Optimizing internal audit

By Massimo Cecere
Illustration: Geneviève Côté

Ten easy solutions that can help companies optimize this important function and become an employer of choice

The internal audit function has evolved considerably in the last few years. Created to evaluate the internal controls that safeguard a company’s assets, this function was intended as a way of ensuring compliance with policies and procedures and of preventing and detecting fraud and errors. Internal auditing was then expanded to cover the broader aspects of control, and internal auditors began to apply their expertise to areas outside finance. Today, the internal audit function can be described as dynamic and future-oriented. It focuses on efficient and effective operating activities, the assessment of control mechanisms for major projects such as those relating to management information systems, and risk management.

It is safe to say that the internal audit profession is now enjoying renewed popularity as a result of the numerous high-profile corporate scandals of the past few years, which highlighted the importance of internal auditing. Since 2002, the requirement for companies to comply with Sarbanes-Oxley or Bill 198 has created a strong demand for internal auditors. Competition for the best talent has therefore increased, making it necessary for many companies to work harder to retain their internal audit professionals.

We propose 10 practical solutions to enable companies to optimize this important function and become an employer of choice for internal auditors.

Anticipate human resource needs
Companies should prepare an internal audit budget and determine the human resources required to perform the work. In calculating the amounts to set aside, a company can first look at what similarly sized businesses in the same industry are doing, and it should consider the specific risks it faces.

Many companies believe that simply appointing a manager is enough, but in reality, this person will need several assistants to accomplish his or her task, especially if the department is being created. Once the internal audit group is in place, the company should ensure that staff is equipped with state-of-the-art productivity and communication tools in line with best practices. The company shows that it considers this function important and its desire to ensure the success of the mandates entrusted to the group through its commitment to provide internal auditors with the electronic reference material, audit programs and tools they need.

Use external resources
An internal audit group with limited staff (e.g., due to departures), which is facing tight deadlines and must comply with increasingly rigorous reporting and documentation requirements, will often benefit from retaining external resources that will add expertise to that of in-house staff. By working closely with public accountants, the internal audit team can hone its skills and learn new approaches based on best practices.

Entrust comprehensive mandates
All internal auditors, regardless of their experience, should be involved in each stage of an audit mandate. This will enable them to fully understand the issues involved.

It is therefore important that they help plan the mandate, attend meetings, take part in preparing and presenting the audit report and follow-up activities, and are entrusted with various tasks.

As a result, internal auditors will work in a stimulating and rewarding environment that provides challenges commensurate with their skills. They will be more inclined to stay with the company, which in turn will be able to draw on the internally acquired expertise of these auditors. Satisfied auditors are also more likely to recommend their company when positions open up.

Rotate mandates
Internal auditors benefit greatly when the various mandates are rotated. These audit mandates can cover control mechanisms, risk management, operational efficiency and effectiveness, project management and the Sarbanes-Oxley Act or Bill 198. Internal auditors can also be entrusted with special mandates involving taxation, fraud, information technology, patent acquisition or the implementation of a pandemic emergency plan. Moreover, instead of giving auditors long-term mandates, it is preferable to split them so auditors can enjoy the benefits of rotation, including knowledge acquisition, varied work, a better understanding of the company’s various activities and a broadening of their business network.

Facilitate career advancement and professional development
An effective career development process increases employee satisfaction and reduces the staff turnover rate. Given the significant costs of resourcing, companies would do well to allow their talented professionals to apply for other positions within their organization. This creates meaningful synergy between those with new positions and their former colleagues.

At Transcontinental Inc., a Montreal-based printing and publishing company, internal auditors can participate in all types of mandates during their first two years with the company. After this initial period, some choose to specialize in a particular area based on their preferences and skills. In this way, some auditors move to other positions within the company while others pursue careers in internal auditing. After holding varied positions within the organization, some internal auditors will be promoted to senior management.

André Bolduc, director of internal audit at Transcontinental, explains that it is very important for young professionals to be proactive in their career development and to feel that their employer offers challenges that match their talents and considers them allies.

