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Government Internal Auditor’s Conference
The Robots are Coming!!!
The Robots are Coming!!! Here
How To Avoid Audit Extinction
Most companies will not be around
before their 50th birthday
• An EY report suggests that almost half of
today's leading organizations will not
survive another decade.
• Much of this decline is driven by
companies relying on old remedies to cure
new corporate challenges.
• But savvy leaders are recognizing that the
ideal treatment is innovation through
corporate venture capital
• Internal Auditors need to
envision new ways to add value
to their organization, and the
profession as a whole.
The IIA Says that…
• Perceived as a threat, disruption is
actually a great growth opportunity.
• Disruption always grows markets, but it
also always transforms business models.
• Gilbert’s research showed how executives
who perceive threats are rigid in response
• Those who see opportunities are
expansive.
Embrace the Disruption
Ask Yourself these Questions to
Avoid Audit Extinction
Kodak’s Downfall Wasn’t About
Technology
• What business are we in
today
• What new opportunities
does the disruption open
up?
• What capabilities do we
need to realize these
opportunities?
• Their failure is usually an inability to truly
embrace the new business models the
disruptive change opens up.
• Kodak created a digital camera, invested in the
technology, and even understood that photos
would be shared online. Where they failed was
in realizing that online photo sharing was the
new business, not just a way to expand the
printing business.
• “The bigger question is not AI. It’s economics.”
Embrace Disruption - Companies often see the
disruptive forces affecting their industry.
• While Kodak stagnated and ultimately stumbled, Fuji aggressively
explored new opportunities, creating products adjacent to its film
business, such as magnetic tape optics and videotape, and
branching into copiers and office automation, notably through a joint
venture with Xerox.
• Today the company has annual revenues above $20 billion,
competes in healthcare and electronics operations and derives
significant revenues from document solutions.
Fuji was a distant second in the film business to Kodak.
Technical Skills
Do You Understand Your Business
What is a Company?
Where Can I Make An Impact
[CATEGOR
Y NAME] Regulatory
Operations
[CATEGOR
Y NAME]
[CATEGOR
Y NAME]
[CATEGOR
Y NAME]
[CATEGOR
Y NAME]
• One of the biggest concerns is whether AI
might eliminate many jobs and what that
might mean to people both economically
and personally. Take truck driving, the
world’s most common profession. More
than 3 million people in the U.S. earn their
living driving trucks and vans. Consulting
firm McKinsey predicts that one-third of
commercial trucks will be replaced by self-
driving vehicles by 2025.
Employment
​By now, internal auditors may be asking themselves, “Is AI going to take my job?” After all,
an Oxford University study rated accountants and auditors among the professionals most
vulnerable to automation.
Actually, AI may be an opportunity, says IDC’s David Schubmehl. He says many of the
manual processes internal auditors review are going to be automated. Auditors will need to
check how machine learning algorithms are derived and validate the data on which they are
based. And, they’ll need to help senior executives understand AI-related risks.. “Auditors
will help identify and certify that machine learning and AI applications are being fair.”
Using AI to automate business processes will create new risks for auditors to address, says
Deloitte & Touche LLP’s Will Bible. He likens it to when organizations began to deploy
enterprise resource planning systems, which shifted some auditors’ focus from reviewing
documents to auditing system controls. “I don’t foresee an end to the audit profession
because of AI,” he says. “But as digital transformation occurs, I see the audit profession re-
evaluating the risks that are relevant to the audit.”
The Jobs Question in Internal
Audit
• Questions of risk, governance, and control are where internal auditors come into the
picture. There are similarities between deploying AI and implementing other software
and technology, with similar risks, notes Will Bible, audit and assurance partner with
Deloitte & Touche LLP in Parsippany, N.J. “The important thing to remember is that AI
is still computer software, no matter what we call it,” he says. One area where internal
auditors could be useful, Bible says, is assessing controls around the AI algorithms —
 specifically whether people are making sure the machine is operating correctly.
