Role of Internal Audit in a performance orientated … of Internal Audit in a performance orientated...
Transcript of Role of Internal Audit in a performance orientated … of Internal Audit in a performance orientated...
Role of Internal Audit in a performance orientated
culture Experience and Challenges ahead
Conference of Public Sector Internal Auditors of
The Republic of Slovenia
Ljubljana, 20 October 2017
Overview of European Commission's IAS
• We are the European Commission’s internal auditors;
• We were founded in 2001 after the Reform process in the Commission; today we are a mature public sector audit service;
• We give recommendations, opinions and advice to Commission Directorate Generals and EU agencies;
• Our independence is provided for in our Mission Charter, adopted by the Commission.
Outline of Presentation
PART 1: Performance & Culture
o The performance challenge
o Performance – Commission's journey
o IAS Performance Timeline (Historical)
o Performance Framework & how IAS audits it – Example
PART 2: Challenges
PART 3: Future Trends
PART 1: Performance & Culture
5
The performance challenge
Every action we take delivers maximum performance and value added.
People want us to achieve results. They also want to know
how we spend the tax payer’s money.
Jean-Claude Juncker President of the European Commission
Elements
What is Performance orientated culture ?
Elements required:
• Performance framework
• "Tone at the top"
• Alignment of staff with policy objectives
Performance – Commission's journey
• Progressive development as the Strategic planning and programming/Activity-based management (SPP/ABM) cycle featured more elements of performance measurement
• 2012 Synthesis Report – the Commission commits 'to deepen the performance framework'
• 2014-2020 MFF - Management Programmes (MPs) integrated the performance framework of the programmes
• 2015 – Junker Commission sets political priorities, performance management should be extended to all of our activities – Junker 10 Priorities
2015
1989 2001 2011
European Court of Auditors'
recommendation for an internal audit function
The IAS and IACs(*) are
born
Creation of Audit
Progress Committee
2016
IAS Overall Opinion
Methodology and tools
development
IAS Certification
External Quality Review
IAS/IACs coordinated
planning
IAS " Performance Timeline" (1)
1990
DG XX Financial Control
Ex-ante visa
DG XX/2 = IA unit
Performance audits
Centralisation of European
Commission's internal audit
Abolition of IACs
IAS as sole IA function for
European Commission &
Executive Agencies
2017
IAS Certification
External Quality Review
Financial/compliance audits
(*) Internal Audit Capabilities
Example: IAS Audits on Performance Management Systems (1)
Overall objective:
To assess whether the DGs have an adequate performance management framework/system for their day-to-day operational and administrative activities (internal) and/or for the delivery of their policy objectives (external).
Scope:
the setting of objectives and performance indicators and their quality;
the arrangements in place to monitor the achievement of objectives;
The reporting on the performance of activities.
Example: IAS Audits on Performance Management Systems (2)
IAS audit conclusion The performance management system in place in the audited Services, to plan, monitor and report on the achievement of objectives need to be significantly enhanced to strengthen its effectiveness. Significant weaknesses have been identified in terms of:
a) Strategic vision and clarity of the intervention logic
b)Quality of objectives and indicators
c) Monitoring and reporting on achievement of objectives.
PART 2: Challenges for Internal Auditors in the Public Sector
• Governance issues • Reporting to whom
• Stakeholders expectations – Who are they and do we know what they think
• Internal auditor independence – Charter is essential
• Role of auditing in public sector governance (see Bibliography)
• Internal Audit Capability Model for Public Sector (see Bibliography)
• Structural/Organisational issues • Large centralised system versus decentralised, federated
network
• Coordination. Coverage of Audit Universe
• Recruitment, retention and upskilling of staff • Going beyond 'compliance' requires different skills
Centralisation of Internal audit function in 2015 • EC IAS is sole internal audit provider since 2015
(following decision to centralise the internal audit function)
• New business model for the IAS successfully implemented, including increased staffing level
Main advantages: • Economies of scale. Application of standardised audit
procedures. Reinforced centralised QAIP programme with active follow-up.
• Increased IT capability - very effective in a cyber-orientated world
Risk mitigation • Reinforced role of audited service 'correspondent' to ensure closer
ongoing relationship
PART 3: Future Trends
o IAS Performance Timeline (Future)
o Seat at the table – what does it mean
{Trusted Advisor}
o EC IAS Conference 2017 – some points to
ponder
o Business 4.0 revolution
o Impact of Globalisation and Automation as
drivers of change
IAS "Performance Timeline" (Future)
• Proactive and responsive ''3rd line of defense''
• Digitally aware IAS
• More time on analysis (e.g. big data) than traditional audit techniques
• "Seat at top table"
• Trusted Advisor
IAS Conference "Innovation & Creativity in
Internal Audit" 2017
Performance audits
Financial/compliance audits
Data analysis techniques and innovative practices
Seat at the table – Trusted Advisor?
