Meeting stakeholder expectations strategies for responding to the challenges. Mark Stock, Partner PwC

Transcription

1 Meeting stakeholder expectations strategies for responding to the challenges Mark Stock, Partner PwC

2 Value PROTECT ENABLE REASSURE Control What do your stakeholders value? -2-

3 1. The challenge 2. Recognising the symptoms 3. Understanding the root causes 4. Remedies 5. Success factors

4 1. The challenge 2. Recognising the symptoms 3. Understanding the root causes 4. Remedies 5. Success factors

5 Despite strong ambition from CAEs to grow their value to the organisation, PwC s 2017 State of the Internal Audit Profession study shows Internal Audit is losing ground in trying to keep pace with stakeholder expectations. In the five years we ve been tracking this sentiment, 2017 represented the lowest stakeholder perception of Internal Audit value.

6 1,900 participants At a glance 2017 Statistics 42 countries 22 industry segments Chief Audit Executives 1, Wider stakeholders roles Total participants 1,900 1,600 Total participation increased by 19% Mix of IA: Wider stakeholders remains 60:40

7 It appears IA is losing ground. 48% of stakeholders want Internal Audit to reach trusted advisor status for the business however Internal Audit appears to be losing ground in trying to keep pace with stakeholder expectations. % of stakeholders who say internal audit adds significant value 54% 44%

8 A perspective on what I am seeing IA functions are adapting but struggling to translate strategies into meaningful transformation plans that their stakeholders understand. It is true that expectations of IA are rising, but we are also finding that simply maintaining previous expectations is an increasing challenge in the face of disrupted businesses

9 IA s current involvement in disruption is not sufficient 77% of board members and 68% of management believe Internal Audit s current level of involvement in disruption is not sufficient Lack of necessary skills Not a priority investment for Internal Audit Internal audit function Inadequate tools and technology capabilities

10 Are you maintaining your RELEVANCE?

11 1. The challenge 2. Recognising the symptoms 3. Understanding the root causes 4. Remedies 5. Success factors

12 Tell me something I don t know Sound familiar? I thought I knew what they expected, but they have moved on I have become marginalised monthly meetings with CEO have become quarterly They are not aligned I can t satisfy all of them They don t know what they don t know IA don t seem to have the same sense of urgency as the rest of the business Perception is reality

13 1. The challenge 2. Recognising the symptoms 3. Understanding the root causes 4. Remedies 5. Success factors

14 Understanding Stakeholder perceptions PERFORMANCE GAP - Performance v expectation is a performance gap which IA needs to work on. PERCEPTION GAP - Performance v perception this gap is a communication gap where IA need to show Stakeholders what they are doing and the value they are bringing.

15 1. The challenge 2. Recognising the symptoms 3. Understanding the root causes 4. Remedies 5. Success factors

16 Accelerating pace of change for internal audit its likely to be disruptive and requires agility PwC s 20 th CEO survey shows CEOs are optimistic amidst uncertainty. This year s State of the Internal Audit Profession survey identified that Internal Audit s ability to help stakeholders navigate disruption contributes to a stronger perceived value. Closing the value gap and achieving Trusted Advisor status will require Increasing the team s operational capabilities, specifically around risk focus, business alignment, talent and technology. Increasing leadership effectiveness to inspire confidence in the team and among stakeholders. Increasing the team s agility to contribute on the disruptive risks affecting the company.

17 Disruption - a source of challenge and opportunity 58% New regulation 44% Changes in business model or strategy 37% Cybersecurity and privacy threats 36% Financial challenges 34% Technology advancement

18 IA functions deal with disruption by being Agile 18% of internal audit function plays a valuable role in helping their companies anticipate and respond to disruptive events. We call these Agile IA functions. of stakeholders believe that Agile functions are 88% contributing significant value. Prepared + Adaptive = Agile

19 What s your point of view? Do you think Internal Audit has a role helping its stakeholders and organisation navigate disruption? If it did, would it contribute to a stronger perceived value? Does early involvement in disruptions impair IA s independence? Is objectivity a sufficient counter balance? For disruptive events, management wants a quick response, but the deliberate nature of our work sometimes slow things down. In operations mind its a 72 hour turnaround, and we wouldn t have our work planned in that amounts of time. Jen Conley CAE Intermountain Healthcare

20 Prepared Distinctive behaviors 1. Build the likelihood of disruption into planning and risk assessment. 2.Meaningfully collaborate with other lines of defence. 3.Invest in and elevate business and technical IQ. 76% of Agile IA Functions cohesively partner with other risk management and compliance functions to address disruption (vs. 40% of peers) 49% of Agile IA Functions have increased or shifted internal audit budget to enable greater participation in areas of business disruption (vs. 27% of peers) It is a role of Internal Audit to be pioneering and proactive, and if there are changes it has to be ready. Abdulrahman al Harthy Chief of Group Assurance Oman Oil Group Following on from the previous points it therefore goes without saying In order to have the right grasp of how issues affect stakeholders, IA needs to invest in business and technical IQ Example bitcoin/ drones/ meta data/ robotics (are all new, we need apply common knowledge to determine what to focus on)

