Internal Audit’s Shortcoming

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.

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.

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.

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.

“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.