imperatives for internal audit in the public sector · public sector internal audit stakeholders’...
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Preparing for the FutureImperatives for Internal Audit
in the Public Sector
Richard F. ChambersCIA, QIAL, CGAP, CCSA, CRMA
President and CEO
The Institute of Internal Auditors
Copyright © 2018 The Institute of Internal Auditors, Inc. All Rights Reserved.
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Overview
• Competing Expectations of Public
Sector Internal Audit
• Mounting Pressure on the Profession
• Imperatives for the Next Year and
Beyond
• The Internal Audit Leader of the Future
• Parting Thoughts
Copyright © 2018 The Institute of Internal Auditors, Inc. All Rights Reserved.
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Public Sector Internal Audit Stakeholders’ Expectations
Management
• Expertise
• Advice/insight
• Foresight
• Risk-centric focus• Cybersecurity
• Public scrutiny
• Operations
• Technology
Oversight Bodies,
Public and Media
• Independence
• Proficiency
• Transparency
• Assurance
• Focus on compliance,
efficiency, integrity
Audit Committees
• Assurance
• Expertise
• Relationship acumen
• Communication
• Coordination with
other risk/control
functions
Achieving Alignment
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Pressure Is Mounting
• Competing stakeholder expectations
• The “theater of politics”
• High degree of public scrutiny
• The volatility of risks
• Disruption driven by technology
• Looming uncertainties – Brexit
• Pressure on independence and objectivity
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1. Maintain a Laser Focus on the
Horizon.
2. Take the Offense in the War for
Talent.
3. Sharpen and Deploy the Best
Navigation Tools.
4. Be a Beacon for Transformation.
5. Sail Toward the Storm.
Imperatives
For the Next Year
And Beyond
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Maintain a Laser Focus on the Horizon
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Maintain a Laser Focus on the Horizon
The Challenge for Internal Audit
• Risks are emerging at warp speed.
• Focusing on the horizon is essential to avoiding the post-crisis question:
“WHERE WERE THE
INTERNAL AUDITORS?”
The Imperative
• In focusing on the horizon:
– Continuously assess risks.
– Identify and swiftly respond to emerging risks.
– Deploy “Doppler Radar” to identify approaching storms.
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Focus on the Horizon: Strategies for Success
Key Indicators of Emerging Risks
• Economic forecasts
• Geopolitical risks
• Known strategic business risks facing your organization
• New initiatives being planned
• Legislative and regulatory outlook
• Threats or opportunities facing other government entities
• Risks emerging as headlines via traditional or social media
Understand the Challenge
• How dynamic is your sector?
• Open a dialogue with management and other stakeholders.
– You need stakeholder support to focus on the horizon.
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Take the Offense
In the War for Talent
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Take the Offense in the War for Talent
The Challenge for Internal Audit• New risks mandate expertise in multiple areas.
• Experts are in high demand.
• And they demand the best opportunities.
The Imperative
• To engage in the war for talent:
– Understand stakeholder needs and expectations.
– Assess existing competencies.
– Develop and deploy strategies, including
• Talent sourcing
• Talent development
• Succession
– Continuously motivate and reward talent.
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Gaps in Talent Yield Consequences
72%
Percent of CAEs who believe they have talent gaps to fill
62%
Perform work only to the extent of internal
competencies
37%
Delay work until competencies are
developed
28%
Exclude area from audit plan
In acknowledging talent gaps, CAEs say they are somewhat, very or extremely likely to:
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The War for Talent: The Current Battlefield
Skills Being Actively Recruited
1 Analytical/Critical Thinking
2 Communication
3 Business Acumen
4 Data Mining and Analytics
5 Accounting and Finance
Skills Most Difficult to Recruit
1 Cybersecurity and Privacy
2 Data Mining and Analytics
3 Industry-Specific Knowledge
4 Innovative Thinking
5 Persuasion and Collaboration
What Skills Are in Demand? How Hard Are They to Find?
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Sharpen and Deploy
The Best Navigation Tools
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Sharpen and Deploy the Best Navigation Tools
The Challenge for Internal Audit
• Pace of growth has slowed.
• Environment is more complex.
• Expectations are at an all-time high.
The Imperative
• Audit smarter, better, and faster – and
continuously deliver impact.