• QuantaVerse’s McLaughlin says internal auditors could take AI even farther by
applying it to areas such as fraud investigation and compliance work. For example,
rather than relying on auditors or compliance personnel to catch potential anti-bribery
violations, internal audit could use AI to analyze an entire data set of expense reports
to identify cases of anomalous behavior that require the most scrutiny. “Now internal
audit has the five cases that really need a human to understand and investigate,”
McLaughlin says. “That dramatically changes the effectiveness of an internal audit
department to protect the organization.”
AI in IA
• The key there is making sure a person is still in the loop, Bible says. “The nature of AI
systems is you are throwing them into situations they probably have not seen yet,” he
notes. A person involved in the process can evaluate the output and correct the
machine when it is wrong.
• Bible and McLaughlin both advise internal audit departments to start with a small
project, before expanding their use of AI tools. That goes for the organization, as well.
Organizations first will need to take stock of their data assets and get them
organized, a task where internal auditors can provide assistance.
• For audit executives such as Gurman, the objective is to get up to speed as fast as
possible on AI and all its related risks, so they can educate the audit committee and
the board. “There is a lot of unknown,” she concedes. “What risks are we bringing
into the organization by being more efficient and using robots instead of human
beings? Use of new technologies brings new risks.” ​​
Building Intelligence
As an Auditor, everything you say and do sends
a message and has impact.
•What Do You
Know About
Our
Business?
How To Beat the Robots
• Be an Advisor
• Audit the Strategy
• Understand Risk
• Quantify Impact
Modern internal auditing, to be successful,
must be grounded on management support
and acceptance and on imaginative service to
management . . . . . The auditor must mount
continuing campaign to sell his product to
executive management and the products he
sells must be of the quality that will capture
and keep management’s interest
Larry Sawyer . . . . . . . 1973
Time to Sawyer Up
Where Do You Sit?
 Look for Impact
 It is there.
 Be realistic
 Dialogue with management
 Emphasize in department
 Monitor
 Report
 Recognize
You Can Do It
Mikefaud1@msn.com

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The Robots are Coming!!! How To Avoid Audit Extinction כנס IIA ישראל 4.1.18

  • 1. Government Internal Auditor’s Conference The Robots are Coming!!! The Robots are Coming!!! Here How To Avoid Audit Extinction
  • 2. Most companies will not be around before their 50th birthday • An EY report suggests that almost half of today's leading organizations will not survive another decade. • Much of this decline is driven by companies relying on old remedies to cure new corporate challenges. • But savvy leaders are recognizing that the ideal treatment is innovation through corporate venture capital
  • 3. • Internal Auditors need to envision new ways to add value to their organization, and the profession as a whole. The IIA Says that…
  • 4. • Perceived as a threat, disruption is actually a great growth opportunity. • Disruption always grows markets, but it also always transforms business models. • Gilbert’s research showed how executives who perceive threats are rigid in response • Those who see opportunities are expansive. Embrace the Disruption
  • 5. Ask Yourself these Questions to Avoid Audit Extinction Kodak’s Downfall Wasn’t About Technology • What business are we in today • What new opportunities does the disruption open up? • What capabilities do we need to realize these opportunities?
  • 6. • Their failure is usually an inability to truly embrace the new business models the disruptive change opens up. • Kodak created a digital camera, invested in the technology, and even understood that photos would be shared online. Where they failed was in realizing that online photo sharing was the new business, not just a way to expand the printing business. • “The bigger question is not AI. It’s economics.” Embrace Disruption - Companies often see the disruptive forces affecting their industry.
  • 7. • While Kodak stagnated and ultimately stumbled, Fuji aggressively explored new opportunities, creating products adjacent to its film business, such as magnetic tape optics and videotape, and branching into copiers and office automation, notably through a joint venture with Xerox. • Today the company has annual revenues above $20 billion, competes in healthcare and electronics operations and derives significant revenues from document solutions. Fuji was a distant second in the film business to Kodak.
