Changing Role of Internal Auditors to Digital Auditors

Transcription

1 Changing Role of Internal Auditors to Digital Auditors IS INTERNAL AUDIT READY? 1

2 OVERVIEW OF TODAY S PRESENTATION Defining Digital Transformation Emerging Technology and Change Impact of Digitalization on Internal Audit & Next Generation IA Q&A 2

3 TOP RISKS FOR 2018 From Executive Perspectives on Top Risks in 2018 Rank Risk Issue YOY Trend 1 Rapid speed of disruptive innovations and new technologies Rapid speed of disruptive innovations and/or new technologies within the industry may outpace our organization s ability to compete and/or manage the risk appropriately, without making significant changes to our operating model. 2 Resistance to change operations Resistance to change may restrict our organization from making necessary adjustments to the business model and core operations. 3 Cyber threats Our organization may not be sufficiently prepared to manage cyber threats that have the potential to significantly disrupt core operations and/or damage our brand. 4 Regulatory changes and regulatory scrutiny Regulatory changes and regulatory scrutiny may heighten, noticeably affecting the manner in which our products or services will be produced or delivered. 5 Organization's culture may not encourage timely identification and escalation of risk issues Our organization s culture may not sufficiently encourage the timely identification and escalation of risk issues that have the potential to significantly affect our core operations and achievement of strategic objectives. 3

4 TOP RISKS FOR 2018 From Executive Perspectives on Top Risks in 2018 Rank Risk Issue YOY Trend 6 Succession challenges and ability to attract and retain top talent Our organization s succession challenges and ability to attract and retain top talent may limit our ability to achieve operational targets. 7 Privacy/identity management and information security Ensuring privacy/identity management and information security/system protection may require significant resources for us. 8 Economic conditions Economic conditions in markets we currently serve may significantly restrict growth opportunities for our organization Use of data analytics and big data to achieve market intelligence and increase productivity and efficiency Inability to utilize data analytics and big data to achieve market intelligence and increase productivity and efficiency may significantly affect our management of core operations and strategic plans. Existing operations may not be able to meet performance expectations Existing operations may not be able to meet performance expectations related to quality, time to market, cost and innovation as well as our competitors, especially new competitors that are born digital and with a low cost base for operations, or established competitors with superior operations. 4

5 THE PACE OF CHANGE Uncertain Future Average tenure of companies on S&P 500 is declining rapidly (from 33 years in 1965 to less than 15 by 2025). Rapid growth of technology start-ups with multi-billion dollar valuations. Six of the Top 10 in S&P 500 are now technology companies: Apple, Microsoft, Amazon, Facebook and Google. Predictions that half of S&P 500 will be replaced in the next 10 years. Technology companies dominate Glassdoor Best Companies to Work For and are magnets for talent. 5

6 THE PACE OF CHANGE User Expectations Changing Expectations of technology (both internal and external) are changing as users increasingly demand real-time reporting, continuous access to data, immediate decision-making and technology on demand. Client Expectations Real-time, online reporting of customer account activity. Organizations have continuous access to customer data. Purchased devices are ready for immediate use. Transactions are approved in minutes. 6

7 INNOVATIVE DISRUPTION IN PRACTICE 7

8 INNOVATIVE DISRUPTION = DIGITAL TRANSFORMATION Customer Engagement Digitising Products & Services Better Informed Decisions Operational Performance Exploring new ways to build strong relationships with customers Launching new, enhanced products, and exploring new business models Enhancing information available to enable timely and effective data driven decision making Creatively using technology to improve performance 8

9 DIGITALIZATION REALITIES Third Party Ecosystem Digital Veneer Market Presence: Customers Prospects Promoters Digital Veneer Digitalization of Core Operations Business Partners: Service Providers Suppliers Channel Partners Agents Digital Veneer 9

10 DIGITAL LEADERSHIP IS A STATE OF MIND Internal Audit function is expected to audit inactivity! 10

11 DIGITAL MATURITY LEVELS / SCALE Digital Sceptic Digital Beginner Digital Follower Digital Expert Digital Leader React to competition Risk averse Embracing change Collection of point solutions Clear strategy Agile Effective at change delivery High levels of automation Low cost base Hyper scalable Innovative Disruptive

12 EMERGING TECHNOLOGIES ENABLING CHANGE Internet of Things Social Technologies Cloud Computing Mobiles Devices/ Beacons Big Data and Decision Science Robotic Automation and AI FinTech and RegTech Blockchain and Virtual Currencies Drones Biometrics and Voice Recognition 12

13 APPLYING THE DIGITAL LENS TO EVERYTHING AN ORGANIZATION DOING Speech recognition Natural language recognition Machine learning Ecosystem Partners Collaboration Tools Controls Automation Robotic Process Automation Data Science / Data Visualisation Customer Experience Analytics Process Analytics Custom Development

14 THE NEXT GENERATION OF INTERNAL AUDITING Catch the innovation wave Internal Audit, Risk, Business & Technology Consulting

15 DEFINING THE ROLE FOR INTERNAL AUDIT The impact of innovative disruption and inability of the business to change are two of the biggest risks today. Internal audit has to have an opinion on how effectively these risks are being managed. 15

