Internal Auditing Effectiveness Train the Trainers Internal Auditing Effectiveness

Internal Audit Effectiveness Basic premise: What you measure is what you get (Kaplan &Norton, 1993)

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 Pros Measures • Measuring the same things • Peer comparison easier Cons • Records the past • Doesn’t consider strategic considerations Measures Audit Plan Delivery Timing of Draft and Final Reports Quality of Service Financial/ Quality Indicators 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 a social impact with our customers?” Financial “How should we allocate our resources for maximum social impact?” Processes “Which internal processes should we optimise to increase our effectiveness?” Vision & Strategy Learning & Growth “Which skills and capabilities should we emphasize?”

The BSC – a methodology for approaching performance management Balanced Scorecard The BSC – a methodology for approaching performance management Overall strategic vision of the organisation What the organisation is trying to be Vision Strategic Themes Support the overall vision and provide areas of emphasis for the organisation to focus its activities (critical success factors) Strategic objectives Further breakdown the vision and themes into more actionable elements How to monitor the achievement of the strategic objectives (key performance indicators) Measurement What level of performance is needed to successfully achieve the strategic objectives Targets Initiatives Actions taken to improve current performance “DOING THINGS WELL” “DOING THE RIGHT THINGS WELL”

Balanced Scorecard Long - term Vision and Strategy 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

Stakeholder/Citizens Balanced Scorecard The BSC - a performance measurement tool organised around 4 balanced perspectives Stakeholder/Citizens “How do we have a social impact with our citizens?” Objectives: Measurements: Targets: Initiatives: Business Process “Which internal processes should we optimise to increase our effectiveness?” Objectives: Measurements: Targets: Initiatives: Financial “How should we allocate our resources for maximum social impact?” Objectives: Measurements: Targets: Initiatives: Vision & Strategy Learning & Growth “Which skills and capabilities should we emphasize?” Objectives: Measurements: Targets: Initiatives:

Board/Audit Committee Internal Audit Process Innovation/Capabilities Balanced Scorecard Expectations Perspective on IA Roles Satisfaction Surveys Requests Complaints Board/Audit Committee OBJECTIVES List here. MEASURES Perspective on IA Roles Satisfaction Surveys Risk Concerns List here. ORGANISATION STRATEGY Management/Auditees Internal Audit Process OBJECTIVES List here. MEASURES OBJECTIVES MEASURES List here. List here. List here. INTERNAL AUDIT STRATEGY Improvements Findings Repeat Findings Savings Quality Assessment Innovation/Capabilities Experience Education Training Certification Reporting Relationships OBJECTIVES List here. MEASURES List here.

Strategic map Audit Committee Management & Auditees Innovation and Capabilities Internal Auditing Process Management & Auditees Audit Committee Improve Standing with Audit Committee Improve Auditee Communication Processes Improve Auditee Satisfaction Increase reliance which can be placed on audit work Increase impact or value of work Increase quality of audit work Focus on competency development Embrace more efficient work practices Propagate best practice

Balanced Scorecard The Balanced Scorecard can help internal auditors assess the efficiency and effectiveness of an organisation Clarifies strategic objectives Establishes performance indicators Measures performance Provides feedback on efficiency Provides 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 committee Audit committee satisfaction survey results Audit committee risk concerns Internal audit process: Completed versus planned audits Nº of process improvements Nº of audits findings recommendations Amount of audit savings Quality assurance techniques developed Nº of repeat findings Days from end of field work to report Management and the auditees: Management expectations of IA % of audit recommendations implemented Audit satisfaction survey Nº of complaints about audit department Role of IA viewed by the auditee Nº of management requests Innovation and Capabilities: Staff experience Auditor education levels Training hours per internal auditor % of certified staff Quality Assurance technique developed Average years of audit experience

Example of Measures 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

IA Performance Indicators 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.

IA Performance Indicators Indicator/Description Measurement 1 Audit Plan Delivery Actual nº of audits delivered against planned nº of audits on the audit plan. actual plan completion vs planned completion 2 Reporting Issue of draft report after completion of fieldwork. % of draft reports issued within xx working days of fieldwork completion. 3 Issue of final report after management response to draft received. % of final reports issued within x working days of management response being received. 4 Quality Customer feedback survey responses with either a satisfied or very satisfied rating. Target xx % of satisfied or very satisfied customer feedback responses. 5 Number of actions implemented by due date. Target xx % of actions completed by management when due. 6 Number of audits completed within planned time budget. Target xx % of total audit assignments to be completed within planned time budget.

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 THANK YOU