At recent ECIIA Conference in Basle Richard Chambers
presented on 'Trusted Advisors – Leveraging trust to
foster organisational success"(21 Sept. 2017)
His new book is entitled "Trusteed Advisors – Key attributes of
outstanding Internal Auditors"
His parting thoughts in relation to "Remaining the
Stakeholders' Confidant" were:
• Internal audit must evolve, or it will perish
• Today's heroes can become tomorrow's has-beens
• The future is awe-inspiring
• Trusted advisors must continually challenge and reinvent themselves
EC IAS Conference 2017 – some points to ponder https://ec.europa.eu/info/events/internal-audit-service-conference-2017-2017-oct-05_en
• The impact of technology on innovative auditing, Robert HODGKINSON • ABCD = Artificial Intelligence (AI); Blockchain; Cybersecurity
risk and Data (big data and data analytics)
• Presentation: The impact of technology on innovative auditing – Marc Vael, President of ISACA, Belgium • Artificial Intelligence "Just like us. Only better"
• Presentation: Transformation in the Internal Audit function – Neil White "Business 4.0 revolution" (see next slide)
LEGEND
Industr ial Revolut ion
Ear ly Stage Technology
Mature Technology
Future Event
1- Robotic Process Automation Source: Industry 4.0: Challenges and Solutions for the Digital Transformation of Exponential Technologies, Deloitte AG, 2015 and Deloitte proprietary research
1700s
1st Industrial Revolution
• 1784: First mechanical weaving loom
• Introduction of mechanical production facilities with the help of water and steam power
2nd Industrial Revolution
• 1870: First assembly line
• Through introduction of mass production with the help of electrical energy
3rd Industrial Revolution
• 1969: First programmable logic control system
• Through application of electronics and IT to further automate production
BPM
Systems
Early
Stage
RPA
Early Stage Cognitive
Capable RPA1 Solutions Deployed
Widespread Cognitive Augmentation and Automation
Dependence on Global Horizontal Category MLPs – (Possibly Regulated)
4th Business 4.0
• This revolution redefines what it means to be a professional
• RPA will have commenced deployment in most large businesses by 2017
• RPA and Cognitive Automation will be ubiquitous in business by 2020
• Horizontal Machine Learning Platforms (MLPs) become ubiquitous by 2025
1-3 4.0
2015
Within 10 Years
Digitization of white collar jobs via robotic and cognitive automation, and advances in data science
have sparked the Business 4.0 revolution
We are on the cusp of “Business 4.0”
Impact of Globalisation and Automation as
drivers of change
• Globalisation:
• Free Trade Agreements. Mutual recognition of standards, both technical and ethical (e.g. origin of goods/services)
• Internal audit profession - IIA Global, 180,000 members, 170+ countries. We are a globalised profession!
• Automation: • Both a Threat and an Opportunity: Joseph Schumpeter, the "gale of creative destruction"
• Streamlined industrial processes. Example: Adidas, 'Speedfactory' in Bavaria. Only 160 persons will be employed. The upside is that the whole manufacturing process will require highly skilled people to design, plan, operate and maintain such industrial plants.
• Entering a 4th Industrial Revolution with tools which will increase our productivity but also aid our decision-making with such concepts as Artificial Intelligence and Robotic Process Automation. This is akin to moving from the 'robotised' factory to the 'robotised' office'!
• Implications: Political – Possible upsurge of populist, inward-looking views. Increased State expenditure.
Economic – New ways of raising tax revenues, to fund State expenditure. Are current systems 'fit-for-purpose'? Talk of CCCTB or innovative ways of taxing the new '"Big 4" or GAFA !
However, the globalised world is where we live and it has contributed much more to economic growth than is credited! Remember Threats and an Opportunities
Being brave & innovative - some quotes
• First is from Peter F. Drucker, "the founder of modern management".
• “If you want something new, you have to stop doing something old”
• Second from Roger Von Oech (USA author, specialising in creativity)
• “Remember the two benefits of failure. First, if you do fail, you learn what doesn't work; and second, the failure gives you the opportunity to try a new approach.”
Bibliography
• IAS 2016 Annual report to European Parliament and the Council (Art. 99.5 of the Financial Regulation) – available in all languages, including Slovenian
• http://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX:52017DC0497
• IAS 2016 Annual report – Staff Working Document Ref. 52017SC0306 to European Parliament and the Council (Art. 99.5 of the Financial Regulation) – available only in English
• http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52017SC0306
• Supplemental Guidance: the role of auditing in public sector governance, 2nd Edition, page 10: Release Date: Jan. 2012
• https://global.theiia.org/standards-guidance/Public%20Documents/Public_Sector_Governance1_1_.pdf
• Internal Audit Capability Model for Public Sector {IA-CM} (2009)
• https://global.theiia.org/iiarf/Public Documents/Internal Audit Capability Model IA-CM for the Public Sector.zip
• Driving Success in a Changing World: 10 Imperatives for Internal Audit Written By: Larry Harrington, CIA, QIAL, CRMA, CPA, and Arthur Piper
• https://global.theiia.org/iiarf/Pages/CBOK-Research-Resource-Library.aspx
• Navigating Technology’s Top 10 Risks -Internal Audit’s Role {CBOK report 2015}
• https://global.theiia.org/iiarf/Pages/CBOK-Research-Resource-Library.aspx
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