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Internal audit’s digitalisation imperative

Richard Thomas Risk Consulting Leader (Trade, Industry, Services), Territory Leader Internal Audit, PwC Switzerland 28 May 2019

Digital technologies, such as robotic process automation and advanced analytics, are helping internal audit to dramatically improve its performance and influence.  Such technologies are enabling internal audit to be more proactive, strategic, effective and efficient. They allow internal auditors to test an entire population rather than just a sample of transactions, and they can lead to significant cost savings by automating routine tasks.

“As a profession, we should embrace new internal audit technologies to make us more effective and efficient.“

Four digital tools transforming the impact of internal audit

We are seeing significant positive returns from digital initiatives in internal audit, especially in the use of data analytics, process visualisation, interactive dashboards linked to data analytics as well as the merging technologies of robotics and artificial intelligence (AI).

1. Data analytics

The use of data analytics provides positive returns, beginning with the audit planning, and continues throughout the audit execution.

Beginning with the annual planning process, we determine the risk-based internal audit plan with our clients. Using data analytics, we can identify those processes, entities or regions where they have the highest risk. This enables internal audit to focus its available resources on those higher risk areas. Further benefits accrue in the audit execution where we also integrate data analytics in testing procedures.

“Data analytics is not a new topic, but as a profession, internal audit is not leveraging data analytics to its full potential.“

The biggest difference is that we are now analysing entire data populations compared with samples representing, 10-20% of the data. This represents a quantum leap in the reliability of the outcomes and provides greater insights. For these reasons, the majority (54%) of respondents in the ‘PwC 2019 State of the Internal Audit Study’, maintained that data analytics tools had provided a payoff higher than or equal to their expectations.

To what extent have your digital investments paid off at your organisation to date in the area of improved decision making through better data analytics?

Source: PwC 2019 Global Risk, Internal Audit and Compliance Survey

2. Process Visualisation

In our experience, boards and executive committees are enthusiastic about process visualisation. Although they have likely seen the material in worksheets, static texts or presentations, for many it is the first time that they have a truly clear picture of the organisation’s processes. Visualisation tools allow the information to be much more interactive, so users can drill down to examine the data in greater detail and in real time. 

This enables additional insights to be drawn from internal audit reporting. For example, users often see that the processes are not as structured as they originally understood. From there, they start improving such processes and controls to increase their reliability. As a result, visualisation strengthens internal audit’s impact and influence.

3. Linking data Analytics to Interactive Dashboards

A challenge for many internal audit functions is how to present the results of data analytics in a form that is digestible and can be acted on. To strengthen impact, data analytics can be fed into interactive dashboards that provide a hands-on overview of key risk indicators. In many cases, we initially prepared such interactive dashboards for internal audit clients. As we discussed the results and dashboards with them, we found that it was a ‘must have’ for operational managers.  

The main benefit of these interactive dashboards is that as a reader, you are king. You decide what is important for you on the dashboard. And if it is important, you can drill all the way down to that one transaction you want. This not only helps internal audit to fulfil its remit, but also assists operational managers in controlling their businesses.

4. Robotics and AI

Early adopters are already using robotics and AI in both their audit and business processes. According to the ‘PwC 2019 State of the Internal Audit Study’, 16% of respondents maintained that they are currently using such technologies, and an additional 33% said that they will be using them in two years’ time. 

Which of the following best describes your function's use of each of these technologies?

Source: PwC 2019 Global Risk, Internal Audit and Compliance Survey

This is a very exciting area right now, especially in areas such as anomaly detection and predictive analytics. For example, with machine learning, internal audit has the potential to work on anomaly patterns that traditional rules would not allow. 

Closing the gap in three key steps

To ensure that your internal audit function is optimally leveraging the available technologies, we recommend three key steps: assess the state of your internal audit function; develop a strategic plan, or vision, for the internal audit function; and advance your talent model in lock-step with your planned technology advancements.

1. Assess state of your Internal Audit function

This means understanding key stakeholders’ expectations of internal audit (e.g. Audit Committee or Executive Management) and determining the skillsets you have within your internal audit function as well as the capabilities and available resources. With this assessment, you have the basis for developing a strategic vision for internal audit.

2. Develop a strategic vision for your Internal Audit function

This is about where you want to take your internal audit function in three to five years’ time. Key criteria that need to be taken into account include those digital initiatives that are feasible and provide the greatest impact to your organisation, given its specific situation, size and complexity.

3. Develop your talent model in lock-step with your planned technology advancements

According to the ‘PwC 2019 State of the Internal Audit Study’, 54% of global respondents are currently upskilling their talent in Internal Audit. Just as importantly is that this talent development is undertaken in line with the technological advancements that you plan to introduce. 

How does your function plan to attract new talent or upskill current talent to meet its digital needs in the area of implementing training programmes to enhance the team’s technology skills?

Source: PwC 2019 Global Risk, Internal Audit and Compliance Survey

The talent model is important because you do not need to develop all your skills in-house. It is more a question of what skill sets are needed in your talent model to deliver your risk-based audit plan and covering those skill requirements in a cost-effective manner – when and where you need them. In some cases, skills sets will be developed in-house and in others you will bring in support from outside the internal audit function such as a guest auditor or external services provider with special expertise.

“I don’t see Internal Auditors losing their jobs by adopting new technologies. I see the opportunities to refocus our available time on key risk areas that really need our attention.”

Key challenges to overcome

Every digital transformation is subject to roadblocks and challenges. The top three include:  

  • Data availability and quality
    Good-quality data is essential for successful digital transformations. For this reason, it is important to have buy-in from the top in cases where data quality is not what it should be and to help bring about change in this regard. 
  • Fear of change
    Although internal audit team members might profess to embrace change, most want to stay within their comfort zone. It is therefore important to communicate that these new technologies will give internal audit teams the time to focus on the important matters, which require more judgement and more detailed analysis.
  • Skill Sets in teams
    Attracting and retaining the people with the right skill sets will remain a challenge. It is important to recognise the different skill sets of team members when structuring teams. For example, combining team members who are especially tech-savvy with those who have more traditional internal audit skill sets. This will enable individuals to develop in areas they are passionate about.
Revolution not evolution

The digital transformation of internal audit provides nothing less than major advantages. It gives internal audit the ability to provide greater insights to its key stakeholders and improve internal audit’s effectiveness as well as efficiency. It helps internal audit to be a trusted advisor in the company by providing better and quicker insights and recommendations to support the Board and Management in addressing key risks and decision-making.

So be courageous, embrace technology and develop digital skill sets. Be revolutionary in your approach or be beaten by evolution.

 

Contact us

Richard Thomas

Richard Thomas

Risk Consulting Leader (Trade, Industry, Services), Territory Leader Internal Audit, PwC Switzerland

Tel: +41 79 816 27 00