internal auditing effectiveness
DESCRIPTION
Internal Audit Effectiveness Basic premise: What you measure is what you get (Kaplan &Norton, 1993)TRANSCRIPT
Train the Trainers
Internal Auditing Effectiveness
Internal Auditing
Basic premise: • What you measure is what you get (Kaplan
&Norton, 1993)
Internal Audit Effectiveness
Why measure performance
Performance management has become crucial for public sector organisations:
• Significant reduction in funding• Increased community demand for quality service
Organisations must ensure budget is allocated intelligently and must be able to measure and report whether strategic objectives are being met.
DO MORE WITH LESS
Why Internal Audit
• Internal Audit is like any other business unit• Increasing requirement to report regularly
against agreed performance measures
Traditional Approach
Measures• Audit Plan Delivery• Timing of Draft and Final Reports• Quality of Service• Financial/ Quality Indicators
Pros• Measuring the same things• Peer comparison easier
Cons• Records the past• Doesn’t consider strategic considerations
However, some unanswered questions:
• How well are stakeholder expectations being met by Internal Audit?• Is Internal Audit adding value?• Is Internal Audit contributing to overall business performance?• Is Internal Audit achieving its objectives?
Balanced Scorecard
The Balanced Scorecard (BSC), created by Kaplan and Norton, is a leading strategic performance management framework that offers a balanced view between outcomes and enablers of strategy
Stakeholder/Customers“How do we
have asocial impact with our
customers?”
Learning & Growth“Which skills and
capabilities should weemphasize?”
Processes“Which internal
processes should weoptimise to increaseour effectiveness?”
Financial“How should we
allocate our resourcesfor maximum social
impact?”
Vision & Strategy
Balanced Scorecard The BSC – a methodology for approaching performance
management
Strategic Themes
Vision
Strategicobjectives
Measurement
Targets
Initiatives
Overall strategic vision of the organisationWhat the organisation is trying to be
Support the overall vision and provide areas of emphasis for the organisation to focus its activities (critical success factors)
Further breakdown the vision and themes into more actionable elements
How to monitor the achievement of the strategic objectives (key performance indicators)
What level of performance is needed to successfullyachieve the strategic objectives
Actions taken to improve current performance
“DOING THINGS WELL” “DOING THE RIGHT THINGS WELL”
Balanced Scorecard
Long - term Vision and Strategy
Balanced Scorecard
Short - term Objectives
and Actions
A planning tool to assist in the formulation of long term strategy and translating this into short term objectives and actions
Balanced ScorecardThe BSC - a performance measurement tool organised around 4 balanced perspectives
Stakeholder/Citizens“How do we have a
social impact with ourcitizens?”
Learning & Growth“Which skills and
capabilities should weemphasize?”
Business Process“Which internal
processes should weoptimise to increaseour effectiveness?”
Financial“How should we
allocate our resourcesfor maximum social
impact?”
Vision & Strategy
Objectives:Measurements:Targets:Initiatives:
Objectives:Measurements:Targets:Initiatives:
Objectives:Measurements:Targets:Initiatives:
Objectives:Measurements:Targets:Initiatives:
Balanced Scorecard
Board/Audit CommitteeOBJECTIVES
• List here.
Management/AuditeesOBJECTIVES
• List here.
Innovation/CapabilitiesOBJECTIVES
• List here.
Internal Audit ProcessOBJECTIVES
• List here.
ORGANISATION
STRATEGY
• Experience
• Education
• Training
• Certification
• Reporting Relationships
• Expectations
• Perspective on IA Roles
• Satisfaction Surveys
• Requests
• Complaints
• Improvements
• Findings
• Repeat Findings
• Savings
• Quality Assessment
• Perspective on IA Roles
• Satisfaction Surveys
• Risk Concerns
• List here.
INTERNAL AUDITSTRATEGY
• List here.
MEASURES• List here.
• List here.
