Innovation: the new imperative for internal audit

By Kristopher Wentzel, National Internal Audit and Control Certification Leader.

In a business climate of constant innovation, disruption, and evolution, the internal audit function must keep abreast of the changing risk profile and become more innovative to enhance its impact and influence within the organization.

This is among the key takeaways drawn from the findings of Deloitte’s 2018 global survey of more than 1,100 chief audit executives (CAEs), almost 100 of whom are from Canada.

The survey report notes that internal audit needs to innovate to keep pace with, and preferably stay ahead of, the issues and risks posed by new business models, processes, technologies, and third-party relationships. The innovation imperative has prompted many internal audit functions to adopt new technologies and approaches to deliver greater insights in a more efficient manner, typically resulting in internal audit having increased impact and influence within their organization.

In Canada, the percentage of survey respondents who assess their function as having a strong impact and influence grew from 37 percent in 2016 to 47 percent this year. Of course, that still leaves more than half feeling they have room to improve. Similarly, while 39 percent of Canadian CAEs believe the larger organization is “very aware” of internal audit, less than a quarter feel their function is viewed “very positively” within their organization.

While there has been progress, there is still work to do as internal audit functions journey from good to great.

The state of internal audit in Canada

The following are some of the more noteworthy results from the survey.

Impact and influence

While internal audit functions in Canadian organizations more frequently report having a “strong level of impact and influence” compared to their global peers (47 percent versus 40 percent), they lag in two key areas:

• Being viewed “very positively” by the organization (23 percent versus 33 percent); and
• Driving strong organizational awareness of their capabilities and services (39 percent, compared to 46 percent globally).

Almost half the Canadian respondents cited missing skills or talent as the key barrier to enhancing their reputation.

Is innovation happening?

Yes, but not in all internal audit functions.

Broadly defined, innovation in internal audit includes digital innovation—advanced analytics, robotic process automation (RPA), continuous auditing, visualized reporting, and the like—as well as new approaches to methods, such as applying principles and practices from agile development to internal audit work. To undertake these innovations, practitioners typically need to develop an innovative mindset, challenge historical ways of working, be adaptive to new technologies, and continually develop new skills.

Becoming more innovative begins with seeking relatively incremental efficiencies. This includes understanding the ways in which the organization is evolving, knowing which approaches and technologies can best assist, and learning how best to apply them.

Worldwide, early adopters are beginning to embrace RPA, which automates many of the repetitive manual tasks internal auditors now perform. RPA technology is top of mind for internal audit functions with nearly a quarter of global respondents reporting they have adopted, or will be adopting RPA within the next year. Those functions with the greatest impact are also reporting the use of advanced analytics, continuous auditing, and visualized reporting. However, rates of adoption of these innovations by Canadian internal audit functions continue to lag behind their global peers.

On the bright side, an area of major strength in Canada is the interest in agile methodologies. Compared to overall global survey respondents, three times as many Canadian internal audit functions are considering adopting agile methodologies.

Investment in innovation leads to impact

Similar to the global response, approximately six in 10 Canadian CAEs, regardless of size of function, expect to increase their investment in innovation over the next three to five years. Of those who believe their functions have strong impact and influence, 69 percent plan to boost this investment.

The Deloitte CAE survey makes it clear that instilling an innovative mindset and investing in new technologies and approaches pays greater dividends than just efficiency gains. The internal audit functions taking the most innovative approaches to their work are having the greatest impact and influence within their organizations. The path forward for all is clear.