CAE Survey

Internal Audit’s Shortcoming

A new Deloitte report finds internal audit functions fall short of stakeholder demands.
By: | September 7, 2016 • 4 min read

The majority of chief audit executives (CAEs) believe that their internal audit functions don’t have the capabilities to meet stakeholder demands, according to a new Deloitte survey.

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They also think that their functions lack a strong influence over the board of directors and executive team, the report found.

More than half (57 percent) of CAEs surveyed said that they weren’t convinced their internal audit groups have the skills and expertise to deliver on stakeholder expectations in terms of efficient audits, insightful reports and effective decision support, let alone meeting future demands.

And only 13 percent of respondents said that they were “very satisfied” their functions have the skills to meet the expectations of shareholders.

More worryingly though, 72 percent believe their internal audit functions do not have a strong impact and influence over the board of directors, executive team and other key personnel. A further 16 percent said that their internal audit had little to no impact and influence.

“Internal audit has been scrambling to meet escalating needs in areas such as cyber security, regulatory compliance, corporate governance and third-party risk management.” – Terry Hatherell, global internal audit leader, Deloitte

We believe that this low satisfaction level with the function’s skills is indicative of the increasing complexity of risks facing organizations and the greater need for specialized skills within internal audit to completely assess these risks and the risk management effectiveness over these risks,” said Terry Hatherell, Deloitte’s global internal audit leader.

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Terry Hatherell, global internal audit leader, Deloitte

“Internal audit has been scrambling to meet escalating needs in areas such as cyber security, regulatory compliance, corporate governance and third-party risk management. These findings are concerning and indicate a need for internal audit groups to substantially increase their relevance within their organizations,” he said.

The inaugural survey of more than 1,200 CAEs from 29 countries also found that the biggest skills gaps among their function were cyber, cloud computing and other specialized IT skills (42 percent).

That was closely followed by data analytics (41 percent), risk modeling (27 percent), innovation (26 percent) and fraud detection (24 percent).

Hatherell said that such skills were in high demand and short supply, forcing CAEs to turn to alternative resource models, particularly co-sourcing with third parties and the adoption of rotation and guest auditor programs.

Tied in with this, CAEs view talent gaps and access to quality data as key barriers to the greater adoption of analytics.

According to the report, they cited risk anticipation (39 percent) and data analytics (34 percent) as the two innovations most likely to impact their internal audit function in the next three to five years.

Currently 86 percent of those surveyed use analytics, however only 24 percent use them at an intermediate level and 7 percent at an advanced level.

A little over half (58 percent) of respondents expect to be using analytics in at least half of their audits over the next three to five years, with 37 percent anticipating they will employ it in at least 75 percent of their audits.

“While using analytics to deliver audits more efficiently is an important goal, the survey results lead us to believe internal audit should capitalize on the wealth of available data to deliver more insightful views of business issues and risks to stakeholders.” – Neil White, Advisory partner and internal audit analytics leader, Deloitte

Neil White, an Advisory partner and internal audit analytics leader at Deloitte, said that the need to enhance analytics tools and techniques was a top priority.

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Doug Anderson, managing director – CAE Solutions, Institute of Internal Auditors

“While using analytics to deliver audits more efficiently is an important goal, the survey results lead us to believe internal audit should capitalize on the wealth of available data to deliver more insightful views of business issues and risks to stakeholders.”

Doug Anderson, the Institute of Internal Auditors’ (IIA) managing director – CAE Solutions, said that Deloitte’s findings affirmed what the IIA had been telling its members for some time.

Increasingly, he said that CAEs were looking for different skills sets when hiring, including analytical/critical thinking, communication and data mining and analytics.

He added that it was also important for internal audit to provide assurance on how data is being collected and analyzed within their organization.

“The era of internal audit simply providing hindsight has long past,” he said.

“Modern internal audit functions must offer insight and foresight that help organizations identify and manage risks, build successful business strategies, and nurture cultures that support good governance.

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“It is up to internal audit leaders and practitioners to develop the skills to meet those demands and develop trusting and honest relationships with stakeholders that position the organization for success.

“Increasing stakeholder confidence in internal audit requires the profession to step up to meet these new demands.”

Going forward, the survey concluded that CAEs needed to assess the talent and skills gaps within their internal audit function and take the appropriate action. They also needed to embed analytics into all of their processes in order to increase efficiency and value throughout the organization, said the report.

