THE INTERNAL AUDIT FAILINGS!

Our failings should matter to us, the internal auditors, more when we have secured a seat at the C-suite table through regulation. Because if our demand is regulation induced, it might fizzle out when the regulation is past its lifecycle. And even if it doesn’t go away, our follies would surely render us irrelevant.

Unless we like these follies to start bothering our clients and eventually ourselves, we have to fix these. And it cannot begin unless we identify where the problem lies and what’s essentially its core. Until then we can hold several conferences, seminars, workshops, trainings, master classes and moots and call upon industry leaders and people of influence from the regulators, it simply won’t work.

These antics by the internal audit profession champions might simply delay what’s coming (the oblivion!), but it’s bound to happen unless the core is dealt with. Because no regulation could be enough in resolving problems that we have created ourselves. And that we don’t intend to deal with simply because the bigger is better, instead of the better being better!

This bothersome core is the talent that gets to act as internal auditors and perform internal audit services. Unfortunately, the internal audit profession with its self-governing guidelines in the form of Global Internal Audit Standards issued by The Institute of Internal Auditors and the guidelines forming part of regulations worldwide, somehow lack in ensuring the best possible talent gets attracted to internal audit.

It doesn’t get to choose the talent through its own criteria, but it gets chosen. The problem inherent with this design is that internal audit is not a career choice but an option that’s somewhere down on the list of options considered ‘more appealing’. People consider it an option if they’re unable to make it to whatever else is on their priority list.

It’s like the internal audit going to the people to source rather than the people coming to it to embrace it. This means that internal auditing lacks the kind of pull needed to attract the best talent. And when it comes to being called alongside or a part of finance, it has always been used as a stopgap arrangement for people vying for an eventual spot in Finance.

And this comes as no surprise since working in a financial role has always been highly rewarding in comparison with an internal audit position. Resultantly the talented resource has always been on the lookout for lucrative roles rather than less rewarding internal audit roles.

Thus, it would not be wrong to say internal audit as a career choice has been playing a second fiddle to Finance. Though here, the internal audit profession itself is not to be blamed, Finance has always been the broad based discipline of which audit had been an offshoot. Finance came first and the need for audits followed.

But is it right to remain a prisoner of the past or more appropriately the origin? Especially when audit is a specialization and specializations earn more than the broad based credentials, simply because they represent greater investment after the initial investment in a broad based credential. And in practice a financial auditor with a broad-based finance qualification is bound to be the best possible accountant cementing the fact that audit is superior.

Isn’t it that just a few years ago all chartered accountancy bodies required their students to practice audit in an articles arrangement with an auditing firm before becoming fully qualified chartered accountant? Isn’t chartered accountancy considered the premier finance qualification out there? Doesn’t it mean that its auditing that sets the base?

So why is it that a superior credential is unable to attract superior talent? Yes, remuneration is a reason, but why is it a reason? Are we, the internal auditors, by any chance responsible for this situation? Why do finance positions attract greater and better compensation packages than their counterparts in internal audit?

Let’s break this down here:

So essentially, where is it that internal audit is lacking in adequately positioning itself? And what should be done to rectify these?

• The internal audit’s work is not clearly understood. Internal Audit ought not hide behind codes of corporate governance or other regulation. The understanding of its value-adding interventions contributing to the fulfillment of any entity’s objectives should be unmistakable. We, as professionally qualified internal auditors, need to be the advocates of the profession.
• The internal auditor’s contributions are not tangibly visible. We need to make efforts to highlight how internal audit work directly and indirectly effects the improvement in GRC systems of any entity, even if it entails quantification of every dollar saved!
• The internal audit strategy is not aligned with the overall business strategy of the entity. The determination of risk universe of an entity, if not already determined, or even if already known, its review and the alignment of the audit universe is essentially the first building block of internal audit strategy.
• The typical ‘standard’ audit work and auditor. Yes, because pre-auditing is still acceptable in certain parts of the World, just as the Chief Audit Executive reporting to the Chief Financial Officer is!

But what’s causing these issues?

Indeed, it’s the talent available to and talent performing in internal audit. This failing is the mother of all failings put together! The essence of excelling and being competent in Internal Auditing is being in an always eager to learn state. And it is this very state that’s simply not there!

Just recently I had to conduct an assessment exercise to hire trainees for the internal audit team against a very specific eligibility criterion. None of the trainees could find themselves able to even look up the definition of internal auditing over the internet! And that’s a tell all if that’s how it is at the beginner level!

And apart from the mediocrity and incompetent resource that sets its sight on internal auditing and the skilled and competent resource which would frequent in and out of internal audit waiting for a role in finance, there’s the greater sin of lack of integrity.

Unfortunately, even if an entity is able to secure skilled and competent talent, integrity is hard to come by. Because the first thing that’s put up for sale on even the slightest impression of an emerging situation that demands an uncompromising stance on principles and ethics over benefits even in the form of navigating through that situation only is indeed integrity! That is, if you could actually separate competence and integrity! I can’t!

And what’s more, clients are actually on the hunt for such auditors who could throw caution (read principles, independence and integrity) to the wind, when demanded. Prospective auditors are asked scenario based questions during interviews and assessed for their past conduct (read misconduct) in dealing with such situations.

Well, that’s being pragmatic, clients would argue! Afterall who’s looking for theoretically correct answers in interviews! And now that the internal auditors’ code of ethics is also one of the Global Internal Audit Standards, a departure under ‘certain circumstances’ might be possible!

Indeed, its skill, competence and integrity that maketh the core traits minimally desired from a devout internal auditor failing which an entity might have an auditor but certainly not an internal auditor!