Innovation imperative of internal audit

Internal audit innovation

The most effective way for internal audit to meet stakeholders’ evolving needs, remain relevant to the organization, and capitalize on limited resources is to continually innovate and modernize. In fact, according to respondents of Deloitte Touche Tohmatsu Limited’s most recent global Chief Audit Executive (CAE) survey, the most innovative internal audit groups believed they had the most impact and influence within their organizations.

This is not innovation for its own sake, but for the sake of the executive team, board, audit committee, business managers, risk functions, and other stakeholders, who are all coping with disruption. As the organization and stakeholders adopt new business models and technologies and face new risks, internal audit should evolve its capabilities if it is to continue to provide assurance, advice, and risk anticipation.

In addition, COVID-19 and its economic fallout have, to varying extents in various industries, upended audit plans, on-site visits, and traditional auditing methods. At the same time, most organizational activities have undergone change in the face of resource constraints and ongoing uncertainty. The suddenness and severity of this crisis has also prompted many executive teams and boards to call upon internal audit for advice regarding emerging risks and key decisions. As a result, many internal audit groups that had already been engaged in innovation have accelerated those efforts. Functions that had been only considering new ways of working are now actively adopting them.

Here we aim to illuminate ways in which internal audit leaders and functions are responding to the need to accelerate innovation as the risk landscape and stakeholder needs continue to evolve.

The leadership imperative for internal audit

Innovation does not just happen. CAE leadership is needed to secure not only the buy-in, but also the active support of the C-suite, audit committee, and other stakeholders. That leadership is needed to expand internal audit priorities beyond compliance to anticipating and advising on key risks. It’s needed to enable internal audit to develop the mindset and behaviors that generate innovation. And it’s needed to set, or at least support, new priorities for internal audit and the culture change that the function and its stakeholders will need to undergo.

Prominent elements of that mind-set and those behaviors include
the willingness and ability to:

• Engage collaboratively with a broad range of stakeholders from diverse disciplines
• Be part of a team of equals, without concern for hierarchical roles
• Undertake a task with only a hypothesis and the expectation that the desired output may change
• Work on output in a fast-paced, iterative manner, prioritizing speed over elegance without seeking perfection every time
• Make decisions based on imperfect information in real time using on-the-spot judgment rather than existing standards and clear decision rules
• Be candid with colleagues and peers about evolving processes, and help them see how they can contribute to this evolution

These elements do not characterize traditional internal audit functions, leaders, or staff. However, that was changing even before the current crisis. Many internal audit leaders and groups have been leaning into advisory roles, delivering more relevant reporting, and using advanced analytics and new talent models. A good number of internal audit groups have been adopting new ways of working, as confirmed by Deloitte research. Many have been working to better understand themselves and their approaches.

Internal audit innovation: Standing still is not an option

We believe, as do many senior executives and board members, that internal audit has more to offer their organizations in our environment of high risk and ongoing disruption. While certain activities remain essential, continual evolution means that standing still is not an option. That need to evolve presents an opportunity for internal audit to raise awareness of the function’s capabilities and to educate stakeholders about the need for internal audit innovation.