1. Utilizing Internal Audit Metrics to Advance Your Department
May 17, 2018

2. A little about me….
22 years of experience in public accounting performing a wide variety of audit, compliance, and consulting services
Since 2009 have led or been a subject matter expert on more than 30 External Quality Assessments (EQAs) mainly focusing on Fortune 500 companies
Developed PwC’s updated methodology, tools, and training for performing strategic assessments (Generation 2, firm is now on Generation 3)
Developed the firm’s practice aids for developing metrics and KPIs for Internal Audit functions

3. The Struggle with Metrics and KPIs
Most audit departments struggle with metrics and KPIs
Only look at them when its time to do your quarterly Audit Committee reporting
Always worried that what they are reporting is not enough or telling a relevant story
Little or no discussion with Audit Committee and Stakeholders about metrics for performance
Lack the planning to identify, track and develop metrics that are meaningful
Extreme focus on completing audits, leaving departmental improvement actions for “available” time
Disagree on what is impactful for the department and its employees

4. Why Such a Struggle?
Few Audit Committees focus on metrics. Use them to make sure things are progressing, but spend little or no time discussing what story the metrics truly convey .
Stakeholders are more focused on impact of the audit function, not on how efficient or well run the department operates (they assume it already is)
CAEs and other Internal Audit leaders focus on value provided by Internal Audit, although this value typically is not quantifiable.

5. Lost opportunities 1) No strategic plan and/or program management
- Metrics/KPIs can and should be used to improve the audit function through the use of a strategic plan or similar activity.
2) Under-utilization of their Quality Assurance and Improvement Program (QAIP)
- Too much focus on audit work papers
- Not enough focus on improvement activities that can be measured
3) Leadership coaching and development
- Many of the business functions we audit have action plans and related metrics to demonstrate progression and success. So should Internal Audit!

6. Next steps Step 1: Develop a Balanced Scorecard
There are no requirements or required areas, it is based on your company’s and department’s expectations, goals, and improvement opportunities. Example categories may include the following:
- Stakeholder Management
- Financial
- Process
- People
Big learning point: The scorecard should be prepared for both Stakeholders and Departmental use only. Departmental metrics can and should change each year.
For example, take these two metrics:
Completion of audit plan year to date
Average utilization of staff on direct audit activities
Which one would you report to the Audit Committee? Which one would you track internally?

7. Next Steps continued
Step 2: Ask the Audit Committee what they want to see. - In most cases, they ask you what should be reported. - Most common metrics used by audit functions: What’s wrong with this list?
Percentage of audit plan completion
Budget management
Issue management resolution
Department turnover
Employee Certifications
Training completed

8. Next Steps continued
Step 3: Develop a strategic plan AND related project management support to carry it through The second part is where we see time and time again various levels of failure for many functions. But why???  not a core part of our skill set as auditors. It is always last on our to-do list  Audit Committees and Stakeholders are not typically looking for updates on your achievement of your strategic plan. It gets lost in the shuffle.  Performance evaluations are rarely tied to the achievement of strategic plan goals  Little or no linkage to the QAIP activities

9. Areas to consider – Stakeholder metrics
These can be tailored to your specific goals. Be flexible in what you are trying to measure and how that relates to your goals
Category
Metric
Scorecard
Goal
Alignment
Stakeholder satisfaction ratings
Stakeholder
Improvement
Achievement of relationship improvement goals
Strategic
Meetings with executive team
Information & insights
Timeliness of reports
High risk/relevance of issues identified
Issue tracking & follow up
Operational
Trends and insights provided

10. Areas to consider – Financial metrics
Some of these metrics may be used with the Audit committee depending on the desired communication goals for your function. Some of these may be applied in several methods depending on your needs.
Category
Metric
Scorecard
Goal
Cost
Cost to revenue ratio
Financial
Strategic
Cost to external audit fee ratio
Ave loaded cost per audit
Improvement
Cost per FTE
Operational
Budget to actual
Organizational impact
$ recoveries identified
Cost savings identified
Asset efficiencies identified

11. Areas to consider – Process metrics
These are usually internally driven metrics that demonstrate efficiency and effectiveness of department operations
Category
Metric
Scorecard
Goal
Cycle time
Ave days from plan to final report
Process
Operational
Ave days from close to final report
Productivity
Percentage of audit plan completed
Ave utilization on direct audit activities
Improvement
Estimated versus actual man-days per audit
Technology leverage
Percent of audits using specific tools
ROI of technology investments
Strategic
Continuous auditing & monitoring penetration

12. Areas to consider – People metrics
These metrics can be a mix of Audit Committee and departmental use metrics to drive improvement.
Category
Metric
Scorecard
Goal
Staffing model
Staff to management leverage ratio
People
Strategic
Talent
Ave number of vacant positions
Operational
Number of unplanned separations
Improvement
Number of placements into the business
Annual performance rating trends
Percentage of professional credentials
Training hours
Staff satisfaction
Strategic skill gap progress

13. Pulling it together Once you know what you are measuring,
Use your QAIP activities as the process to manage these metrics
Communicate these consistently based on your rhythm of reporting
Add/remove department only metrics as needed based on your goals and plan
Make sure everyone in the department knows what is being measured
Be willing to change your plans if your goals or demands of your business change
Reevaluate metrics at least yearly to make sure they are relevant

14. Thank you!
Questions?