1. Internal Auditing Effectiveness
Train the Trainers
Internal Auditing Effectiveness

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

3. 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

4. Why Internal Audit
Internal Audit is like any other business unit
Increasing requirement to report regularly against agreed performance measures

5. 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?

6. 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?”

7. 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”

8. 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

9. 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:

10. 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.

11. 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

12. 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

13. 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

14. 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

15. 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

16. 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.

17. 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.

18. 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

19. 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

20. 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

21. Realizing strategic alignment of IA function
Next steps:
Agreement on approach and areas for setting performance measures
Identify a need for Working Group

22. Internal Auditing – Train the Trainers
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