Misunderstanding of Risks Between Business Teams and Auditors

PWC Internal Audit survey highlighted one critical shortcoming of Chief Audit Executives and Internal Audit Department. The risks that business teams consider critical are being ignored. I have been covering some of the risks on the blog, namely – people risks, competitive advantage, innovation and creativity, marketing, country risks, etc. According to the survey, more than 20% of the stakeholders reported that internal audit paid too little attention on these risks. Hence, the question is why are internal auditors and risk managers not looking at them. Take a look at this chart first.

PWC Internal Audit Survey 2012

From the survey results, two assumptions can be made. First, the internal audit function is still focused on auditing the processes that link to the financial numbers. Second, they are not understanding the business aspects of the organization. As given below, three things need to be done.

1. Understand business requirements

The situation reminds me of an Archie-Veronica joke. Veronica is trying out a new pair of jeans in a store. She looks in the mirror and says – “The jeans are tight, I wonder what could be the problem.” Archie promptly replies – “You might have gained a few pounds”. Veronica gives one whack on Archie’s head and again makes the same statement. This time Archie replies – “The store may have marked a wrong size on the jeans”. If the internal audit reports were hard hitting, business teams may give the internal auditors a rosy picture. They may not be sharing the true concerns in respect to various business risks. Hence, internal auditors would focus their energies on some unsubstantial risks.  Improve the communication with business teams to understand the risk environment. Create an environment where truthful interactions occur.

2. Add in next year business plan

Last quarter of the year has started today, and most of the organizations will prepare 2013 plans in this quarter. This is a good time to understand the business risks and prepare the 2013 annual audit plan and budgets accordingly. Coordinate with the business teams to understand their annual plans. Identify the risks relating to the plans. Discuss with the teams on how internal audit function can help them. Attempt using collective intelligence and crowd sourcing techniques to develop your plan. Where required, take a call to provide advisory services rather than assurance services. Business managers expect much more from the internal audit function. Hence, gear yourself to meet if not exceed those expectations.

3. Develop talent and skills

In the 20th century internal auditors audited the same financial numbers as external auditors. In the 21st century, the function requires revamping. In my previous article – “New Risks and Uncertainties in 21st Century” – I had conducted a poll. I had asked respondents whether they thought present day risk managers were equipped to deal with 21st century risks. Out of 17 total votes, 15 had responded that less than 50% of the risk managers can manage the new business risks. The verdict was by the risk managers about risk managers. Don’t be a dinosaur and learn new skills to survive in the market. In another 5 years when Gen Y become middle managers, Gen X may become redundant.

Closing Thoughts

With the turmoil in various economies, the 2013 risk landscape will be drastically different. Organizations that are well geared in risk management, have a higher probability of sailing through. Internal auditors and risk managers need to incorporate the impact of globalization, technology and social media in their annual plans. There is no purpose in serving stale bread and expecting business teams to swallow it. Rejuvenate in the new business age.

Wishing all my readers a Happy Gandhi Jayanti. Let us pray that each person believes a little more in non-violence and work towards a peaceful world.

References: 

PWC Internal Audit Survey 2012

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