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Next-Generation Transformation for Internal Audit Requires a Fundamental Shift in Culture

Scott Springman, Managing Director IT Audit

“Innovation is the ability to see change as an opportunity — not a threat.” Internal audit functions uncertain or even apprehensive about making the next-gen journey and adopting an innovation culture should heed these words from Apple co-founder Steve Jobs. They should also keep Apple’s famous tagline — “Think different.” — in focus, because the change they’re about to embark on is fundamental and requires a significant mindset shift.

But what does an innovation culture for internal audit look like in practice? Our latest edition of Internal Auditing Around the World provides insight through several profiles of leading functions that are advancing their next-generation internal audit journey, or have at least made the necessary mindset shift to be less risk-averse and commit to the challenge of change.

Several chief audit executives (CAEs) we interviewed this year talked specifically about the culture shift that’s underway in their department, and how their teams are trying to be more agile and innovative in their thinking, and to not only embrace but also drive change. For example:

  • The internal audit leader at an international banking group explained his audit teams meet regularly to brainstorm about critical risk areas that warrant continuous monitoring but may not always be covered during periodic audits. He explained, “We’re trying to embed this kind of mindset into our people where we’re constantly identifying emerging risk areas, looking at what’s happening in the industry, and asking ourselves the question, ‘Can this happen here?’”
  • At an audio technology company with a 75-year history of innovation, the CAE of a small but geographically dispersed internal audit function says his team has adjusted their approach to auditing to focus more on emerging risks. This shift was driven, in part, by the need to increase business resilience during the COVID-19 pandemic. He said the auditors now consider supply chain risks, for example, and how customers’ liquidity risks could adversely impact the company.
  • The vice president of internal audit at a specialized workforce solutions company says one mindset shift for her team, as they work to evolve and improve as a function, is to focus more on customer service. She said, “How do we make it as easy as possible for the business to work with us? Thinking like that — about the end consumers of our services — helps to build customer service skill sets from the senior level to the staff level in our organization.”

These may seem like small things, but they can help move the needle on culture change and lead to much more significant transformation over time. Making the point to hold brainstorming meetings regularly, as in the first example, increases collaboration and drives creative thinking. In the second example, auditors thinking holistically about potential business risks in the wake of a major change event demonstrates agility and can help the function become more proactive in its auditing approach. And in the third example, elevating the customer service skills and mindset of auditors working at every level helps the function earn trust and interact more effectively with the business — and that provides the opportunity for internal audit to build a reputation as a value-adding partner.

The interconnection of culture, digital maturity and talent on next-gen success

The current edition of Internal Auditing Around the World also highlights how many leading functions are using tools like artificial intelligence, machine learning and big data analytics to become more efficient and effective in their role as the third line of defense. Without question, culture is playing a role in these functions’ willingness to adopt and experiment with advanced and emerging technologies that help expedite and add dimension and value to their work.

Protiviti’s 2021 Next-Generation Internal Audit Survey finds that a distinguishing characteristic of a digitally mature internal audit function is that it has both an innovation mindset and a culture that challenges traditional approaches and disrupts the status quo. Our survey report explains that actually becoming a next-gen function hinges greatly on the support of an internal audit culture that embraces change and agility. We assert that it’s down to internal audit leaders to instill that mindset throughout the function by emphasizing the need for change and underscoring that success won’t come without it.

Recruiting the right talent for the function is also a must. Several of the CAEs we interviewed for Internal Auditing Around the World told us they specifically seek auditors who, in addition to possessing strong technical and digital skills, are adaptable and flexible and willing to think outside the box, speak their mind, take strategic risks (and perhaps, fail), and be more consultative in their approach.

It’s a tall order, but many leaders remain optimistic in their ongoing challenge to find and develop these professionals. One internal audit leader said she aspires for the function at her manufacturing company to become a “feeder of talent” for the business and a place where people want to come to learn. Another CAE told us his organization has instituted several comprehensive training programs designed to attract, retain and grow talent for the function. And the internal audit leadership team at an insurance company with global operations said that they are executing a talent strategy intended to help them hire candidates who align to an “auditor of the future” profile they recently developed.

Jump-starting internal audit transformation

If your next-gen journey has stalled or hasn’t even started, don’t be discouraged — and don’t give up. You’re not alone. The 2021 Next-Generation Internal Audit Survey also found that most functions are making slow progress toward transformation — especially when it comes to adopting technology. And the profiles in Internal Auditing Around the World show that even leaders still have a lot of work to do.

For strategies on how you can accelerate your internal audit organization’s transition to a next-generation function, from setting the strategic vision to adopting agile auditing practices, see this blog post. Also, visit this page on our website to learn how Protiviti helps internal audit functions transform.

To download a copy of Volume 17 of Internal Auditing Around the World, and to access all of our previous editions of this annual publication, go to this page.

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