3a 3 Repositioning Internal Audit

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Having convinced that IA is a BOON , you have to reposition it in the organization to deliver superior product ! You have lots of tips in this slide presentation !

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3a 3 Repositioning Internal Audit

  1. 1. “ Audit Customers” Expectations - Repositioning Internal Audit”
  2. 2. “ Know Your Customers” And “ Their Expectations” 2/62
  3. 3. <ul><li>Govt. Authorities </li></ul><ul><li>(Statutory Requirements) </li></ul><ul><li>Statutory Auditor </li></ul><ul><li>Share Holders </li></ul><ul><li>Board / Audit Committees </li></ul><ul><li>Sr Executive Management </li></ul><ul><li>Operational Management </li></ul>Risks, Controls, Corp. Governance, Compliance with statutes Value Adds (Bottomline / System Improvements) Corporate Masters Stake Holder focus 3/62
  4. 4. CUSTOMER OPERATING MANAGEMENT BUSINESS GROUP HEADS <ul><li>EXPECTATIONS </li></ul><ul><li>COST CONTROLS / PROFIT </li></ul><ul><li>IMPROVEMENT </li></ul><ul><li>NEWER WAY OF DOING THINGS </li></ul><ul><li>IMPROVEMENTS IN OPERATIONS / </li></ul><ul><li>BUSINESS PROCESSES </li></ul><ul><li>ASSURANCE THAT EVERY THING IS </li></ul><ul><li>‘ OK’ AT THE UNIT </li></ul>Audit Customers & Their Expectations 4/62
  5. 5. CUSTOMER CORPORATE EXECUTIVE MANAGEMENT EXPECTATIONS PROPER RESOURCE UTILISATION ARE CORPORATE GUIDELINES EFFECTIVELY FOLLOWED STATUTORY COMPLIANCE ASSURANCE THAT THINGS ARE IN ORDER Audit Customers & Their Expectations 5/62
  6. 6. CUSTOMER BOARD AUDIT SUB-COMMITTEE STATUTORY AUDITORS Cost Auditor EXPECTATIONS CORPORATE GOVERNANCE REQUIREMENTS EFFECTIVENESS OF AUDIT FUNCTION SCOPE & COVERAGE OF INTERNAL AUDIT SYSTEM COMMENSURATE WITH SIZE OF BUSINESS Verification of Cost Accounting Records Audit Customers & Their Expectations 6/62
  7. 7. Customers Expectations & the drivers 7/62 - Too much focus on this may not be appreciated by Audit committee - May overlap with other initiatives on cost reduction process improvement etc,. Value from IA (For the cost / time invested) Business Group Management <ul><li>May overlap with External Auditors </li></ul><ul><li>Too much focus would make Business Leaders unhappy </li></ul>Responsibilities & the risks faced Board Audit Committee The Balancing Act Expectation driven by Customer category
  8. 8. Customers Expectations & the drivers 8/62 Depends upon who is the “Boss” Evaluating “IA” as a function - part of Management “ Boss” <ul><li>May end up doing what external auditors want </li></ul><ul><li>IA’s individual objectives may be lost </li></ul>Comfort level in assessing the existing controls before attestation External Auditors The Balancing Act Expectation driven by Customer category
  9. 9. Problem Identifier ? (or) Complete Solution Provider? 9/62
  10. 10. AN EXTENDED ROLE <ul><li>Facilitation in implementation of Audit </li></ul><ul><li>Recommendations / Systems </li></ul><ul><li>Benefits Review – Making things happen! </li></ul><ul><li>* Achievement of audit objectives * </li></ul>10/62
  11. 11. Emerging Thrust – Assurance Role 11/62
  12. 12. “ Risk Assessment”... <ul><li>Risk Status </li></ul><ul><li>Control Evaluation </li></ul><ul><li>Gap identification </li></ul><ul><li>Recommendation for improvement </li></ul>12/62
  13. 13. The ‘five’ steps (or) components in COSO’s Internal Control Framework Monitoring Risk Assessment Control Environment Control Activities Information & Communication 1 2 3 4 5 13/62