“An auditor with an interest in the media would be given more mandates relating to our activities in this area, and I would take steps to enable that person to move to a position in a related division,” he says. “We train professionals for internal auditing, but also with a view to their next responsibility level.”

Promote cooperation
Audit committees and senior management should set the tone in highlighting the importance of the internal audit function. The image of the company watchdog that used to be associated with auditors is a thing of the past: they are valued partners whose goal is to improve business operations. Their cooperation in no way compromises their independence, especially if senior management encourages open communication and invites feedback from employees. The audit committee needs the backing of senior management to carry out its audit mandates, follow up on reports and take corrective action.

According to François Monette, senior director of corporate audit services and risk assessment at Bombardier Inc., the principles of control and cooperation can be combined as long as the credibility and added value of internal auditing are well established.

“Our department is recognized for its risk management expertise, and we are occasionally approached by management to perform special mandates, provide risk control advice, or assign a technical resource to a project,” he says. “We also regularly communicate our mission and objectives throughout the organization, for instance, at conference lunches, to promote our added value. These initiatives also enable us to internally recruit future auditors.”

Offer solutions for achieving a work-life balance
Young and not-so-young professionals seek a balance between their careers and family lives. Several work-related factors, including peak periods and extensive travel, can disrupt a person’s lifestyle. Constant travel is, in fact, one of the chief reasons why internal auditors leave their jobs.

It makes good business sense for employers to implement policies and practical initiatives such as telecommuting, flexible work weeks or paid dinners to help reduce stress experienced by their professionals. Video conferencing can be used to reduce the frequency of trips. If travel is unavoidable, other possibilities may be considered, including compensatory time off or an opportunity to telecommute. The purpose of such measures is to help auditors quickly regain stability once they return from a trip.

Offer rewards and show appreciation
Rewards related to individual and team performance are prime motivators for professionals. An annual bonus system based on achieving objectives is a tangible benefit to professionals. Long-term incentives, including stock option grants, are an appealing solution, as they foster an ownership mentality and tie performance directly to the company’s success.

Management should recognize all exemplary work, whether individual or collective; otherwise, motivated and dedicated employees could decide to seek an employer who shows greater appreciation for the quality of their work.

Encourage networking
To succeed in their careers, internal auditors need to network effectively within and outside the company. Auditors should be taught these skills as part of their continuing education.

Companies should also facilitate regular meetings between management and internal auditors so auditors can better understand the nature of the business and the challenges of the industry. Frequent interactions with management encourage it to cooperate in internal audit mandates and enable auditors to explain the added value of this key function. Networking outside the company gives internal auditors the opportunity to learn more about best practices through discussions with industry leaders.

Pick competent people
To remain credible within the company, the internal audit group should work with competent and experienced people. The head of internal audit may decide, depending on the degree of difficulty of a mandate, to approach competent members from other departments or use the services of public accountants or other external professionals to complete a project.

When preparing an internal audit budget, it is important to set aside the necessary amounts to outsource certain tasks and train current staff.

Continuing education should be available to internal auditors to enable them to enhance their technical, communication and negotiating skills. Possibilities for training include conference lunches, pairing a mentor with a less experienced auditor or reimbursing the cost of university or specialized institution courses. To ensure that staff acquires and maintains the expertise it needs to carry out its mandates, an evaluation process that takes professional development into account should be implemented.

Conclusion
A company seeking to benefit from the full added value of the internal audit function should make sure its group is well structured and has the resources to achieve its objectives. The internal audit group should have stimulating challenges, obtain the collaboration of all corporate executives and feel it is a valued part of the organization.

The internal audit function needs to keep pace with professional market trends. Internal auditors want interesting challenges and a dynamic work environment. They want to be part of the solution, not the problem.

Massimo Cecere, CA, is manager, risk management consulting services, with RSM Richter LLP in Montreal

Technical editor: Yves Nadeau, CA, partner, RSM Richter in Montreal