October 2011

IIA North American Board Chairman Larry Harrington’s passion for the internal audit profession will serve him well as he guides The IIA through the formation of a new U.S. institute.

Over the past 70 years, The IIA has expanded throughout the world. Each new outpost addresses the specific needs of its members, while the international organization, headquartered in Florida, promotes the profession more broadly and serves as a clearinghouse for ideas, best practices, and common concerns. Indeed, The IIA now has 170,000 members in 165 countries around the world, including France, Italy, the U.K., India, the Philippines, Sweden, and China. 

Such growth, however, has not been without bumps along the way. At first, as membership slowly grew outside of U.S. borders, something like 85 percent was still U.S.-based, and non-U.S. members started to wonder if too much of the international organization’s attention wasn’t still on its North American origins. Recently, as international growth has dominated — about 100,000 members now work outside North America — the members’ rumblings sounded just the opposite. Was there too much focus on non-U.S. membership and non-U.S. institutes? In the last five to 10 years especially, global organization leaders have begun to wonder whether adequate resources and attention have been dedicated to the needs of members in the United States, Canada, and the Caribbean. That’s where the North American Board (NAB) and its chair, Larry Harrington, come in. Internal Auditor recently talked to Harrington, who’s also vice president of internal audit at Raytheon Co. in Waltham, Mass., about the emergence of a U.S. institute and what it and the global organization plan to accomplish now and in the future.

The NAB is part of The IIA’s Global Board of Directors, with all of its members also serving on the global board. The NAB, which represents the United States, Canada, and the Caribbean, was created nine years ago as global IIA membership started to skyrocket and we realized we needed a stronger focus on North America. One of the first things the NAB did was commission a couple of studies to understand the specific needs of North American members — and how well The IIA was serving those needs. Since those reports, we’ve been focusing on closing the gaps, working hard to make changes and make sure we’re delivering. We formed the NAB with the idea that it could eventually become its own institute to ensure North America is represented globally — and that we provide services that members in North America need. A great deal has changed since then. First, in working through the NAB formation process, our Canadian leaders decided that Canada should have an institute as well. So the NAB has been working for the last two or three years to facilitate Canada’s creation of its own institute. There’s about another year to go in that process. That will leave the United States and the Caribbean, and we intend to redesignate The IIA’s North American Operations Division as either the American Institute of Internal Auditors or the U.S. Institute of Internal Auditors — we haven’t settled on a name yet.

Q. As the NAB solidifies its footing and continues to morph into a freestanding institute, what are its strategic priorities in the near term?

The NAB’s Strategic Goals Larry Harrington, chair of The IIA’s North American Board, elaborates on the board’s five strategic goals.   To be an indispensible resource for our members and chapters. It sounds simple, but one thing that makes this goal complex is the fact that many of the 70,000 members we have are in internal audit shops with fewer than three people. Their needs are very different from those of a shop with 20 or 100 people. Similarly, the needs of internal audit staff are different from those of a CAE, and financial audit staffs’ needs are different from IT audit staffs’. So it isn’t so simple to be an indispensible resource. We use surveys and other methods to determine the needs of our members, and we’ve heard loud and clear that a CAE today has to have fortune-telling capabilities to see risk before anything happens. CAEs tell us they get so busy day-to-day it’s impossible to see the trends, the emerging risks. So we ask ourselves how The IIA can leverage our collective experience to help with that. One way is the Audit Executive Center, which distributes the weekly AEN Alert that does the important business reading for you. We read the Wall Street Journal for you, for example, and we read white papers from firms like Ernst and Young and Protiviti so we can send you an update on the important issues. We also heard from small shops that budgets are tight and many don’t have money for training. So we offer a free webinar every month for members. More than 110,000 members attended the first 12 webinars. Increase awareness and value of the profession to both management and boards. We want to make sure that our voice is being heard and that audit committees and management hear about the value of internal auditing and how it can help the company. What questions should management be asking us? What standards should they be measuring us by? The NAB tries to help management and boards see that, today, internal auditing is more valuable than yesterday. And we try to help make sure our members have what they need to be successful. Be a recognized voice for the profession to policy makers. When Congress talks about Dodd-Frank, we want them to call The IIA to come and testify, to give them our thoughts. We want to be able to shape legislation, to help legislators understand that internal auditing is a cornerstone of controls. Be the preferred resource for government-sector auditors. Why them? There are more than 100,000 government auditors in the United States, at the local, state, and federal levels — and we have fewer than 5,000 in The IIA. We think it’s important because government is so important — as taxpayers, we need to make sure we’ve got the right audits at all those levels. We want to determine why they don’t belong to The IIA and how we can be more meaningful to them and their constituents. Be financially secure and stable as an organization so we can meet our mission and carry out our goals. When the financial crisis hit hard, we were hit at the same time by an operating loss and a reduction in our investment reserves. We’re back on solid financial footing, and we’ve invested heavily in improving our IT infrastructure, including tools our chapters use to communicate with The IIA and with their members. When you’re on solid financial ground, you can make sure that, in good times and bad, you can provide the level of service members need.