Alex Wright is a U.K.-based business journalist, who previously was deputy business editor at The Royal Gazette in Bermuda. You can reach him at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Risk Management

The Profession

As a professor of business, Jack Hampton knows firsthand the positive impact education has on risk managers as they tackle growing risks.
By: | April 9, 2018 • 4 min read

R&I: Who is your mentor and why?

Ellen Thrower, president (retired), The College of Insurance, introduced me to the importance of insurance as a component of risk management. Further, she encouraged me to explore strategic and operational risk as foundation topics shaping the role of the modern risk manager.

Chris Mandel, former president of RIMS and Risk Manager of the Year, introduced me to the emerging area of enterprise risk management. He helped me recognize the need to align hazard, strategic, operational and financial risk into a single framework. He gave me the perspective of ERM in a high-tech environment, using USAA as a model program that later won an excellence award for innovation.

Bob Morrell, founder and former CEO of Riskonnect, showed me how technology could be applied to solving serious risk management and governance problems. He created a platform that made some of my ideas practical and extended them into a highly-successful enterprise that served risk and governance management needs of major corporations.

R&I: How did you come to work in this industry?

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From a background in corporate finance and commercial banking, I accepted the position of provost of The College of Insurance. Recognizing my limited prior knowledge in the field, I became a student of insurance and risk management leading to authorship of books on hazard and financial risk. This led to industry consulting, as well as to the development of graduate-level courses and concentrations in MBA programs.

R&I: What was your first job?

The provost position was the first job I had in the industry, after serving as dean of the Seton Hall University School of Business and founding The Princeton Consulting Group. Earlier positions were in business development with Marine Transport Lines, consulting in commercial banking and college professorships.

R&I: What have you accomplished that you are proudest of?

Creating a risk management concentration in the MBA program at Saint Peter’s, co-founding the Russian Risk Management Society (RUSRISK), and writing “Fundamentals of Enterprise Risk Management” and the “AMA Handbook of Financial Risk Management.”

A few years ago, I expanded into risk management in higher education. From 2017 into 2018, Rowman and Littlefield published my four books that address risks facing colleges and universities, professors, students and parents.

Jack Hampton, Professor of Business, St. Peter’s University

R&I: What is your favorite book or movie?

The Godfather. I see it as a story of managing risk, even as the behavior of its leading characters create risk for others.

R&I: What is your favorite drink?

Jameson’s Irish whiskey. Mixed with a little ice, it is a serious rival for Johnny Walker Gold scotch and Jack Daniel’s Tennessee whiskey.

R&I: What is the most unusual/interesting place you have ever visited?

Mount Etna, Taormina, and Agrigento, Sicily. I actually supervised an MBA program in Siracusa and learned about risk from a new perspective.

R&I: What is the riskiest activity you ever engaged in?

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Army Airborne training and jumping out of an airplane. Fortunately, I never had to do it in combat even though I served in Vietnam.

R&I: If the world has a modern hero, who is it and why?

George C. Marshall, one of the most decorated military leaders in American history, architect of the economic recovery program for Europe after World War II, and recipient of the 1953 Nobel Peace Prize. For Marshall, it was not just about winning the war. It was also about winning the peace.

R&I: What about this work do you find the most fulfilling or rewarding?

Sharing lessons with colleagues and students by writing, publishing and teaching. A professor with a knowledge of risk management does not only share lessons. The professor is also a student when MBA candidates talk about the risks they manage every day.

R&I: What is the risk management community doing right?

Sensitizing for-profit, nonprofit and governmental agencies to the exposures and complexities facing their organizations. Sometimes we focus too much on strategies that sound good but do not withstand closer examination. Risk managers help organizations make better decisions.

R&I: What could the risk management community be doing a better job of?

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Developing executive training programs to help risk managers assume C-suite positions in organizations. Insurance may be a good place to start but so is an MBA degree. The Risk and Insurance Management Society recognizes the importance of a wide range of risk knowledge. Colleges and universities need to catch up with RIMS.

R&I: What emerging commercial risk most concerns you?

Cyber risk and its impact on hazard, operational and financial strategies. A terrorist can take down a building. A cyber-criminal can take down much more.

R&I: What does your family think you do?

My family members think I’m a professor. They do not seem to be too interested in my views on risk management.




Katie Dwyer is an associate editor at Risk & Insurance®. She can be reached at [email protected]