Presentation on theme: "Auditing Governance Functions. Page 2 Agenda ► Defining Corporate Governance ► Internal Audit’s Role in Corporate Governance ► Areas of Audit Focus ►"— Presentation transcript:
Auditing Governance Functions
Page 2 Agenda ► Defining Corporate Governance ► Internal Audit’s Role in Corporate Governance ► Areas of Audit Focus ► Regulatory Considerations
Auditing Governance FunctionsPage 3 Governance Functions ► Regulatory and rating agency landscape has changed, with an increased scrutiny on Governance functions, such as: ► Board / Governance Reporting ► Enterprise and Operational Risk Management ► Technology ► Emerging Risks ► Continuous Monitoring
Auditing Governance FunctionsPage 4 Corporate Governance ► Governance is the combination of processes and structures implemented by the board to inform, direct, manage, and monitor the activities of the organization toward the achievement of its objectives. ► Board of Directors ► Audit and Risk Committees ► Corporate Committee Structure ► Management ► Enterprise Risk Program ► Compliance and Regulatory Program ► Technology Program ► Social Responsibility Program
Auditing Governance FunctionsPage 5 Internal Audit’s Role in Governance ► Internal Audit’s role in governance is as follows: ► Independent testing and verification of efficacy of corporate standards and business line compliance ► Validate the overall risk framework ► Provide assurance that the risk management process is functioning as designed and identifies improvement opportunities Through its dual consulting and assurance roles, internal audit can provide tremendous value to a dynamic organization by focusing on areas of greatest exposure, complex operations and key business initiatives, to validate that the organization is well controlled and operating effectively and efficiently to meet the strategic goals of the firm.
Auditing Governance FunctionsPage 6 Governance Functions ► Internal audit must assess and make appropriate recommendations for improving Governance in its accomplishment of the following objectives: ► Promoting appropriate ethics and values within the organization ► Ensuring effective organizational performance management and accountability ► Communicating risk and control information to appropriate areas of the organization ► Coordinating the activities of and communicating information among the board, auditors, and management.
Auditing Governance FunctionsPage 7 ► Enterprise Risk Management Considerations ► Commensurate with size, risk profile, complexity, and growth of the enterprise ► Provide increased business awareness ► Incorporate risk considerations in decision making across enterprises Enterprise Risk Management
Auditing Governance FunctionsPage 8 ERM Framework Step 1: Establish ERM Framework Identify Project Champion Identify Project Owner Establish Steering Committee Step 2: Identify Key Objectives List Key Objectives Prioritize Key Objectives Select objectives for assessments Step 3: Identify Key Risks Assess Risk Assign Risk Rating Step 4: Manage Risk Identify Control Controls and Mitigation Requirements Develop Mitigation Plans for key risks Perform periodic status reviews Repeat steps 2 – 4 for additional control objectives
Auditing Governance FunctionsPage 9 Enterprise Risk Management ►No formal framework to identify, prioritize and communicate risks ►No ongoing risk monitoring and/or risk management enhancement activities ►Risk appetite not articulated or defined ►Lack of aware awareness of Enterprise Risk Appetite ►Failure to communicate with executive management, audit committee, and business units on a consistent and formal basis to discuss expectations, business strategies, objectives and initiative ►Policies and procedures do not exist, are not documented, are inadequate or are not followed
Auditing Governance FunctionsPage 10 Enterprise Risk Management (continued) ►Performance goals and objectives drive behavior inconsistent with overall Enterprise ethics or standards
Auditing Governance FunctionsPage 11 Corporate Social Responsibility (CSR) ►CSR: The way firms integrate social, environmental, and economic concerns into their values, culture, decision- making strategy and operations in a transparent and accountable manner and thereby establish better practices within the firm and contribute towards society improvements. ► Responsibility : ► Board of Directors ► CSR Executive ► Management
Auditing Governance FunctionsPage 13 CSR Risks (continued) ►Reputational Risk ►Violations of law or principles ►Errors or omissions in disclosed CSR information ►Under-performance compared with objectives/targets ►Appearance of indifference to social issues ►Compliance Risk ►Failure to comply due to the extent, complexity, and volume of regulations relating to the environment, health and safety, employment, governance, political contributions, conflict of interest, and fraud. ►Contractual obligations with third parties, such as customers, unions, or employees, and from voluntary adoption of standards.