  14. 14. Significance Likelihood <ul><li>Methodology: Probability / Impact Analysis </li></ul>“ Risk Assessment”... 14/62
  15. 15. Internal Auditor is expected to <ul><li>Facilitate Effective Risk & Control Environment in the Organisation </li></ul><ul><li>Continuously Review and suggest Improvements in this Area </li></ul>15/62
  16. 16. In the Area of Internal Consultancy 16/62
  17. 17. <ul><li>Efficiency + Effectiveness = Productivity </li></ul><ul><li>Producing a Result * Producing a desired Result </li></ul><ul><li>Doing things Right Doing the Right things </li></ul><ul><li>Both Efficiency & Effectiveness are necessary for Productivity. </li></ul><ul><li>[ Doing the Right Things in the Right Way] </li></ul>Efficiency, Effectiveness & Productivity 17/62
  18. 18. <ul><li>“ Economy” is about minimising the cost of the input resources </li></ul><ul><li>“ Efficiency” is about the relationship between outputs produced, (the goods & services) and the input resources used to produce them </li></ul><ul><li>“ Effectiveness” is about the extent to which an entity’s </li></ul><ul><li>pre-determined objectives have been achieved </li></ul>Economy, Efficiency & Effectiveness 18/62
  19. 19. Economy, Efficiency and Effectiveness Planned Inputs Planned Progress Planned Outputs (Policy Objectives) EFFICIENCY Actual Inputs (Resources Used) ECONOMY EFFECTIVENESS Process Actual Outputs (Output Achieved) Relationship between inputs, processes and outputs and between economy, efficiency and effectiveness 19/62
  20. 20. <ul><li>Risk Assessment / Internal Control facilitation </li></ul><ul><li>CSA workshops </li></ul><ul><li>Promotion of ‘Corporate Governance’ </li></ul><ul><li>Fraud prevention efforts ‘Whistle blowing’ role </li></ul><ul><li>‘ Best Practices’ sharing </li></ul><ul><li>‘ Knowledge Management’ </li></ul>Facilitation Role 20/62
  21. 21. <ul><li>Continuous ‘Benefits’ evaluation exercises </li></ul><ul><li>Status ‘escalation’ / constraints resolving </li></ul><ul><li>Survey on ‘internal’ / ‘external’ customer </li></ul><ul><li>satisfaction levels </li></ul><ul><li>Making things happen! </li></ul>Benefits Review 21/62
  22. 22. From ‘Good’ to ‘Great’ 22/62
  23. 23. 23/62
  24. 24. 24/62
  25. 25. Wish List! <ul><li>AC wants independent & objective assurance from some one other than CEO or CFO </li></ul><ul><li>The CEO wants independent assurance from some one other than CFO / Line Managers </li></ul><ul><li>The CFO wants from some one other than the Line Managers </li></ul>25/62
  26. 26. 26/62
  27. 27. 27/62
  28. 28. <ul><li>Best Practices </li></ul><ul><li>Constant bench marking / Gap Analysis </li></ul><ul><li>Adoption of Professional Standards / Quality Systems </li></ul><ul><li>Newer way of doing things </li></ul><ul><li>From ‘Customer Satisfaction’ to ‘Customer Delight’ </li></ul>“ Great” means stand out from “Good” 28/62
  29. 29. Stake Holder focus Issues to be kept in mind Assurance <ul><li>Assessment of Risks </li></ul><ul><li>Assessing Internal Controls </li></ul><ul><li>Recommending Improvement of Corporate Governance </li></ul><ul><li>Detecting & deterring frauds </li></ul><ul><li>Analysing the effectiveness of Policies & Procedures </li></ul><ul><li>Assuring Compliance with Statutory Requirements </li></ul>29/62
  30. 30. Stake Holder focus Issues to be kept in mind <ul><li>In the areas of risk assessment </li></ul><ul><li>Avoid overlapping roles </li></ul><ul><li>Understand the organisation culture and environment </li></ul><ul><li>Understand the Corporate Focus / Philosophy </li></ul><ul><li>Understand the risk appetite </li></ul>30/62