• Deploy leading technologies and practices
to enhance capacity, effectiveness, and
value.
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Deploy the Best Navigation Tools
Implementation of Technology
Solutions Full or Partial
1 Electronic workpapers 77%
2 Data analytics 62%
3
Automation of routine internal audit
tasks (e.g. robotics process
automation)
18%
4
Automation of analysis of evidence
(e.g. automated judgement, artificial
intelligence)
13%
New technologies create agile and future-focused functions
Today’s tools of the trade: Audit management systems Data analytics
Tomorrow’s tools of the trade: Robotics Artificial intelligence (AI)
Deploy solutions that will yield dynamic results/insights
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Be a Beacon
For Transformation
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Be a Beacon for Transformation
The Challenge for Internal Audit
• New market, value networks disrupting at record pace.
• Established market-leading firms, products, and
alliances facing lethal risks.
• Innovation is often the only path forward.
The Imperative
• Champion transformation built on innovative
thinking/actions.
• Provide stakeholders insight into best innovation
processes/frameworks.
• Shine a light on:– Disruptive threats
– Targets for transformation
– Risks and controls throughout transformation processes
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Key Steps to Building an Innovative Mindset
• Empower staff to identify problems, risks, threats.
• Analyze first: Make sure you’re solving for the right
problem.
• Understand what is driving decision to innovate.
– Technological disruption
– Shareholder, regulatory pressure
– Disruptive innovation
– Staying ahead of the competition
• Understand your corporate culture.
• Start small and benchmark.
• Innovation must fit the overall business strategy.
“According to the consulting firm
McKinsey, 70% of business
transformations fail. . . . By
inserting itself at 7 steps of the
transformation process and
addressing these risks, internal
audit can assist management in
beating the odds and achieving a
successful transformation.”
James E. Schulien
“Seven Steps to Transformation”
Internal Auditor magazine, August 2017
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Sail Toward
The Storm
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Sail Toward the Storm
The Challenge for Internal Audit
• Tendency to avoid controversial topics, such as:
– Executive compensation
– Legal compliance
– Corporate culture
– Harassment/misconduct (gender, ethnicity, etc.)
• Looking the other way only compounds risks.
• Some internal auditors experience “courage deficit.”
The Imperative
• Internal auditors must:– Follow the risks – wherever they are.
– Be willing to push on closed doors.
– Summon the courage to sail toward (and even chase)
the storm.
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Attributes of Courageous Internal Auditors
6 attributes of courage:
– Overcome fear.
– Be passionate.
– Persevere in the face of adversity.
– Stand up for what’s right.
– Expand your horizons.
– Face suffering with dignity or faith.
Speak truth to power.
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The Internal Audit
Leader of Tomorrow
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The Internal Audit Leader of Tomorrow
• Genetically Risk-centric – Leading at the Speed of Risk!
– Risk-aware
– Risk-intuitive
– Embrace opportunities to enhance value.
– Risk-courageous
• Tech Savvy and Tech Fearless
– Understand innately how technology can impact and change organizations and still
have the courage to embrace and adapt to technological change.
• Incessantly Curious and Professionally Skeptical
– More than just a trait of the best; it will be table stakes to get into the game.
– Tomorrow's internal audit leaders will need to walk a fine line when it comes to
skepticism.
• Ethically Farsighted
– Understand how technology and other factors that change our world impact and
influence ethics within the organization and within themselves.
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The Internal Audit Leader of Tomorrow
• Intellectually Honest
– Speaking truth to power.
– True leaders will not give in to pressure to compromise intellectual honesty for
expediency.
• Not Your Grandfather's CPA
– Accounting/finance remains the most recruited academic degree.
– In the future, internal auditors will increasingly come from nontraditional
backgrounds, such as engineering and chemistry, as demand for specialized skills
grows in parallel to changing demands on the profession.
• Cosmopolitan
– The market is increasingly global. Companies operate seamlessly around the
world.
– Internal auditors of the future will have to be cosmopolitan — familiar with and at
ease in many different countries and cultures.
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Parting Thoughts
In the Future
We must be recognized
as critical to protecting
and enhancing
organizational value!
In the Past
We were focused on
controls – to ensure the
organization’s resources
were protected.
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Thank You
Copyright © 2018 The Institute of Internal Auditors, Inc. All Rights Reserved.