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WORLD-CLASS INTERNAL AUDITING
Transcript of WORLD-CLASS INTERNAL AUDITING
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WORLD-CLASS INTERNAL
AUDITING
Norman Marks
2019
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MATTERS TO……….
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GLOBAL AUDIT COMMITTEE SURVEY:
Fewer than half of the 1,800 respondents
are satisfied that internal audit delivers the
value to the company it should (45%), and
that the internal audit plan properly
focuses on the “critical risks to the
enterprise” (49%)
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“… expectations have risen, and all
internal audit functions need to rise to this
new floor: providing assurance on a
broader range of critical risksbroader range of critical risksbroader range of critical risksbroader range of critical risks and clearly
communicating deeper insights.”
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Internal audit mission
“To enhance and protect
organizational value by providing
stakeholders with risk-based,
objective and reliable assurance,
advice and insight.”
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WHAT MATTERS TO THE BOARD AND
EXECUTIVES?
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� Accounts payable
� Payroll
� Receiving
� Theft and fraud
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DREW STEIN, PROFESSIONAL CHAIR
AND DIRECTOR
”Almost all of IA findings are mundane
operational compliance issues”
- July 2015
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WHICH RISKS MATTER?
� Risks to the achievement of objectives
� The objectives of the enterprise as a
whole
� The risks that matter to the board,
CEO, and the executive team
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ENTERPRISE RISK-
BASED AUDITING
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WHAT MATTERS TO THE BOARD AND
EXECUTIVES? RISKS TO:
� Revenue targets
� Earnings targets
� Market share
� Major projects
� Reputation
� And so on……
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UNDERSTAND THE BUSINESS
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WHAT ARE THE RISKS THAT MATTER?
�What are the organization’s objectives?
�What are the risks to those objectives?
�What are the risks of today and
tomorrow?
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WHAT ARE THE RISKS THAT MATTER?
�What keeps you up at night?
�What could go wrong?
�What has to go right?
�Where do you spend your time?
�Are your objectives at risk?
�What is on the agenda of the board?
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HOW TO IDENTIFY THE RISKS?
�ERM
�Executive interviews
�Operational reports
�Workshops
� IA brainstorming
�Listen and observe!
�Read and think!
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Strategic
Financial
Information Technology
HumanResources
Accounting &Reporting
IntegrityOperations
•Strategic Planning•Capital Investment•Corp. Organization•R&D
•Acquisitions•Divestitures/Closures•Manufacturing Strategy•Functional Location •Financial Planning &
Modeling
•Risk Management - Insurance•Risk Management - Interest Rates
•Investments•Financing
•Liquidity/Cash Flow
•Credit/Bad Debts
•Performance Management
•SEC Reporting
•Financial Forecasts
•Tax Accounting & Reporting
•Management Reporting
•Reputation
•Management Fraud
•Employee/Theft/Fraud
•Illegal Acts
•Resource Misuse
•Ethics
•Brand Image
•Tone At The Top
•SG&A•Capital Projects•Quality•Customer Credits/Rebates•Inventory Management•Procurement
•Training
•Perf/Rewards Alignment•Availability of Skilled Staff
•Communications•Morale and Job Satisfaction
•Leadership•Salary Inflation
•Knowledge Assets•Empowerment
•Access•Availability•Continuity
•System Integrity•Technology Infrastructure
•Tech Development & Integration•IT & Business Strategic Alignment
•Outsourcer Management•Cost Control
•Safety•Environmental Compliance•Govt. Compliance•Reliability•Operating Costs•Sales and Marketing
•Contract Compliance•Capacity Planning•Engineering•Repair Services
Environment•Political
•Legal
•Regulatory
•Business Interruption
•ExternalTheft/Fraud/
Illegal Acts
•Business Practices
A “Working” Inventory of A “Working” Inventory of A “Working” Inventory of A “Working” Inventory of Business Business Business Business Risks, for use by management Risks, for use by management Risks, for use by management Risks, for use by management
and internal audit on a periodic basisand internal audit on a periodic basisand internal audit on a periodic basisand internal audit on a periodic basis
A “Working” Inventory of A “Working” Inventory of A “Working” Inventory of A “Working” Inventory of Business Business Business Business Risks, for use by management Risks, for use by management Risks, for use by management Risks, for use by management
and internal audit on a periodic basisand internal audit on a periodic basisand internal audit on a periodic basisand internal audit on a periodic basis
•Innovation
Customers•Customers’ sales
•Planning
•Reliability
•Relationships
•Contracts
•Standards and
Expectations
•Customer viability
Suppliers•Supply
•Pricing
•Quality
•Relationships
•Billing
•Logistics
•Risk Management – Foreign Exchange
Rating Agencies•Maxtor credit
•Vendor terms
(guarantees,
advance
payments)
•Workforce management
Technology
•Product
Obsolescence
•Tax Strategies
•Debt Compliance
•Lease Compliance
•Statutory Reporting
•Analyst Communications
Competitors
•IP Protection
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CAN WE REACT WITH AGILITY?
