Most companies that weathered pandemic-related disruption successfully from an operational perspective entered the crisis with a relatively high level of digital maturity and a trust-based, collaborative culture that together enabled the resiliency (both strategic and operational) they needed to sustain their business models. These strengths allowed them to be better organized and react with the speed and confidence needed to adapt to dramatic change, navigate risk and uncertainty, and even create and seize new opportunities. Looking even more closely at these businesses reveals they also have a resilient, progressive and technologically-enabled internal audit function supporting them.
It’s a strong bet, however, that those terms — resilient, digitally mature, technologically enabled — don’t necessarily apply to most organizations; at least, not yet. While the internal audit profession has undergone significant and positive change in recent years, few chief audit executives (CAEs) can report with confidence that their internal audit organization is well on its way to becoming a “next-generation” function, let alone a digital leader. Yet, many have been evaluating and exploring the use of technology to improve the overall performance of the internal audit function. The most advanced internal audit functions also tend to be those that have embraced, adopted and integrated new methods and technologies.
Findings from Protiviti’s 2021 Next-Generation Internal Audit Survey are a proof point. The results, presented in our report, The Next-Generation Internal Audit Journey Needs to Begin Now, show that most organizations are still in the early stages of their next-generation audit journeys. The “digital leaders” among internal audit functions — those that have made significant progress toward digital transformation and innovation as a core capability — represent a fairly small population. In fact, more than three-quarters (78%) of respondents to our survey report that neither their organization nor their internal audit department can be categorized as a digital leader right now.
Digital leaders show significant strength in areas beyond technology
What defines a digital leader in internal audit? What are some distinguishing characteristics of such a function? Typically, you’ll find that the most digitally mature organizations are, among other things:
- Distinguished by their mindset and approach toward innovation, their culture that creates an innovation-centric way of working and their challenge of traditional ways of working.
- Putting data and technology at the core of almost everything they do. They are using data and enabling technologies like robotic process automation (RPA) to drive efficiency and focus more on creating value for the business.
- Exploring and applying technologies like RPA, process mining, artificial intelligence and machine learning to drive efficiency and gain insights for better informed and timely risk advisory.
- Re-examining all aspects of the internal audit function, from strategic planning and resource management to risk assessment and reporting, to find better ways of working and to deliver increased value to the organization.
Perhaps most important, digital leaders in internal audit have adopted a mindset toward transformation — letting go of the function’s old-school stance of being change- and risk-averse. They have embraced an innovation-centric way of working and are comfortable challenging traditional approaches. They’re always learning and improving. In short, they’re willing to disrupt their status quo continuously and strategically to drive positive change.
Our Next-Generation Internal Audit Survey also found that digital leaders, aside from exhibiting high levels of maturity in their use of data and enabling technologies, have developed strong skills and capabilities in the other two categories that help define a next-gen function. In many cases, digital leaders scored significantly higher than their less digitally mature counterparts in capabilities categorized under methodologies and governance structures.
For example, in terms of methodologies, the digital leaders in our recent survey scored a 6.5 in their maturity level for continuous monitoring, while the score for all other organizations was 4.4, on a 10-point scale. As for governance, digital leaders scored 6.3 for their capabilities in resource and talent management (a critical capability as internal audit functions look to develop and otherwise gain access to the skills needed for future relevance and success), compared with 4.9 for other organizations. These are only two examples showing the often stark contrast in maturity scores between these two groups and a reminder that establishing a mindset and culture focused on innovation is critical.
Increasing maturity and resilience requires an action plan
CAEs and their internal audit teams that are behind the curve in growing their digital leadership and evolving into a next-gen function should not be discouraged by our survey’s findings. The results suggest that even those functions that are well along their transformation journey still have a lot of work ahead of them. Even for the most mature among those organizations, there’s room to grow and improve.
As we move toward a post-pandemic recovery, there is not only a great opportunity but also a great need for internal audit functions to become laser-focused on their next-gen journey and build a function for the future. If the function wants to remain relevant, have impact and be viewed as a value-adding strategic adviser to the business, there is no other option.
A positive sign: The findings from our 2021 Next-Generation Internal Audit Survey make clear that innovation and transformation are important priorities for internal audit groups, generally, regardless of the specific progress they’ve made to date on these fronts.
Whether your internal audit function evolves its skills and capabilities through incremental steps, big leaps or a combination of both, it doesn’t matter. Forward progress is the goal, and with commitment and clear direction, companies can naturally build positive momentum and engagement from within the team and the broader organization.
For internal audit leaders, a first step is to identify opportunities for improvement. Ask yourself and your team: “How can we find ways to perform better tomorrow than we’re performing today?” You can be sure most internal audit functions that are digital leaders now, and closest to achieving the next-generation internal audit vision, have asked themselves that question. They also keep asking it. It’s how they drive continuous improvement and, in some cases, actually end up leading their organization in innovation and digital advancement. And there are processes that facilitate this exercise.
For any internal audit leader who might still be wondering what the value is in becoming a digitally mature, next-generation internal audit function, think about one word: resilience. As leaders elevate and expand the skills and capabilities of their team, the function will become more agile and flexible in both practice and mindset. Those qualities increase the internal audit’s ability to react to change and pressure and bounce back from disruption more successfully. And by being a resilient critical function, the internal audit can help the broader business rise to the challenge of change — whatever form it takes.
Where to go next?
Be sure to download a copy of The Next-Generation Internal Audit Journey Needs to Begin Now on our website at www.protiviti.com/iasurvey to see the full results from our recent survey and get a sense of where your internal audit function falls on the digital maturity scale.
You can also listen to our podcast to hear more about our survey findings.
And take time to download and read Protiviti’s latest edition of Internal Auditing Around the World, which includes 13 inspiring examples of internal audit functions from around the globe that have embraced the challenge of next-gen practices to help their oganizations build business resilience.