DOES YOUR INTERNAL MANAGEMENT SYSTEM AUDITS SUPPORT YOUR BUSINESS OBJECTIVES?
by Johan Bezuidenhout May 2020 Internal Audits
According to Peter Drucker, the purpose of any business is to create a customer, if that is true, then every function in the organization should be focussed on this, and that includes the Internal Audit Function. Most of the Internal Audit Programmes I have seen, and I have seen quite a few during my career were designed to only ensure compliance with the Management Standard. I have yet to see programmes designed specifically to focus on the achievement of business objectives and compliance to the Standard.
I concluded that internal audits are wasting time and does not contribute to the sustainability of the organization, which is a result of our obsession with compliance rather than ensuring sustainability.
During my research to find ways to improve the way we do audits, I came across an article by Ernest and Young written in 2012 on the effectiveness of internal auditing. This article recommends the following;
Firstly, internal audits should be designed and planned in such a manner that support the organization in achieving its objectives. The Auditor should have a clear understanding of the purpose of the organization to enable the Auditor to contribute and support the organization in achieving its business objectives. In 1472 Leonardo da Vinci discovered that if the image of an object doesn’t enter the eye through the centreline, the picture becomes blurry. The same holds for an internal auditor who doesn’t have a direct line of sight of the organizations’ vision.
Secondly, and to my mind, one of the most powerful messages from the Ernest and Young survey is that every Internal Audit Function should have a three to a five-year strategy aligned with the vision and strategy of the organization. Experience has shown that most organizations schedule their internal audits to coincide with the external audit aimed at compliance with the requirements of the Standard and to ensure all is well from an external audit perspective ignoring where the organization is regarding its business objectives. Internal audits are; therefore, compliance orientated and not supporting business objectives.
The third recommendation made by Ernest and Young is to reconsider the training of Internal Auditors, and I couldn’t agree more. Sending Internal Auditors on a five-day training course where the first two days are spent understanding the “standard”, two days on conducting opening and closing meetings, what the audit report should look like and if time permits spending some time on the theory of auditing techniques. Almost no practical training on teaching Auditors how to conduct the audit, how to ask the right questions, and how to investigate the Auditee to find the areas requiring improvement. The survey by Ernest and Young has shown that very few organizations train their auditors in business principles and how to run a business. The late Phillip Crosby said that the biggest downfall of the quality profession is the fact that Quality Professionals doesn’t understand business and management.
The final recommendation from the survey was to run the Internal Auditing Function as a business. They should add value to the organization and should be held accountable for that. If the Internal Auditing Function doesn’t have a positive impact on the bottom line of the organization, they are no longer relevant.
In conclusion, I do think there is a future for internal audits, but then we must act and act now!!! Organizations are not going to keep us hanging around for much longer if we don’t have a positive impact in supporting the business realizing its objectives.
Ernest and Young Article. The future of Internal Auditing is now. 2012