Auditing Governance FunctionsPage 14 CSR Risks (continued) ►Operational Risk ►CSR “pressure points” for the organization’s manufacturing processes, products, services and impact on the environment. ►Under-performance of other targets due to inappropriate CSR strategies, or over-emphasis on CSR strategies. ►Failure to integrate CSR objectives into processes, or to educate staff appropriately. ►Failure to develop well-controlled systems for CSR initiatives. ►Inaccurate or incomplete reporting information. ►Challenge to apply same standards across multiple countries.
Auditing Governance FunctionsPage 15 CSR Risks – contd. ►Liability Risk ►During contracting for CSR terms and conditions and ensuring third-party compliance. ►Activists or specific classes/special interest groups may take legal action for alleged harm done by the organization. ►External Business Relationships ►Customers, suppliers, or partners could violate CSR terms and conditions, principles, or laws, yet the organization could be included as a wrongdoer by association.
Auditing Governance FunctionsPage 16 ► Understanding the as-is governance structure enables the organization to make only the necessary changes ► Building principles based on organization-specific drivers is the basis for a working governance model ► The governance principles will act as the foundation of the governance framework and set the scene for the later model ► After running through the lifecycle once, organizations are able to iterate the governance lifecycle without external support IT governance should not be a one-time exercise Technology IT governance follows a lifecycle
Auditing Governance FunctionsPage 17 IT governance decision areas IT principles IT architectures IT infrastructure Applications IT investments ► How is IT used within the business ► Providing direction for IT delivery ► Organisation and structure of IT assets ► Approach to integration of IT assets ► Enabling applications and architecture ► Managing IT assets ► How to support business processes ► Software platforms ► Determine the total IT spend ► Prioritising conflicting investment needs ► Governance decisions are either taken centralised or decentralised ► By business, IT or both of them ► Mechanisms have to be aligned to organizational and operations model as well as IT strategy
Auditing Governance FunctionsPage 18 Aligning business and IT on different levels IT Executive Steering Committee IT Governance Council IT Governing Bodies: Architecture and technology boards IT Governing Bodies: Service delivery boards Service delivery through business and IT IT client manager architecture owner CIO, CTO, senior IT management Service manager IT management Joint IT governance boards Business level Business process owner Board, CEO, COO Key user Business management Business process frameworks Approve Decide Facilitate Design IT service management frameworks e.g. ITIL IT level
Auditing Governance FunctionsPage 19 Planning ► Developing IT strategy including sourcing philosophy ► Build corporate IT organization ► Setting corporate IT goals ► Agreeing on IT performance targets with IT customers Leadership ► Setting the overall direction for IT within the corporation ► Maintaining cultural values, corporate image and voice ► Representing corporation’s key IT stakeholders Coordination and compliance ► Ensuring compliance with IT standards and obligations ► Coordinating IT activities between IT demand and supply ► Coordinating IT deployment Monitoring and control ► Qualitative benchmarking ► Managing service levels ► Managing a penalty system ► Identifying areas for service improvement Capital allocation ► Determining capital available ► Determining IT investment criteria ► Reviewing bids for capital ► Allocating resources Policy ► Setting the fundamental IT operating procedures ► Establishing standards, rules and guidelines ► Defining technical and application architectures IT governance IT governance domains
Auditing Governance FunctionsPage 20 Technology Governance Considerations IT objectives and strategies Inherent key IT risks Link risks to IT processes Evaluate management and control activities Link objectives to risks Evaluate the significance of the risk to IT objectives IT processes ►IT process duplication and inefficiencies ►Emerging technologies ►Technology direction ►System disruptions ►Contracts/3rd party vendors – outsourcing ►Records retention ►Regulatory compliance ►People management ►Global sourcing ►Business continuity ►Asset and portfolio management ►IT infrastructure capacity ►IT security/privacy ►Financial reporting Guidance and oversight Strategic planning Superior service support and delivery Continuity of services Protection of information Optimize operating efficiency Effectively manage security risk Information security and protection IT operations IT governance and strategy IT development and design Infrastructure and asset management Change management Service level management Production support Security and data management Customer support Deliver superior Systems and applications Technology enablement to achieve business objectives Project/program management Problem and incident management
Auditing Governance FunctionsPage 21 Regulatory Expectations ►Failure to establish and maintain an internal control environment which aligns stakeholders and regulatory expectations ►Failure to identify relevant laws and regulations ►Lack of procedures to comply with applicable laws and regulations ►Insufficient or inadequate training of staff on regulatory requirements ►Failure to establish adequate working relationship with regulators or authorities