� Flexible planning
� Flexible staffing
� Prompt information
� Short, quick steps
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AGILE AUDIT PLANNING
�How often should we update the audit
plan?
�Update at the speed of the business
�Update at the speed of risk
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Auditing at the Speed of Risk!
“Internal auditors working from risk-based
annual plans…. are increasingly finding
themselves addressing yesterday's challenges.”
“Audit plans and coverage should constantly
evolve as new, potential risks surface.”
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HOW DO WE MONITOR RISKS?
�Listen
�Read management reports
�Read industry news
�Get out into the field
�What is on management’s agenda?
�What is on the board agenda?
�Think for yourself!
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WHAT IS AN EFFECTIVE AUDIT REPORT
�Communicates effectively
�Gets the message across to the speed-
reading executive
�Eliminates the unnecessary to focus
attention on the essential
�1 page or less
�Multiple levels of communication
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“The true worth of internal audit is not
measured in the weight of after-the-fact
recommendations, but in the ability to
provide just-in-time advice and
influence positive change.”Protiviti
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WHAT NOTNOTNOTNOT TO DO…..
� Write what you want to say rather than
what they need to hear
� Use the audit report as documentation
� Waste time and money – yours and
theirs
� Bury value in a mountain of waste
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WHAT IS AN EFFECTIVE AUDIT REPORT
�A communication that is read and acted acted acted acted
onononon right away
�A communication that mattersmattersmattersmatters!
�Says what the stakeholder needs to knowneeds to knowneeds to knowneeds to know
and no more
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January 15, 1995
Audit of Derivatives Trading
• Are there any risk issues of significance to the Audit Committee
or executive management? YES/NO
• Are there any outstanding major internal control findings
meriting Audit Committee or executive management attention?
YES/NO
Distribution:
Audit Committee
Executive and Operating Management
Communicate what they need to know
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THE AUDIT OPINION
“The AFE process does not meet the needs of
the organization. Decisions are not timely and,
as a result, business opportunities are lost –
rendering null the original business
justification. In addition, valuable executive
time is expended at the cost of attention to
business strategies and execution.”
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OUR ROLE AS PRACTITIONERS
1. Focus on providing assurance that matters,
on what matters, when it matters
2. Enterprise risk-based auditing
3. Communicate the results of our work in
business terms, effect on corporate
objectives
4. Skate to where the puck is going to be
5. Find a way to use technology ourselves
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IIA Internal Audit Principles
� Provides risk-based assurance.
� Is insightful, proactive, and future-
focused.
� Promotes organizational improvement.
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CAN YOU HELP THE BUSINESS MANAGE
AT SPEED?
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You have yet to
perform an audit I
wouldn’t gladly
pay for!
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Norman helps us
stay efficient
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Internal audit
provides Tosco
with a
competitive
advantage
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1. INSERT KEY INTO IGNITION
2. SHIFT INTO DRIVE
3. PRESS FOOT FIRMLY ON THE
THROAT OF MEDIOCRITY
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THANK
YOU!
Norman Marks, CPA, CRMA
Author; Evangelist for Better Run Business;
OCEG Fellow; Honorary Fellow of the
Institute of Risk Management
http://normanmarks.wordpress.com/
Twitter: @normanmarks