Train the Trainers

Internal Auditing Effectiveness

Internal Auditing

Basic premise: • What you measure is what you get (Kaplan

&Norton, 1993)

Internal Audit Effectiveness

Why measure performance

Performance management has become crucial for public sector organisations:

• Significant reduction in funding• Increased community demand for quality service

Organisations must ensure budget is allocated intelligently and must be able to measure and report whether strategic objectives are being met.

DO MORE WITH LESS

Why Internal Audit

• Internal Audit is like any other business unit• Increasing requirement to report regularly

against agreed performance measures

Traditional Approach

Measures• Audit Plan Delivery• Timing of Draft and Final Reports• Quality of Service• Financial/ Quality Indicators

Pros• Measuring the same things• Peer comparison easier

Cons• Records the past• Doesn’t consider strategic considerations

However, some unanswered questions:

• How well are stakeholder expectations being met by Internal Audit?• Is Internal Audit adding value?• Is Internal Audit contributing to overall business performance?• Is Internal Audit achieving its objectives?

Balanced Scorecard

The Balanced Scorecard (BSC), created by Kaplan and Norton, is a leading strategic performance management framework that offers a balanced view between outcomes and enablers of strategy

Stakeholder/Customers“How do we

have asocial impact with our

customers?”

Learning & Growth“Which skills and

capabilities should weemphasize?”

Processes“Which internal

processes should weoptimise to increaseour effectiveness?”

Financial“How should we

allocate our resourcesfor maximum social

impact?”

Vision & Strategy

Balanced Scorecard The BSC – a methodology for approaching performance

management

Strategic Themes

Vision

Strategicobjectives

Measurement

Targets

Initiatives

Overall strategic vision of the organisationWhat the organisation is trying to be

Support the overall vision and provide areas of emphasis for the organisation to focus its activities (critical success factors)

Further breakdown the vision and themes into more actionable elements

How to monitor the achievement of the strategic objectives (key performance indicators)

What level of performance is needed to successfullyachieve the strategic objectives

Actions taken to improve current performance

“DOING THINGS WELL” “DOING THE RIGHT THINGS WELL”

Balanced Scorecard

Long - term Vision and Strategy

Balanced Scorecard

Short - term Objectives

and Actions

A planning tool to assist in the formulation of long term strategy and translating this into short term objectives and actions

Balanced ScorecardThe BSC - a performance measurement tool organised around 4 balanced perspectives

Stakeholder/Citizens“How do we have a

social impact with ourcitizens?”

Learning & Growth“Which skills and

capabilities should weemphasize?”

Business Process“Which internal

processes should weoptimise to increaseour effectiveness?”

Financial“How should we

allocate our resourcesfor maximum social

impact?”

Vision & Strategy

Objectives:Measurements:Targets:Initiatives:

Objectives:Measurements:Targets:Initiatives:

Objectives:Measurements:Targets:Initiatives:

Objectives:Measurements:Targets:Initiatives:

Balanced Scorecard

Board/Audit CommitteeOBJECTIVES

• List here.

Management/AuditeesOBJECTIVES

• List here.

Innovation/CapabilitiesOBJECTIVES

• List here.

Internal Audit ProcessOBJECTIVES

• List here.

ORGANISATION

STRATEGY

• Experience

• Education

• Training

• Certification

• Reporting Relationships

• Expectations

• Perspective on IA Roles

• Satisfaction Surveys

• Requests

• Complaints

• Improvements

• Findings

• Repeat Findings

• Savings

• Quality Assessment

• Perspective on IA Roles

• Satisfaction Surveys

• Risk Concerns

• List here.

INTERNAL AUDITSTRATEGY

• List here.

MEASURES• List here.

• List here.

