Generating a Big Impact With a Small Audit Staff - Part I

Richard Chambers, CIA, CGAP, CCSA, shares his personal reflections and insights on the internal audit profession.

I often hear chief audit executives (CAEs) of small audit shops lament about the challenges of working with limited resources. In a way, I can sympathize. For most of my career, I worked in or led small audit shops. In fact, the first three years that I served as a CAE, I only had three or four full-time internal auditors on my staff. As my career progressed, however, I eventually found myself leading mammoth audit staffs of several hundred auditors. While it was nice to have all those resources to dedicate to the complex high-risk areas of the organization, I never felt quite as proud of our ability to generate “big-impact” audit results as I did with those smaller shops. In my last blog post, I discussed defining big-impact audits. But you may ask, “can we make a big impact with limited resources?”

Several years ago, I had the opportunity to speak at a conference of CAEs who led small internal audit staffs. I outlined six strategies from my own experiences on generating a “big impact” with a small staff. Let’s take a look at the first three.

Strategy #1: Follow the Risk
Audit engagements are most likely to produce substantive results when they pinpoint areas of significant risk to the enterprise. We all know that our professional standards call for engagement plans based on risk assessments. At smaller internal audit shops, however, this important rule sometimes gets shortchanged. Most of us understand the importance of assessing risk as part of our annual planning process, but in the rush to complete individual audit engagements, we frequently skip the assessment phase of engagement planning. Small audit shops have fewer audit resources, and focusing those resources where risks are the greatest is often a key ingredient in generating high-impact results.

It’s important to remember the most common risk factors in audit planning. Each enterprise and business unit is different, but in general I like the list in Sawyer’s Internal Auditing, which identifies the most common risk factors as:

  • Timing and results of previous audits.
  • Materiality and liquidity.
  • Confidentiality.
  • System maturity.
  • Stability of the system.
  • Administrative controls.
  • Employee turnover.
  • Unit revenue and volume.
  • Performance indicators.
  • Public relations.

Strategy #2: Leverage Resources
These days, it’s important for all internal audit functions to make the most of their resources, but at a shop with particularly limited resources, the ability to leverage outside resources can be especially important. While there are many creative ways to leverage resources, the four that I found to be the most powerful when leading small shops included: (a) relying on the work of others, (b) using functional experts, (c) augmenting the internal audit staff, and (d) co-sourcing.

Relying on the work of others can reduce time for planning the engagement. It may include relying on other auditors, inspectors, consultants, or any of a variety of experts and specialists. You might choose to rely on others to limit the extent of testing, to ensure accuracy or quality of work, or to perform procedures to provide a basis for your reliance. Using functional experts can significantly reduce time for planning engagements, and in some cases it can enhance credibility and limit management “push-back.” Functional experts can be hired, contracted, or borrowed, and they can be particularly important at smaller organizations, where maintaining objectivity or diversity of technical knowledge is more likely to present challenges.

Smaller shops also can use a variety of other individuals to assist with an engagement. Your engagement team might be augmented with staff from the audited activity, staff not related to the audited activity (guest auditors), or with temporary or contract employees. (Yes, audited departments are often happy to lend you personnel to assist with parts of the engagement, and if managed properly this approach can be used even on portions of assurance engagements.) Roles for these staff members may include engagement planning/research, gathering evidence, conducting interviews, or implementing quality controls. Leveraging these resources can decrease engagement cycle time, increase productivity, and enable you to include more engagements in your schedule.

Many smaller internal audit shops also choose to leverage their resources through co-sourcing if their budgets permit. Advantages include gaining access to specialized expertise, gaining credibility through use of co-sourced “experts,” and helping ensure quick response time. Typical candidates for co-sourced engagements often include areas such as technology, cost recovery, health and safety, or medical audits, where specialized knowledge is needed.

Strategy #3: Benchmark for Success
Benchmarking is simply a process for comparing the performance or practices of one internal audit organization to another. It can be done either formally or informally, and it is particularly important for smaller internal audit shops, where the CAE may be somewhat isolated from the expertise of other experienced audit professionals.

As a CAE leading small shops, I found The IIA to be an extraordinary resource in connecting me with CAEs of similar sized audit groups. We frequently compared internal activities, processes, functions, or operations. I relied on benchmarking to facilitate improvements of my shop and to accelerate change, using tested and proven practices and identifying areas for improvement. Some of the objectives of benchmarking are to examine performance across organizations and industries in search of practices that are new or innovative. It also can be useful for involving process owners or for convincing skeptics of the need for change. (Remember the salary survey my colleague was reading? It seemed to convince him of a need for change, in salary at least.)

A few of the more common types of internal audit benchmarking include comparing audit charters, comparing briefing materials for new auditors (and for new audit committee members), comparing audit planning processes, and comparing audit reports and reporting processes. Many audit shops also participate in formal benchmarking programs, and small audit shop CAEs are turning increasingly to The IIA’s new Audit Executive Center as a resource.

Strategies #4, #5, and #6
Stay tuned for my next blog post where I’ll discuss making a big impact by improving internal audit processes, measuring results, and conducting advisory or consulting engagements.
 

Posted on Sep 2, 2011 by Richard Chambers

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  1.  The challenge I have is slightly different than the above. This has everything to do with cosourced audit issue in a smaller environment. Cosourced expert drawn from internal organization because of their expertise viz., letters of credit in banking environment tend to cross over to other areas of audit where same expertise could become a drag on the other audit expertise areas. In otherwords, trusting one expert from that specific area in specific product and specific counterparty end up making general control statement and recommendation. This becomes audit recommendation implementation by auditee management accross the line as a standard for control for all products and counterparties. The line gets blurred if the audit report is not classified under risk criteria and control object criteria compared to the benefits derived from having specific product and specific counterparty risk audits in the over all audit universe.

  1. Small audit associations have so meney problems. To me, if they joint toghter, their risks will decrease. It is same about the internal auditors

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