Evolution or irrelevance: Internal Audit at a crossroads

By Terry Hatherell

In a changing environment, organisms must adapt or face extinction. It’s a rule of survival that is also true for organizations. New methods, markets, technologies, regulations, and risks pose a constant existential threat—especially to the Internal Audit function. What is it to do?

Evolve or face irrelevance

Chief Audit Executives (CAEs) are aware of the threat, which is compounded by the fact that many feel they don’t make an impact or have influence within their organization. In fact, when Deloitte¹ recently surveyed more than 1,200 CAEs from 29 countries, including 99 in Canada, we were stunned by the revelation that only 37 percent of Canadian CAEs surveyed believe their functions make a strong impact and have strong influence in their organization. A further eight percent of Canadian CAEs believe their functions have little to no impact and influence. They’re struggling to gain recognition from their own organization and to demonstrate the value they bring to the table.

The challenge is therefore clear: Internal Audit must change significantly if it wants to make more of an impact on its own organization, gain influence within it, and be not only relevant but sought out.

The good news is that impact and influence can be increased. In a recent Deloitte publication , we identify nine ways for CAEs to do so. These include quick wins, like building relevant skillsets and modernizing reporting to be more dynamic and visual, as well as long-term strategies, like introducing innovative solutions and developing a brand identity for Internal Audit.

By building these strategies into the function, CAEs will be better able to make the case that Internal Audit can be counted on to provide unique, relevant, and impactful insights. Its value proposition will become clearer, enabling the organization to more fully appreciate Internal Audit’s value, in turn triggering a snowball effect of increasing relevance and thereby influence.

Nine ways to strengthen Internal Audit’s impact and influence in the organization

Addressing the skills gap

A key way for Internal Audit to enhance the impact it makes is by developing or attracting relevant and specialized skills. The majority of CAEs we surveyed identified a need to strengthen their team’s skillsets in order to meet current stakeholder expectations, let alone future demands.

Skills in data analytics, specialized IT, and innovation were identified as most in demand. Unfortunately, these skills—particularly analytics and IT—are in high demand across industries, making it a challenge for Internal Audit to recruit and retain. To build these skills, 30 percent of CAEs expect to hire analytics experts, while 69 percent expect to train existing staff. Even so, it’s clear that Internal Audit is in the midst of a talent crunch.

To deal with this challenge, some CAEs are looking to alternative talent models, like auditor rotation and guest auditor programs. The benefits of these programs are twofold: not only does IA gain access to skilled talent, but these guest and rotation auditors offer a unique perspective that can strengthen the team. Other CAEs expect to work with co-source or outsource partners in the coming years to gain access to specialized skills.

Making innovation a priority

It’s often said, “If you’re not moving forward, you’re moving backward.” In other words, maintaining relevance in business requires constant innovation. CAEs have identified data analytics, predictive analytics, and risk anticipation as the areas of innovation most likely to affect their teams.

Predictive analytics and risk anticipation are especially valuable as they provide the ability to offer foresight rather than the traditional backwards-looking insight. Internal Audit’s ticket to renewed and lasting relevance is becoming an organization’s crystal ball, helping stakeholders prepare for the future and develop strategies to better manage uncertain risk events.

Mining organizations, for example, have made great use of predictive safety analytics, using seemingly uncorrelated data to make predictive decisions and improve employee safety. Other organizations make use of predictive project analytics, comparing current projects against a database of thousands of previous projects to predict success and identify project areas that require strengthening. Internal Audit has unique access to internal data; leveraging analytics can allow it to identify trends and provide the kinds of insights to stakeholders that no other function can.

It’s clearly time to embrace analytics, yet only a mere five percent of Internal Audit functions say their capabilities are advanced—58 percent have only basic analytics capabilities. Theirs must be enhanced as soon as possible.

Demonstrating Internal Audit’s value, building influence, and remaining relevant is a multi-step process, one that requires IA to take bold action on areas such as talent and innovation. Now more than ever, in the face of constant and dramatic change, stakeholders need foresight and perspectives that anticipate risk. Internal Audit has the potential to be an invaluable source of insight for its organization. It will of course require investment in resources and significant change, but there really is no other answer.

For Internal Audit, the solution is to evolve—or face extinction.

To read more, check out our Canadian Chief Audit Executive Survey results.

^{1 Nine ways to strengthen Internal Audit’s impact and influence in the organization, Deloitte, 2016}

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