Lets Harness the Power of Internal Audit! Liz Sandwith CFIIA Chief - PowerPoint PPT Presentation

Let’s Harness the Power of Internal Audit! Liz Sandwith CFIIA Chief Professional Practices Advisor, Chartered IIA

“Cutting Edge internal audit can help businesses deal with a wide variety of issues Harnessing the power outside of the compliance of internal audit arena – from data privacy and automation, to political uncertainty and reputation risk”

Harnessing the Power of Internal Audit ancial Services Code Three simple aims: 1. Help audit committees, Heads of Internal Audit and boards to work more effectively together 2. Promote the vital work that internal audit does 3. Encourage better corporate governance

Harnessing the Power of Internal Audit – key questions 1. What is internal audit’s role and mandate? “ Without effective interpersonal and 2. What is internal audit’s scope? communication skills auditors are unlikely • workplace culture to be able to clearly convey the value of • communications risk and reputation their findings and recommendations and • political uncertainty persuade management to take the • automation and digitalisation appropriate actions.” 3. How should internal audit be resourced? “The relationship between the audit 4. What is the relationship between the audit committee and the HIA is of primary committee and internal audit? importance. For it to work well, the HIA and audit committee chair need to be able to 5. Are all risks being managed? speak openly to each other through both 6. How should internal audit’s recommendations formal channels and informally.” be monitored? “ Internal audit should also provide the audit 7. How should internal and external auditors work committee with assurance on how well risk together? is governed across the entire enterprise, including how all lines of defence are 8. How should the quality of internal audit’s work operating.” be assessed?

The ways in which the board can harness the power of internal audit • Internal audit is potentially one of the most powerful tools in the audit committee’s armoury. • When properly resourced, positioned and targeted, professional internal audit provides the kind of insight that boards need to make effective decisions, the role of the Audit Committee in acting as a ‘bridge’ between internal audit and the Board is fundamental in harnessing the power of internal audit. • Internal audit can provide independent assurance over how well the business is managing its risks, taking advantage of fast-moving opportunities and whether its corporate governance processes are operating effectively. • The positioning and reach of internal audit and the ability to ‘tell it how it is’ are as important as the ability to audit cultural issues. • Internal audit’s role as the inside-outsider is the key to success when providing culture assurance.

Harnessing the Power of Internal Audit What is internal audit’s role/mandate? And what is internal audit’s scope? The audit committee should see the scope of internal audit’s role as unrestricted. That does not mean unstructured. In consultation with their audit committees, HIAs generally develop a risk-based, strategic audit plan (normally spanning three to five years) and an annual audit plan with contingency built in to manage emerging risk areas and unexpected events.

Internal Audits Role and Mandate • Internal audit’s role is to help the board and executive management protect and enhance the assets, reputation and sustainability of the organisation. • Internal audit adds most value when they look beyond financial risks and statements to consider wider issues such as the organisation's reputation, growth, its impact on the environment and the way it treats its employees. • Internal audit should have the authority to cover the full portfolio of strategic risks that the organisation faces – for instance, cultural, strategic, operational, reporting and compliance – to provide formal assurance audits and advisory activities as and when required. • Internal audit does this through a combination of assurance and advisory and consulting activities. • For internal audit to be effective, however, the mandate of the internal audit function must be clearly defined, agreed to by all stakeholders, and approved by the board and audit committee.

Internal Audits Charter and Scope Internal audits scope Internal audits charter • In recent years the scope of internal audit • To operate effectively, internal audit’s role has widened massively to mirror the risks should be mandated in a formal internal and opportunities that a dynamic and audit charter. The importance of the rapidly digitalising world presents. Charter is documented in the IIA Standards for the profession • The days when internal audit focused solely on controls over financial reporting • The charter gives the audit function the are gone. audit committee’s formal backing to operate anywhere in the business. • The revised UK 2018 Corporate Governance Code continues this trend by widening audit’s scope further to pay • The Charter will be tailored to the explicit attention to culture risk, for organisation’s unique structure, range of instance. activities, market sector, geographical locations and strategic and operational • Indeed, in the Code and the accompany risks. document Board Effectiveness Guidance the word culture is mentioned 40 times • Reviewing the charter on a regular basis along with reference to sources of helps the audit committee and internal audit assurance to the Board around the culture of the organisation one such source of to stay tuned in to the changes and assurance is internal audit. emerging risks impacting the business.

Harnessing the Power of Internal Audit How should internal audit be resourced? Audit committees can pose three questions when it comes to resources: • does internal audit have the capacity to do the amount of work required of it? • does it have the capability to do the work well in terms of skills and knowledge? • is the audit team suitably qualified? Without effective interpersonal and communication skills auditors are unlikely to be able to clearly convey the value of their findings and recommendations and persuade management to take the appropriate actions.

Harnessing the Power of Internal Audit What is the relationship between the audit committee and internal audit? The relationship between the audit committee and the HIA is of primary importance. For it to work well, the HIA and audit committee chair need to be able to speak openly to each other through both formal channels and informally.

What is the relationship between the audit committee and internal audit? • Many audit committee chairs consider their head of audit to be a trusted advisor – someone who can act as a sounding board for the committee and speak with authority and objectivity about the entire business and the risks it faces • The audit committee should see the scope of internal audit’s role as unrestricted. That does not mean unstructured. • In consultation with their audit committees, HIAs develop a risk-based, strategic audit plan (normally spanning three to five years) and an annual audit plan with contingency built in to manage emerging risk areas and unexpected events. • Audit committees can/should pose three key questions when it comes to internal audit resources: • Does internal audit have the capacity to do the amount of work required of it? • Does it have the capability to do the work well in terms of skills and knowledge? • Is the audit team suitably qualified?

Harnessing the Power of Internal Audit Are all risks being managed? Internal audit should also provide the audit committee with assurance on how well risk is governed across the entire enterprise, including how all lines of defence are operating. Done properly, this process can help the organisation develop a more robust risk culture in line with the aims of the revised UK Corporate Governance Code. The audit committee should support this culture of continuous improvement in risk governance by ensuring that this wider remit is both enshrined in the charter and that the task is given adequate resources. managed?

Risk in Focus 2020 – this year’s hot topics 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Harnessing the Power of Internal Audit How should internal audit’s recommendations be monitored? When management fails to implement such actions within an agreed timeline, or where the measures have been ineffectively carried out, the HIA may bring the issue to the attention of the audit committee – especially when management is taking on an unacceptable level of risk. When the audit committee feels that management is not implementing agreed actions, it should step in and invite the relevant directors and managers to a meeting to resolve outstanding issues. Where necessary, this should include inviting them to a meeting of the audit committee.