Is Internal Audit up to speed with digitalisation?
The 21st century is dominated by the word ‘digitalisation’. All companies across industries have points of contact with digitalisation, as every organisation works with technology in one way or another. Nevertheless, the state of progress in terms of digitalisation varies from organisation to organisation depending on its size, financial resources and expertise.
Digitalisation makes use of technology and digital opportunities to help business processes function quickly, cost-efficiently and with agility. It can be seen as a never-ending process. The constant change and adaptation that digitalisation demands from businesses may be one of the reasons organisations struggle to make the necessary transformation and therefore risk becoming obsolete and losing competitiveness. For organisations to respond to the market and remain attractive for clients as well as for their own employees, they must develop a culture of change.
Fig.1: Digitalisation trends
Source: PwC, “How can boards tackle the Essential Eight and other emerging technologies?”, June 2017.
Along with digitalisation, there needs to be a change in the nature of auditing. To continue to contribute value, Internal Audit must first understand the impacts that digital trends are having on organisations. A company’s board expects the people executing an internal audit to possess know-how on the latest technology. Internal audit departments should be able to give advice on how the enterprise should be handling risks and embedding controls in an environment of increasing digitalisation. The Internal Audit function must create awareness so that clients understand the impact digitalisation may have on their business.
But how far has digitalisation matured in the environment of Internal Audit?
In PwC’s State of Internal Audit Survey 20181, more than 2,500 board members, senior executives and Internal Audit professionals across the globe were asked to rate the use of technology by certain functions in their organisation.
1 PwC’s 2018 State of Internal Audit Profession Survery.
Fig.2: Use of technology in Internal Audit
The diagram above compares the overall use of technology in organisations with the deployment of technology within the Internal Audit function. It reveals that while 21% of respondents state that the use of technology in the organisation overall is sophisticated, only 14% say that there is advanced use of technology within the Internal Audit function. Moreover, 33% of those surveyed rate the use of technology in Internal Audit as basic, in contrast to a mere 19% who consider the deployment of technology within the organisation overall to be basic.
The chart clearly shows that the use of technology within Internal Audit lags behind. But what are the reasons for the difficulties Internal Audit is experiencing when it comes to driving digitalisation through technology?
The bar chart below shows the survey’s findings on what diverse aspects are considered to have a crucial impact on hindering Internal Audit from improving the sophistication of its technology use. It clearly emphasises a lack of budget for IT purchases, support or training as a major hurdle (42%) to developing and promoting digitalisation. A lack of skill sets to leverage new technology (40%), and organisational culture (34%), are seen as further barriers.
Fig.3: Barriers for Internal Audit to improve the sophistication of its technology use
Besides a lack of budget, skill sets and organisational culture, Internal Audit functions face some major challenges because of inadequate technology tools (32%).
For Internal Audit to break down barriers in the use of appropriate technology tools, the function must initiate an evolution towards providing added value for the organisation. One way to further develop digitalisation within Internal Audit may be robotic process automation (RPA) – using digital labour to automate manual tasks and thus facilitate the way Internal Audit operates. Economic value, quality improvements, flexible execution as well as speed and agility are only a few of the many benefits that RPA brings. There are also other new technologies besides RPA on the horizon. For instance, infusing more analytics into Internal Audit will help structure big data and get a clear overview of information within minutes instead of hours. Analytics facilitate the way indicators of fraud, risks and divergences are identified.
Returning to the original question − is Internal Audit up to speed with digitalisation? – it has to be said that both the survey and our experience in working with Internal Audit functions suggest there is still room for further progress. The means are available to drive digitalisation with appropriate technology tools. The task now is to implement them appropriately and make greater use of them in the Internal Audit function to create added value for the organisation.