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

Emerging Risks

Stadium Safety

Soft targets, such as sports stadiums, must increase measures to protect lives and their business.
By: | January 10, 2018 • 8 min read

Acts of violence and terror can break out in even the unlikeliest of places.

Look at the 2013 Boston Marathon, where two bombs went off, killing three and injuring dozens of others in a terrorist attack. Or consider the Orlando Pulse nightclub, where 49 people were killed and 58 wounded. Most recently in Las Vegas, a gunman killed 58 and injured hundreds of others.

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The world is not inherently evil, but these evil acts still find a way into places like churches, schools, concerts and stadiums.

“We didn’t see these kinds of attacks 20 years ago,” said Glenn Chavious, managing director, global sports & recreation practice leader, Industria Risk & Insurance Services.

As a society, we have advanced through technology, he said. Technology’s platform has enabled the message of terror to spread further faster.

“But it’s not just with technology. Our cultures, our personal grievances, have brought people out of their comfort zones.”

Chavious said that people still had these grievances 20 years ago but were less likely to act out. Tech has linked people around the globe to other like-minded individuals, allowing for others to join in on messages of terror.

“The progression of terrorist acts over the last 10 years has very much been central to the emergence of ‘lone wolf’ actors. As was the case in both Manchester and Las Vegas, the ‘lone wolf’ dynamic presents an altogether unique set of challenges for law enforcement and event service professionals,” said John

Glenn Chavious, managing director, global sports & recreation practice leader, Industria Risk & Insurance Services

Tomlinson, senior vice president, head of entertainment, Lockton.

As more violent outbreaks take place in public spaces, risk managers learn from and better understand what attackers want. Each new event enables risk managers to see what works and what can be improved upon to better protect people and places.

But the fact remains that the nature and pattern of attacks are changing.

“Many of these actions are devised in complete obscurity and on impulse, and are carried out by individuals with little to no prior visibility, in terms of behavioral patterns or threat recognition, thus making it virtually impossible to maintain any elements of anticipation by security officials,” said Tomlinson.

With vehicles driving into crowds, active shooters and the random nature of attacks, it’s hard to gauge what might come next, said Warren Harper, global sports & events practice leader, Marsh.

Public spaces like sporting arenas are particularly vulnerable because they are considered ‘soft targets.’ They are areas where people gather in large numbers for recreation. They are welcoming to their patrons and visitors, much like a hospital, and the crowds that attend come in droves.

NFL football stadiums, for example, can hold anywhere from 25,000 to 93,000 people at maximum capacity — and that number doesn’t include workers, players or other behind-the-scenes personnel.

“Attacks are a big risk management issue,” said Chavious. “Insurance is the last resort we want to rely upon. We’d rather be preventing it to avoid such events.”

Preparing for Danger

The second half of 2017 proved a trying few months for the insurance industry, facing hurricanes, earthquakes, wildfires and — unfortunately — multiple mass shootings.

The industry was estimated to take a more than $1 billion hit from the Las Vegas massacre in October 2017. A few years back, the Boston Marathon bombings cost businesses around $333 million each day the city was shut down following the attack. Officials were on a manhunt for the suspects in question, and Boston was on lockdown.

“Many of these actions are devised in complete obscurity and on impulse, and are carried out by individuals with little to no prior visibility.” — John Tomlinson, senior vice president, head of entertainment, Lockton

“Fortunately, we have not had a complete stadium go down,” said Harper. But a mass casualty event at a stadium can lead to the death or injury of athletes, spectators and guests; psychological trauma; potential workers’ comp claims from injured employees; lawsuits; significant reputational damage; property damage and prolonged business interruption losses.

The physical damage, said Harper, might be something risk managers can gauge beforehand, but loss of life is immeasurable.

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The best practice then, said Chavious, is awareness and education.

“A lot of preparedness comes from education. [Stadiums] need a risk management plan.”

First and foremost, Chavious said, stadiums need to perform a security risk assessment. Find out where vulnerable spots are, decide where education can be improved upon and develop other safety measures over time.

Areas outside the stadium are soft targets, said Harper. The parking lot, the ticketing and access areas and even the metro transit areas where guests mingle before and after a game are targeted more often than inside.

Last year, for example, a stadium in Manchester was the target of a bomb, which detonated outside the venue as concert-goers left. In 2015, the Stade de France in Paris was the target of suicide bombers and active shooters, who struck the outside of the stadium while a soccer match was held inside.