MEASURES

MEASURES

MEASURES

Strategic map

Innovation and Capabilities

Internal Auditing Process

Management & Auditees

Audit CommitteeImprove Standing

with Audit Committee

Improve Auditee Communication

Processes

Improve Auditee Satisfaction

Increase impact or value of work

Increase quality of audit work

Increase reliance which can be

placed on audit work

Focus on competency development

Embrace more efficient work

practices

Propagate best practice

Balanced ScorecardThe Balanced Scorecard can help internal auditors assess the efficiency and effectiveness of an organisation

Clarifies strategic objectivesEstablishes performance indicators

Measures performance

Provides feedback on efficiencyProvides feedback on effectiveness

Includes all perspectives of an organisation

Example Measures

Internal Audit Process Effectiveness• Rapid and effective start-up• Effective and timely communications• Development and delivery of practical

recommendations to improve• Results of auditee satisfaction questionnaires

Example of Measures

Audit Committee:Auditing viewed by the audit committeeAudit committee satisfaction survey resultsAudit committee risk concerns

Internal audit process:Completed versus planned auditsNº of process improvementsNº of audits findings recommendationsAmount of audit savingsQuality assurance techniques developedNº of repeat findingsDays from end of field work to report

Innovation and Capabilities:Staff experienceAuditor education levelsTraining hours per internal auditor% of certified staffQuality Assurance technique developedAverage years of audit experience

Management and the auditees:Management expectations of IA% of audit recommendations implementedAudit satisfaction surveyNº of complaints about audit departmentRole of IA viewed by the auditeeNº of management requests

Objective Measure Target Initiatives

Innovation/Capabilities

To have a high quality staff complement (capability and training)

%age qualified staff All staff to have minimum professional qualifications with recognised professional bodies

Develop a capability/competence matrix for each grade of staff

Training hours per year per auditor (grade)

Review training needs based on personal development plans

Example of Measures

IA Performance Indicators

Performance Indicator Description Current Target

Timeliness of Audit Report

% of respondents who agreed that the audit report was produced timeously

Kept Informed of Audit Progress

% of respondents who agreed that Internal Audit kept them informed of progress.

Nº Indicator/Description Measurement

1 Audit Plan DeliveryActual nº of audits delivered against planned nº of audits on the audit plan.

actual plan completion vs planned completion

2 ReportingIssue of draft report after completion of fieldwork.

% of draft reports issued within xx working days of fieldwork completion.

3 ReportingIssue of final report after management response to draft received.

% of final reports issued within x working days of management response being received.

4 QualityCustomer feedback survey responses with either a satisfied or very satisfied rating.

Target xx % of satisfied or very satisfied customer feedback responses.

5 QualityNumber of actions implemented by due date.

Target xx % of actions completed by management when due.

6 QualityNumber of audits completed within planned time budget.

Target xx % of total audit assignments to be completed within planned time budget.

IA Performance Indicators

Critical success factors to implement a BSC

• Top management commitment and support • Cascading strategy down through the

organisation• Awareness and understanding• Organisational alignment• Limited number of measures• Right metrics• Integrated in overall Processes• Continuous process

Benefits

• A common framework and language to share experience and best practice in auditor activity

• A BSC specifies metrics that can be used to assess the effective implementation of the strategic plan

• The potential for greater stakeholder satisfaction with Internal Audit

• The potential for greater integration with colleagues in external audit functions

• Improved levels of service delivery

Realizing strategic alignment of IA function What metrics do you include on a value scorecard to measure

internal audit effectiveness?

• Significance of findings and recommendations• Completed audits per plan • Length of time for issue audit report • Percentage of recommendations implemented • Length of time to resolve audit findings• Process improvement recommendations• Business unit/auditee satisfaction surveys• Audit committee satisfaction• Revenue enhancement/savings/ cost reductions identified• Requests from the business for a review/audit/advice• Support of key business initiatives• Meetings/relationship with “customer”/auditee

Realizing strategic alignment of IA function

Next steps:

• Agreement on approach and areas for setting performance measures

• Identify a need for Working Group

Internal Auditing – Train the Trainers