MEASURES
MEASURES
MEASURES
Strategic map
Innovation and Capabilities
Internal Auditing Process
Management & Auditees
Audit CommitteeImprove Standing
with Audit Committee
Improve Auditee Communication
Processes
Improve Auditee Satisfaction
Increase impact or value of work
Increase quality of audit work
Increase reliance which can be
placed on audit work
Focus on competency development
Embrace more efficient work
practices
Propagate best practice
Balanced ScorecardThe Balanced Scorecard can help internal auditors assess the efficiency and effectiveness of an organisation
Clarifies strategic objectivesEstablishes performance indicators
Measures performance
Provides feedback on efficiencyProvides feedback on effectiveness
Includes all perspectives of an organisation
Example Measures
Internal Audit Process Effectiveness• Rapid and effective start-up• Effective and timely communications• Development and delivery of practical
recommendations to improve• Results of auditee satisfaction questionnaires
Example of Measures
Audit Committee:Auditing viewed by the audit committeeAudit committee satisfaction survey resultsAudit committee risk concerns
Internal audit process:Completed versus planned auditsNº of process improvementsNº of audits findings recommendationsAmount of audit savingsQuality assurance techniques developedNº of repeat findingsDays from end of field work to report
Innovation and Capabilities:Staff experienceAuditor education levelsTraining hours per internal auditor% of certified staffQuality Assurance technique developedAverage years of audit experience
Management and the auditees:Management expectations of IA% of audit recommendations implementedAudit satisfaction surveyNº of complaints about audit departmentRole of IA viewed by the auditeeNº of management requests
Objective Measure Target Initiatives
Innovation/Capabilities
To have a high quality staff complement (capability and training)
%age qualified staff All staff to have minimum professional qualifications with recognised professional bodies
Develop a capability/competence matrix for each grade of staff
Training hours per year per auditor (grade)
Review training needs based on personal development plans
Example of Measures
IA Performance Indicators
Performance Indicator Description Current Target
Timeliness of Audit Report
% of respondents who agreed that the audit report was produced timeously
Kept Informed of Audit Progress
% of respondents who agreed that Internal Audit kept them informed of progress.
Nº Indicator/Description Measurement
1 Audit Plan DeliveryActual nº of audits delivered against planned nº of audits on the audit plan.
actual plan completion vs planned completion
2 ReportingIssue of draft report after completion of fieldwork.
% of draft reports issued within xx working days of fieldwork completion.
3 ReportingIssue of final report after management response to draft received.
% of final reports issued within x working days of management response being received.
4 QualityCustomer feedback survey responses with either a satisfied or very satisfied rating.
Target xx % of satisfied or very satisfied customer feedback responses.
5 QualityNumber of actions implemented by due date.
Target xx % of actions completed by management when due.
6 QualityNumber of audits completed within planned time budget.
Target xx % of total audit assignments to be completed within planned time budget.
IA Performance Indicators
Critical success factors to implement a BSC
• Top management commitment and support • Cascading strategy down through the
organisation• Awareness and understanding• Organisational alignment• Limited number of measures• Right metrics• Integrated in overall Processes• Continuous process
Benefits
• A common framework and language to share experience and best practice in auditor activity
• A BSC specifies metrics that can be used to assess the effective implementation of the strategic plan
• The potential for greater stakeholder satisfaction with Internal Audit
• The potential for greater integration with colleagues in external audit functions
• Improved levels of service delivery
Realizing strategic alignment of IA function What metrics do you include on a value scorecard to measure
internal audit effectiveness?
• Significance of findings and recommendations• Completed audits per plan • Length of time for issue audit report • Percentage of recommendations implemented • Length of time to resolve audit findings• Process improvement recommendations• Business unit/auditee satisfaction surveys• Audit committee satisfaction• Revenue enhancement/savings/ cost reductions identified• Requests from the business for a review/audit/advice• Support of key business initiatives• Meetings/relationship with “customer”/auditee
Realizing strategic alignment of IA function
Next steps:
• Agreement on approach and areas for setting performance measures
• Identify a need for Working Group
Internal Auditing – Train the Trainers