While the Internal Audit function is gaining popularity as a guardian of good corporate governance and the leader of business performance, measuring the Internal Audit’s performance can play a critical role. Regulators and investors are demanding increased scrutiny of an organization’s operation, making the Chief Audit Executive’s (CAE) job more complex and challenging.
Regulators and investors are demanding increased scrutiny of an organization’s operation, making the Chief Audit Executive’s (CAE) job more complex and challenging. As investors home in on business fundamentals and management credibility, the CAE’s oversight of planning and performance takes on new urgency. While the Internal Audit function is gaining popularity as a guardian of good corporate governance and the leader of business performance, measuring the Internal Audit’s performance can play a critical role.
Measuring performance ensures high quality standards for audit strategy, execution and reporting. In addition facilitates integration of the audit strategy with the overall organization strategy thereby linking the audit’s performance to an organization’s mission and objective and in return ensures that all stakeholders audit needs are fulfilled.
- Quality and Compliance Management (system audit, process audit, product audit)
- Good Manufacturing Practices (cGMPs)
- Environment, Health, Safety and Hygiene Management
- Incident and Security Management (facility safety, fire safety, data protection)
- Inventory Shrink, Finance and Accounting, Risk Management
Key benchmarks performance measurement outlined by leading research institutes and a few regulators include:
- Effectiveness of audit in covering key areas
- Feedback of audit findings during audit
- Duration & Timeliness of the audit
- Accuracy of audit findings
- Value of the audit recommendation
- Value added by the internal audit function
The first step towards assessing the Internal Audit function involves reviewing the management expectations and achievements with focus on improving Internal Audit effort. The result should be formally reported to the board/ CEO that leads to increased confidence of the board in the Internal Audit function. The report can also include measures of improvement to achieve better results, if required.
To keep the Internal Audit function on track, CAEs can rely on the following key principles:
- Deep understanding of business and how it creates value: Today’s Executive Management and Business Unit managers want Auditors to clearly understand the underpinnings of business. This is essential not only to assess the business operations but also to foster healthy relationship.
- Integrating the Internal Audit function with Corporate Governance: The Internal Audit function should become an integral part of governance with focus to provide independent advice to directors on the ability of organization to meet its governance obligations.
- Keeping Auditing and the measurement system transparent: The practical performance of a program is not just in technicality of audit function but a crucial component of its correctness. Essentially it also leads to high level of trust - the most critical factor for success.
- Focusing on improving business performance: The Internal audit function should aim to be fully integrated in the business, adding value by supporting strategic business objective.
The CAE is the guardian and the leader of corporate governance and business performance. It is critical for them to maintain oversight of the traditional requirement and the evolving role of Internal Audit function. CAE should put in effort to align people, process, and systems with the overall organization objective, allowing Executive Management to more confidently answer the critical questions investors are asking today about the Corporate Governance and Organization performance.