Internal Audit as a Pipeline of Talent

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

 

The concept of rotational internal audit staffing is not new. General Electric’s internal audit function, for example, has employed a purely rotational model and served as a “talent pipeline” for the company for decades. But in the past 10 years, an increasing number of companies have restructured their internal audit departments to include rotational positions and strategically support their companies’ talent needs. According to recent surveys, almost one-third of all internal audit groups now use rotational staffing models. 

At first, the issue may seem simple: Should internal audit be staffed with career professional internal auditors, or should it deploy a rotational model and become a “talent pipeline”? But there is no single accepted model for internal audit staffing. Many internal audit functions have steadfastly adhered to a career staffing model, while others have adopted rotational models. Even then, a variety of approaches are being taken. 
 
Given that there are few decisions with such a pronounced impact on overall internal audit quality, it may be time to take a brief look at what makes different staffing models successful for different internal audit functions.  
 
1. The size of the organization matters.
At larger corporate internal audit departments, the trend toward rotational programs is self-evident: More than 50 percent of companies with revenues of more than US $10 billion now report that at least a portion of the internal audit staff are in the profession on an interim basis. About 10 percent of the time, all of the internal audit positions at these companies are rotational.
 
In government and smaller corporate internal audit functions, the trend toward staff rotation is less pronounced, with about 70 percent of departments reporting only career internal audit positions. Rotational programs may be less common at smaller internal audit functions because of difficulties in maintaining stability and audit/institutional knowledge where the audit staff size is small. I don’t mean to imply that staff rotation is not practical for smaller groups — or that larger audit groups should always have rotating positions. But every internal audit department needs to maintain a certain level of audit knowledge and a certain level of institutional and industry experience. Chief audit executives at smaller audit groups need to be particularly sensitive to the training and staffing demands created by rotational programs and may choose not to rotate all positions within the department. 
 
2. Reputation matters.
Internal audit staff rotation programs work best when people from other departments see spending time in the internal audit group as a valuable experience, and one that will enable them to advance within the enterprise after their tour of duty in internal audit is complete. If the reputation of the internal audit group is solid, a rotation program can bring a wealth of industry experience into the group from other departments. If the reputation of the internal audit group is shaky, there’s a risk that other departments might use internal audit more as a “dumping ground” for borderline employees than as a source for developing talent.
 
The goal is for the rotation program to be a two-way door, bringing talented individuals with industry experience into the department each time an auditor leaves for a position elsewhere in the company. Whether or not internal audit rotation is part of a formal executive development program, participants need to see the value that time spent in internal audit will bring to their careers. 
 
3. Complexity matters.
The trend toward staff rotation may enhance internal audit’s understanding of business risks: Only about one quarter of rotational programs recruit participants from colleges and universities, while 58 percent recruit from other business units within the organization; 44 percent recruit from other companies, and 40 percent recruit from public accounting firms. But conversely, the trend toward staff rotation creates new risks that internal auditors may be unprepared with the specific knowledge of internal auditing that they need to perform their jobs effectively. 
 
When deciding on the rotational model that’s best for your organization, it can help to consider the types of audits that would be assigned to rotational auditors. Is the audit schedule filled with complex derivatives audits and challenging environmental audits, or are there audits that would enable less experienced internal auditors to leverage their industry experience and analytical abilities? A strong staff rotation program that works well in one environment might not be successful at another organization with different auditing needs. 
 
Complexity is also an issue when considering which positions should be rotated within the internal audit department. Depending upon the specific situation, there may be a need for a core group of career internal auditors who do not hold rotating positions.
 
4. Quality matters.
Internal audit rotation programs work best when the department has well-established policies and procedures to guide operations, and when quality mechanisms are in place to help assure that audits will proceed as intended. Does your internal audit group rely as much on unwritten rules as on written ones? Are workpaper reviews sometimes delayed until after the report is issued? If so, a staff rotation program might still work well at your organization, but the chances of a misstep will increase unless a few changes are made. You may want to reexamine your training program, workpaper review system, and other quality mechanisms before considering a move to rotational staffing.
 
5. Executive support matters.
Finally, one of the most unappreciated prerequisites for successful rotational programs is the support of executives outside of internal audit. These are the executives who will be the “consumers” of talent coming out of the internal audit pipeline. They must be strong and enthusiastic supporters of the rotational concept. The laws of physics are unforgiving. A pipeline that has no opening on the other end is destined to remain clogged, thereby frustrating all who are involved.
 
These are just a few of the factors that should be considered when making the change to rotational internal auditing. You may have noticed other important factors. If so, please let us hear from you. Do you think internal audit positions should be career, rotational, or a mix of each? How do you think the decision should be made? 
 

Posted on Jul 17, 2012 by Richard Chambers

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  1. There is no one size fits all issue here when it comes to utilization of rotational internal auditing or keep low staff turnover among core career oriented internal auditors. Internal auditing definition has moved beyond traditional role of tick & tie audit. It includes consulting role provided there is needed talent in audit that meets the goals and objectives of the professional auditing standards. Both the audit committee and management are faced with the same challenge of limited resources to meet audit plans. Given all these constraints, internal auditing is on a more stable footing if there is low staff turnover among core group of career oriented professional internal auditors in the organization. Further, there are different approaches among different internal audit philosophy in its application and execution of the audit viz., have high level audit program outline and develop individual audit programs as auditors are more familiar with business risk profile. Execution of the audit based on the approved audit program requires constant communication between internal audit and different levels of management & operations personnel so that audit risk is down to the minimum and not become a huge reputational or increased level of audit risk profile,

  1. Utilizing experts on a "need basis" by internal audit requires prior budget approval from the audit committee under good business practice. Business risk based audit plan approval should be in place.  Time spent by auditors on non-audit project cannot call in "utilization of experts" since audit committee tend not to approve such requests. Audit Committee charter is a good communication protocol between different levels of management, auditors and other business individuals within the organization. 

  1. In most cases, internal audit function has the most talented and capable staff within an organization. Therefore, the activity has indirect responsibilty to add value to the organization. The more knowledge and experience variation is obtained the more possibilites exist for development. I personally suggest that internal audit activity shoul be able to implement a mix of career and rotation. Career will stand for internal auditing know-how and rotation will stand for other professional enhancements.  

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