow
• Genetically Risk-centric – Leading at the Speed of Risk!
– Risk-aware
– Risk-intuitive
– Embrace opportunities to enhance value.
– Risk-courageous
• Tech Savvy and Tech Fearless
– Understand innately how technology can impact and change organizations and still
have the courage to embrace and adapt to technological change.
• Incessantly Curious and Professionally Skeptical
– More than just a trait of the best; it will be table stakes to get into the game.
– Tomorrow's internal audit leaders will need to walk a fine line when it comes to
skepticism.
• Ethically Farsighted
– Understand how technology and other factors that change our world impact and
influence ethics within the organization and within themselves.
The Internal Audit Leader of Tomorrow
• Intellectually Honest
– Speaking truth to power.
– True leaders will not give in to pressure to compromise intellectual honesty for
expediency.
• Not Your Grandfather's CPA
– Accounting/finance remains the most recruited academic degree.
– In the future, internal auditors will increasingly come from nontraditional
backgrounds, such as engineering and chemistry, as demand for specialized skills
grows in parallel to changing demands on the profession.
• Cosmopolitan
– The market is increasingly global. Companies operate seamlessly around the
world.
– Internal auditors of the future will have to be cosmopolitan — familiar with and at
ease in many different countries and cultures.
Parting Thoughts
In the Future
We must be recognized
as critical to protecting
and enhancing
organizational value!
In the Past
We were focused on
controls – to ensure the
organization’s resources
were protected.
Thank You
Copyright © 2018 The Institute of Internal Auditors, Inc. All Rights Reserved.