Security, therefore, needs to be ready to react both inside and outside the vicinity. Reviewing past events and seeing what works has helped risk mangers improve safety strategies.

“A lot of places are getting into table-top exercises” to make sure their people are really trained, added Harper.

In these exercises, employees from various departments come together to brainstorm and work through a hypothetical terrorist situation.

A facilitator will propose the scenario — an active shooter has been spotted right before the game begins, someone has called in a bomb threat, a driver has fled on foot after driving into a crowd — and the stadium’s staff is asked how they should respond.

“People tend to act on assumptions, which may be wrong, but this is a great setting for them to brainstorm and learn,” said Harper.

Technology and Safety

In addition to education, stadiums are ahead of the game, implementing high-tech security cameras and closed-circuit TV monitoring, requiring game-day audiences to use clear/see-through bags when entering the arena, upping employee training on safety protocols and utilizing vapor wake dogs.

Drones are also adding a protective layer.

John Tomlinson, senior vice president, head of entertainment, Lockton

“Drones are helpful in surveying an area and can alert security to any potential threat,” said Chavious.

“Many stadiums have an area between a city’s metro and the stadium itself. If there’s a disturbance there, and you don’t have a camera in that area, you could use the drone instead of moving physical assets.”

Chavious added that “the overhead view will pick up potential crowd concentration, see if there are too many people in one crowd, or drones can fly overhead and be used to assess situations like a vehicle that’s in a place it shouldn’t be.”

But like with all new technology, drones too have their downsides. There’s the expense of owning, maintaining and operating the drone. Weather conditions can affect how and when a drone is used, so it isn’t a reliable source. And what if that drone gets hacked?

“The evolution of venue security protocols most certainly includes the increased usage of unmanned aerial systems (UAS), including drones, as the scope and territorial vastness provided by UAS, from a monitoring perspective, is much more expansive than ground-based apparatus,” said Tomlinson.

“That said,” he continued, “there have been many documented instances in which the intrusion of unauthorized drones at live events have posed major security concerns and have actually heightened the risk of injury to participants and attendees.”

Still, many experts, including Tomlinson, see drones playing a significant role in safety at stadiums moving forward.

“I believe the utilization of drones will continue to be on the forefront of risk mitigation innovation in the live event space, albeit with some very tight operating controls,” he said.

The SAFETY Act

In response to the terrorist attacks on Sept. 11, 2001, U.S. Homeland Security enacted the Support Anti-Terrorism by Fostering Effective

Warren Harper, global sports & events practice leader, Marsh

Technologies Act (SAFETY Act).

The primary purpose of the SAFETY Act was to encourage potential manufacturers or sellers of anti-terrorism technologies to continue to develop and commercialize these technologies (like video monitoring or drones).

There was a worry that the threat of liability in such an event would deter and prevent sellers from pursing these technologies, which are aimed at saving lives. Instead, the SAFETY Act provides incentive by adding a system of risk and litigation management.

“[The SAFETY Act] is geared toward claims arising out of acts of terrorism,” said Harper.

Bottom line: It’s added financial protection. Businesses both large and small can apply for the SAFETY designation — in fact, many NFL teams push for the designation. So far, four have reached SAFETY certification: Lambeau Field, MetLife Stadium, University of Phoenix Stadium and Gillette Stadium.

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To become certified, reviewers with the SAFETY Act assess stadiums for their compliance with the most up-to-date terrorism products. They look at their built-in emergency response plans, cyber security measures, hiring and training of employees, among other criteria.

The process can take over a year, but once certified, stadiums benefit because liability for an event is lessened. One thing to remember, however, is that the added SAFETY Act protection only holds weight when a catastrophic event is classified as an act of terrorism.

“Generally speaking, I think the SAFETY Act has been instrumental in paving the way for an accelerated development of anti-terrorism products and services,” said Tomlinson.

“The benefit of gaining elements of impunity from third-party liability related matters has served as a catalyst for developers to continue to push the envelope, so to speak, in terms of ideas and innovation.”

So while attackers are changing their methods and trying to stay ahead of safety protocols at stadiums, the SAFETY Act, as well as risk managers and stadium owners, keep stadiums investing in newer, more secure safety measures. &

Autumn Heisler is a staff writer at Risk & Insurance. She can be reached at [email protected]