  • 8. Technical Skills Do You Understand Your Business
  • 9. What is a Company? Where Can I Make An Impact [CATEGOR Y NAME] Regulatory Operations [CATEGOR Y NAME] [CATEGOR Y NAME] [CATEGOR Y NAME] [CATEGOR Y NAME]
  • 10. • One of the biggest concerns is whether AI might eliminate many jobs and what that might mean to people both economically and personally. Take truck driving, the world’s most common profession. More than 3 million people in the U.S. earn their living driving trucks and vans. Consulting firm McKinsey predicts that one-third of commercial trucks will be replaced by self- driving vehicles by 2025. Employment
  • 11. ​By now, internal auditors may be asking themselves, “Is AI going to take my job?” After all, an Oxford University study rated accountants and auditors among the professionals most vulnerable to automation. Actually, AI may be an opportunity, says IDC’s David Schubmehl. He says many of the manual processes internal auditors review are going to be automated. Auditors will need to check how machine learning algorithms are derived and validate the data on which they are based. And, they’ll need to help senior executives understand AI-related risks.. “Auditors will help identify and certify that machine learning and AI applications are being fair.” Using AI to automate business processes will create new risks for auditors to address, says Deloitte & Touche LLP’s Will Bible. He likens it to when organizations began to deploy enterprise resource planning systems, which shifted some auditors’ focus from reviewing documents to auditing system controls. “I don’t foresee an end to the audit profession because of AI,” he says. “But as digital transformation occurs, I see the audit profession re- evaluating the risks that are relevant to the audit.” The Jobs Question in Internal Audit
  • 12. • Questions of risk, governance, and control are where internal auditors come into the picture. There are similarities between deploying AI and implementing other software and technology, with similar risks, notes Will Bible, audit and assurance partner with Deloitte & Touche LLP in Parsippany, N.J. “The important thing to remember is that AI is still computer software, no matter what we call it,” he says. One area where internal auditors could be useful, Bible says, is assessing controls around the AI algorithms —  specifically whether people are making sure the machine is operating correctly. • QuantaVerse’s McLaughlin says internal auditors could take AI even farther by applying it to areas such as fraud investigation and compliance work. For example, rather than relying on auditors or compliance personnel to catch potential anti-bribery violations, internal audit could use AI to analyze an entire data set of expense reports to identify cases of anomalous behavior that require the most scrutiny. “Now internal audit has the five cases that really need a human to understand and investigate,” McLaughlin says. “That dramatically changes the effectiveness of an internal audit department to protect the organization.” AI in IA
  • 13. • The key there is making sure a person is still in the loop, Bible says. “The nature of AI systems is you are throwing them into situations they probably have not seen yet,” he notes. A person involved in the process can evaluate the output and correct the machine when it is wrong. • Bible and McLaughlin both advise internal audit departments to start with a small project, before expanding their use of AI tools. That goes for the organization, as well. Organizations first will need to take stock of their data assets and get them organized, a task where internal auditors can provide assistance. • For audit executives such as Gurman, the objective is to get up to speed as fast as possible on AI and all its related risks, so they can educate the audit committee and the board. “There is a lot of unknown,” she concedes. “What risks are we bringing into the organization by being more efficient and using robots instead of human beings? Use of new technologies brings new risks.” ​​ Building Intelligence
  • 14. As an Auditor, everything you say and do sends a message and has impact. •What Do You Know About Our Business?
  • 15.
  • 16. How To Beat the Robots • Be an Advisor • Audit the Strategy • Understand Risk • Quantify Impact
  • 17. Modern internal auditing, to be successful, must be grounded on management support and acceptance and on imaginative service to management . . . . . The auditor must mount continuing campaign to sell his product to executive management and the products he sells must be of the quality that will capture and keep management’s interest Larry Sawyer . . . . . . . 1973 Time to Sawyer Up
  • 18. Where Do You Sit?
  • 19.  Look for Impact  It is there.  Be realistic  Dialogue with management  Emphasize in department  Monitor  Report  Recognize
  • 20. You Can Do It Mikefaud1@msn.com