16 IMPACT OF DIGITALIZATION ON INTERNAL AUDIT Internal Audit Perspective A forward-looking audit function should provide insight, oversight and foresight around an organization s current and future risks and controls, including those related to digitalization. Insight Oversight Foresight Past How can the process, measurements, and controls be modified or enhanced? What are other companies doing? Are you missing out on some best practices? Present Is the process operating as planned? Are controls, resources, and performance measures adequate and operating effectively? Are policies being adhered to as intended? Future Where is this process going? Can it scale as the company grows? Will current controls be adequate in the future? What planned or future adjustments should be considered? 16

17 IMPACT OF DIGITALIZATION ON INTERNAL AUDIT Important Points To Consider As digital technology gets embedded in traditional business areas, internal audit teams need to develop and/or acquire the relevant skills to enable them to assess, provide oversight and understand related risks. Large-scale digital transformation programs will require audit assessment and oversight, but smaller, high risk digital related projects must not be overlooked. As organizations progress on the path to digital maturity, internal audit teams may start commenting to the digital planning process and potentially providing an opinion on the strategic plan itself. 17

18 THE NEED FOR INNOVATION With well documented advances in new technologies and the drive for innovation and digital transformation, businesses today are facing lot of disruptions. These disruptions are continuously challenging internal audit functions to remain relevant. Large scale changes are being driven by use of data and technology. IA not only must respond to these changes, but also must be prepared to assess if the business is undertaking its innovation and transformation initiatives in the best possible manner As transformational changes ripple through different departments and business units, chief audit executives (CAEs) and other business leaders face a make-or-break choice: disrupt or be disrupted. The world we have created is a product of our thinking; it cannot be changed without changing our thinking. - Albert Einstein 18

19 WAY FORWARD FOR INTERNAL AUDITORS Adapt Evolve Transform Key Questions to consider for Internal Audit Leaders in order to embrace Next Gen IA: Are you positioned to respond to changing key business risks associated with digital transformation initiatives? Are you able to leverage enterprise data efficiently to conduct risk assessments and continuous monitoring? Have you added resources and skill sets, to address increased expectations from internal and external stakeholders? Have you started to use technology to enhance the IA function along with relying on existing methodologies? Are you still relying primarily on point-in-time risk assessments? Are you still performing audits and reviews in the same way as in years past? 19

20 GAME PLAN FOR NEXT GEN IA To get started on the journey to become a next-generation internal audit function, you ll need a clear roadmap. But the very first step, in our view, is establishing the mindset and commitment to: Transform your internal audit group s governance, methodologies and enabling technology capabilities needed to address emerging business risks. Increase internal audit s effectiveness and efficiency while fulfilling the function s core mission to protect organizational value. Start thinking differently. Reassess the design and capabilities of internal audit, striving to become an agile next-generation internal audit function that embraces the benefits of technology and transformation Key Success Factors Establish an agile mindset See the forest Empower your people to innovate Seek quick wins Recognize two sets of ripple effects Integrate adaptability into the design Internal audit functions will soon look and operate very differently than they do today. As the current pace of innovation accelerates, the current challenges internal audit functions confront while delivering on their core mission will only intensify. By choosing to disrupt their functions proactively rather than waiting passively to be disrupted, future-minded CAEs will boldly take their functions to new frontiers of performance. It s time to start thinking differently. Internal audit are you ready? 20

21 NEXT GENERATION INTERNAL AUDIT 21

22 DIGITAL TRANSFORMATION OF INTERNAL AUDIT Next Generation Internal Audit Process Mining Process mining tools can fundamentally change the way that we analyze processes and perform audits. Automate the walkthrough process Data tells us what is actually happening versus what we think is happening Support risk assessment activities Real time monitoring for process deviations or hot spots Drill down for root cause analysis and quantification 22

23 DIGITAL TRANSFORMATION OF INTERNAL AUDIT Next Generation Internal Audit Robotic Process Automation (RPA) RPA is the use of software tools that function as a virtual workforce, mimicking human interaction with existing applications to automate a variety of business processes. Common Internal Audit use cases include: Data request & control artifact gathering Testing automation Increased coverage (true statistical sampling / full population) Work paper / template preparation GRC data download / upload Continuous monitoring Identifying open items, conducting follow-up, documenting remediation status Tacking and monitoring KRIs Automating reporting & dash boarding activities 23

24 DIGITAL TRANSFORMATION: MAKING DIGITAL REAL VOICE RECOGNITION AND NATURAL LANGUAGE PROCESSING

25 D&A MATURITY ASSESSMENT DATA COLLECTION INDEX [DCI] DATA GOVERNANCE QUOTIENT [DGQ] ANALYTICS VALUE DELIVERED [AVD] 3.75 ANALYTICS INFRASTRCTURE SCORE [AIS] ANALYTICS ADOPTION QUOTINET [AAQ] ANALYTICS MATURITY SCORE [AMS]

26 Q & A 26

27 RESILIENCE AND PERFORMANCE IN A DIGITAL AGE 27

28 DIGITAL TRANSFORMATION EXAMPLES Speech recognition Natural language recognition Machine learning RegTech solutions Collaboration Tools Controls Automation Robotic Process Automation Data Science / Data Visualisation Customer Experience Analytics Process Analytics Custom Development Digita l Use of machine learning technology to improve performance of call centres (effectiveness and quality); Application of Natural Language Process technology to extract details from contracts to meet new lease accounting requirements; Reinventing audit process to drive efficiencies and to increase level of assurance provided; Utilisation of robotics and other automation solutions to drive efficiencies in shared service centres; Rethinking traditional approaches to identity and access management, using chatbots, RPA and behavioural analytics; Using Machine Learning and RPA to improving performance and reducing cost of AML monitoring and reporting activities. 28