  31. 31. Stake Holder focus Issues to be kept in mind Business Value <ul><li>Analysing Operations for Efficiency & Effectiveness </li></ul><ul><li>Evaluating emerging technologies </li></ul><ul><li>Identifying opportunities to save </li></ul><ul><li>Reviewing major Projects / New </li></ul><ul><li>computer systems to help anticipate the problems </li></ul><ul><li>Business reputation, Customer service, </li></ul><ul><li>Environment, HR Practices </li></ul>31/62
  32. 32. <ul><li>Understand in the areas of adding value </li></ul><ul><li>What is value addition? </li></ul><ul><li>What are all other mechanisms / systems in place to look at this? </li></ul><ul><li>How to measure benefit out of value added recommendations </li></ul><ul><li>Above all, take the customer along and make him feel comfortable / happy at the end </li></ul>Stake Holder focus Issues to be kept in mind 32/62
  33. 33. Stake Holder focus Issues to be kept in mind On Audit Contribution <ul><li>Increase focus on preventive Audit </li></ul><ul><li>Eliminate controls in excess </li></ul><ul><li>Measure Results </li></ul><ul><li>Provide value recovery </li></ul>33/62
  34. 34. <ul><li>Best use of ‘Resources’ provided </li></ul><ul><li>Sharpen dialogue with Top Management / </li></ul><ul><li>Directors </li></ul><ul><li>Realign to meet key stakeholders expectations </li></ul><ul><li>Think & act strategically </li></ul>Stake Holder focus Issues to be kept in mind On Audit Management 34/62
  35. 35. <ul><li>Assess & Strengthen expertise for complex </li></ul><ul><li>business auditing </li></ul><ul><li>Leverage technology in high risk areas </li></ul><ul><li>Focus on enterprise risk management </li></ul><ul><li>capacities </li></ul><ul><li>Make your audit processes more dynamic </li></ul>Stake Holder focus Issues to be kept in mind On Audit Management… 35/62
  36. 36. 36/62
  37. 37. 37/62
  38. 38. 38/62
  39. 39. <ul><li>Strengthen quality assurance processes </li></ul><ul><li>Adopt ‘Best Practices’ </li></ul><ul><li>Measure your enhanced performance </li></ul><ul><li>Simplify Systems & Procedures </li></ul><ul><li>Convert into a facilitation role </li></ul><ul><li>Transform whenever you transact </li></ul><ul><li>Be part of the main stream! </li></ul>Stake Holder focus Issues to be kept in mind On Audit Management… 39/62
  40. 40. <ul><li>Audit Relationships with </li></ul><ul><li>Board & Audit Committee </li></ul><ul><li>Executive Management </li></ul><ul><li>Operating Management </li></ul><ul><li>External Auditors </li></ul>Stake Holder focus Issues to be kept in mind On Audit Relationships 40/62
  41. 41. Repositioning Internal Audit to meet Customer Expectations 41/62
  42. 42. part b usiness advisor part p sychologist part f acilitator & part t echnician ! A Skilled Internal Auditor is multifaceted 42/62
  43. 43. Organisation functional structure to facilitate comprehensive Audit coverage IA Skills / Competency : Build competencies & capabilities IA Practices : Adopt Best Practices & use successful audit methodologies IA Marketing : Effectively market IA How to ‘add’ value? 43/62
  44. 44. IA Skills / Competency Build competencies & capabilities 44/62
  45. 45. Skills Required of Internal Auditors (adapted from Birkett et al., 1999A) 45/62
  46. 46. Individual Attributes Required of Internal Auditors (to be an effective Internal Auditor) 46/62
  47. 47. Individual Attributes Required of Internal Auditors 47/62
  48. 48. Individual Attributes Required of Internal Auditors 48/62