21 Adaptive Distinctive behaviors 1. Create more flexible processes and reporting mechanisms. 2.Drive the use of data analytics and technology. 3.Implement flexible talent models. We need to be innovative to respond to disruption, which takes courage and capacity. Jim Hunt AC Chair Penn Mutual, Brown & Brown, Nemours Health System 73% of Agile IA Functions change course and evaluate risk at the speed required by the business (vs. 37% of peers) 44% of Agile IA Functions have increased investment in data analytics for risk assessment and continuous auditing (vs. 28% of peers) 74% of Agile IA Functions redirect or reorganise resources as needed to help the organisation manage or respond to disruption (vs. 40% of peers)

22 The Agile IA Function - is more involved than its peers in many disruptors Operational disruption New regulations Change in business model or strategy Technology advancements 75% 75% 69% 68% Brand/reputation incident 64% 36% 45% Financial challenges Digital innovation 61% 60% 31% 35% Percentage who say IA was extensively involved 32% 36% 30% Agile Internal Audit Others

23 The Agile IA Function is involved early in the disruption cycle Providing advice on the process and control design 75% 68% Providing a point of view around disruptive risks 54% 36% Participating in an oversight committee 61% 35% Auditing another function s risk management process 51% 34% Assessing readiness and ability to respond to disruption 55% Identifying the potential for a disruptive event to occur 49% 27% 24% Percentage who say IA was involved in these activities Agile IA Others :

24 Internal External Navigating the risk landscape timescales are getting shorter 4. Unknowns 2. Market Short-term (12-18 month) Internal audit Long term Enduring risks 3. Strategic 1. Business as usual

25 The Agile IA Function helps the organisation better manage risk Internal audit was moderately to extensively involved Overall, the business managed the disruption effectively 88% Digital innovation: 60% 51% 30% 39% Financial challenges: 61% 64% 36% 52% Culture/comp change: 54% 41% 27% 27% of stakeholders with Agile IA Functions report Internal Audit is contributing significant value compared to 41% of stakeholders with less agile Internal Audit functions

26 Accelerating the pace of change within internal audit will likely be disruptive Internal Audit must evolve to keep pace. Business is changing fast, our stakeholders expect more, and we need to disrupt ourselves to deliver maximum value in an evolving business environment. Closing the value gap and achieving Trusted Advisor status will require: Increasing the team s operational capabilities, specifically, around risk focus, business alignment, talent and technology Increasing leadership effectiveness to inspire confidence in the team and among stakeholders Increasing the team s agility to contribute on the disruptive risks affecting the company

27 These functions adopt a different mindset and have significantly changed the way IA works with the business 83% include the possibility of disruption in the IA plan 29% have dramatically changed the IA service model Agile = Prepared + Adaptive 54% have significantly changed the IA risk management process 52% are seen today as trusted advisors/ insight generators by the business

28 Changing the service model flexible IA process and reporting Heartbeat role Health-checks Deep-dives Regular attendance at steering committee or board meetings assess the pulse of the programme and provide independent challenge and a sounding board. Perform an initial project health check over your project new process/ product to assess design/ governance gaps Follow up reviews can be carried out at key points. Deep dives Health-checks Based on specific identified risks or management concerns IA perform deep dives reviews. This can vary substantially depending on the risk identified or concerns over particular issues. Heartbeat role

29 What you can be doing now Things to think about Be deliberate about building preparedness and adaptability into the departmental DNA. Take the time to think more strategically about where you are operating today and what your ideal state is. Is your function doing anything transformationally different today than it did three years ago? Should you rethink how you are measuring your value? Is transformation and disruption within your internal audit function required to remain relevant to the business? Distinctive behaviors 1. Build the likelihood of disruption into planning and risk assessment. 2. Regular evaluation and amendment of the audit plan 3. Meaningfully collaboration with other lines of defencedriving single a risk language and clarity on who looks at a risk and when 4. Invest in and elevate business and technical IQ. 5. Drive relevant and timely reporting to address the immediate business needs. Memos and vs long reports and playbooks vs detailed methodology. 6. Drive the use of data analytics and technology. 7. Implement flexible talent models.

30 1. The challenge 2. Recognising the symptoms 3. Understanding the root causes 4. Remedies 5. Success factors

31 Move from input and output to impact and outcome Right Audit + Robust Opinions + Desired Impact Stakeholders Business

32 Desired destination. I value meetings with IA as they provide a fresh perspective IA pre-empt the concerns I have If I have a concern IA are the first function I think of speaking to because they always have a point of view IA ensure I am aware if the executive team are not aligned on issues IA continuously move my thinking on emerging risks forward IA tell me what I need to hear not what I want to hear takes courage

33 To meet business expectation, Internal Audit needs to be able to execute more agile audits. Speed and flexibility are key - getting the work done and reported quickly; less of audits running on for weeks. - Mike Taylor Head of Global Internal Audit Experian plc

34 Questions?

35 For more information The 2017 State of the Internal Audit Profession Study and related materials may be found at Additional materials of relevance PwC 20th Annual Global CEO Survey The Eight Attributes Delivering Internal Audit excellence as Stakeholders expect more.