  49. 49. Individual Attributes Required of Internal Auditors 49/62
  50. 50. IA Practices Adopt Best Practices & use successful audit methodologies 50/62
  51. 51. 51/62
  52. 52. <ul><li>Organised along business lines </li></ul><ul><li>Staffing & work environment – (Non-financial areas – Technical, Operations, Human Resources etc.,) </li></ul><ul><li>Effective use of computerised Risk assessment models </li></ul><ul><li>Risk based / process based participative audits </li></ul>Internal Audit Practices (From ‘good’ to great!) 52/62
  53. 53. <ul><li>‘ Just-in-time’ approach to audit planning (to include 30% to 40% unallocated time for strategic needs !) </li></ul><ul><li>‘ Product Wheel’ </li></ul><ul><li>Performance Measures </li></ul><ul><ul><ul><li>Post audit surveys </li></ul></ul></ul><ul><ul><ul><li>Balanced Score Card </li></ul></ul></ul><ul><ul><ul><li>Quality Improvement processes </li></ul></ul></ul><ul><ul><ul><li>Education, Certification, Learning of Team Members </li></ul></ul></ul>Internal Audit Practices (From ‘good’ to great!) 53/62
  54. 54. <ul><li>Other facilitating services </li></ul><ul><ul><ul><li>Control Self Assessment Program </li></ul></ul></ul><ul><ul><ul><li>Internal Control Awareness Program </li></ul></ul></ul><ul><ul><ul><li>Assistance / guidance in Manual developments </li></ul></ul></ul><ul><ul><ul><li>‘ Fraud’ awareness programs </li></ul></ul></ul><ul><ul><ul><li>Installation of ‘Self Audit’ processes for Business Divisions </li></ul></ul></ul>Internal Audit Practices (From ‘good’ to ‘great’!) 54/62
  55. 55. <ul><li>Shift from ‘Detective’ to ‘Preventive’ audit services </li></ul><ul><li>Audit Route selection chart </li></ul><ul><li>One page reporting </li></ul><ul><li>‘ CAATS’ usage </li></ul><ul><li>Adopting IIAs Internal Audit Standards (PPF) </li></ul><ul><li>ISO Certification for the IA function </li></ul>Internal Audit Practices (From ‘good’ to ‘great’!) 55/62
  56. 56. Continuous Alignment 56/62
  57. 57. IA Marketing Effectively market Internal Audit ! 57/62
  58. 58. <ul><li>Credibility building </li></ul><ul><li>Relationship building / track record of genuine contribution </li></ul><ul><li>Formal / Informal communication </li></ul><ul><li>Department literatures (Know about Management Audit) </li></ul><ul><li>Communication Day – Audit stalls </li></ul>Marketing the Internal Audit (Closer to Audit Customers) 58/62
  59. 59. <ul><li>Standardised ‘Power Point’ presentations on IA services </li></ul><ul><li>Articles in the In-house journals </li></ul><ul><li>Website development / maintenance </li></ul><ul><li>IA – workshops for operating staff </li></ul><ul><li>Display of Vision / Mission statements / Quality Policy IIA posters in the Division </li></ul>Marketing the Internal Audit (Closer to Audit Customers) 59/62
  60. 60. Therefore the Key Success Factors are ….. <ul><li>Clearly defined expectations </li></ul><ul><li>Strategic alignment </li></ul><ul><li>Strong communication </li></ul><ul><li>Risk & Value add focus </li></ul><ul><li>Effective Audit Technology </li></ul><ul><li>Effective Knowledge Management </li></ul><ul><li>Continuous Skill Development </li></ul><ul><li>Effective Performance measurement </li></ul>60/62
  61. 61. P D C A Cycle PLAN ACT CHECK DO 1. ORGANISE YOURSELF 2. PLAN CLEAR OBJECTIVES, PRIORITISE 3. CLEAR DIRECTION FOR EFFECTIVE EXECUTION 4. MONITOR PROGRESS CLOSELY 5. COMPARE RESULTS WITH PLAN 6. TAKE CORRECTIVE ACTION 61/62
  62. 62. Thank You. 62/62

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