Each year, when a new global chair comes in, he or she has a theme. Last year, the global chairman’s theme was “Shape the Future.” The current chair’s theme is “Assess Our Relevance.” The NAB is trying to make sure it provides the resources, knowledge, training, education, and leading-edge practices to shape the future of the profession — so that when we assess our relevance, we are at the highest level possible for our organizations. The core purpose of the NAB is to advance the internal audit profession and to provide the services our members need. Within that broad mandate, we have five specific strategic goals (see “NAB Strategic Goals” at right).

Q: That’s a tall order. What do you think are the primary challenges and opportunities facing the profession?

Two of the toughest challenges we face are technological and regulatory change. The world is changing so quickly. For example, studies now say that someone who graduates from college today will discover in just seven years that most of what he or she knows will be obsolete. I can remember when internal auditors didn’t have laptops! Also, there’s a tremendous drive today around anti-bribery laws and rules and, in the United States, the Dodd-Frank Act in particular. There’s so much happening from a legislative standpoint — regarding enterprise risk management; governance, risk, and compliance; and the like — that internal auditors today have to be able to stop on a dime and switch directions. We must be able to look ahead. It’s so important to make sure the NAB provides a way to do that.

We try to share best practices, ideas, and dialogue about how internal auditors can create positive change. You really have to step back and ask yourself what’s going on with the profession. For example, we found that nonauditors are filling nearly half of the open chief audit executive (CAE) positions at Fortune 500 companies (see the IIA/Korn Ferry report “License to Lead”). The NAB is trying to help members understand why, from talking to recruiters and working with audit committees and CEOs. Why would management want someone who’s never been an internal auditor as CAE? What are the competencies they’re looking for that they’re not finding in their internal audit operations? So we went to other companies that did hire from internal audit, and we can now pinpoint the skill sets that hirers are looking for. One of them is the ability to see the big picture, to see the future. Also important is an ability to understand the business and know where the risk is.

Q: What is your vision for the future of the profession, and what can internal auditors do to prepare for it?

Because the world is changing so quickly, where we think we want to be in five years will be different in five years. Internal auditors need to understand that. One of the best ways to face that change is education. NAB studies show that the average internal audit department gets 40 to 80 hours of training a year. That simply is not enough. There’s an unfortunate feeling today among internal auditors that they already graduated from college, so it’s someone else’s turn to pay for their education moving forward. The most important theme I’ll stress this year as chair of the NAB is that internal auditors need to invest more in themselves. We’ve got to be willing to spend some of our own money on our own education. If we won’t invest in ourselves, after all, why should our companies? A message I always try to get across is this: You own your career. As individuals, we must start to invest our own dollar in ourselves, our certifications. We must invest much more training time than the company provides.

Q: What are the ways internal auditors can prepare for the future outside of conferences and seminars?

Too often, internal auditors fail to determine for themselves a course of education that matches their career goals. A forward-thinking internal auditor needs to spend 200 hours a year on professional education. Here’s an idea. You drive to work. How about an audiobook? How about a learning app on your iPad, so you can learn at the gym, say? There are many ways to grow your knowledge while doing something else. And it’s not a question of where to find the time. If you don’t do something, you’ll slowly become obsolete.

Q: Does the training you’re advocating include gaining a better understanding of the organization and the way it does business?

Start with a focus on internal auditing, of course — spending your training dollars on internal audit training. You’ll find, at the end of day, that success at internal auditing translates to better understanding the business. Spend some time understanding your organization’s contacts, its manufacturing processes, the functions within it that make it tick. Understand best practices in manufacturing, consumer lending, or whatever your business specializes in to bring more value to the organization. I have a real passion for continuous learning, for motivating people to sharpen their skills and do the necessary reading and learning. It makes a huge difference.

Q: The NAB is placing a lot of emphasis on serving as a resource for professional education and career guidance, among other things. How will you know if it’s achieving its goals?

The NAB sees it like this: As legislation affecting companies is passed over the next few years, if it talks about the value of internal auditing or, ideally, mandates an internal audit function, that’s a sign that our mission to make sure we’re influencing the legislative process is working. If we see and hear more from audit committees and management about the value of internal auditing, and we see more people promoted from within the internal audit ranks — in other words, if we see management and audit committees increasingly seeing the value of internal audit — we’ll know we’re making progress. As membership renewals increase, we’ll know we’re more meaningful to our members. It’s all pretty easy to measure. We’re either called before Congress, or we’re not. Management is either hiring more from within, or it’s not. Members either renew, or they don’t.

Q: What do you think has made you successful as an internal auditor and as a CAE?

I’ve worked in several industries, from public accounting, to manufacturing, to financial services, to aerospace and defense. And I’ve worked in several disciplines, including internal audit, finance, human resources, and operations. I think it’s that diversity of experience, both in industries and in functions, that has helped me be a better internal auditor and CAE. It helps me better understand business and risk — and how to get internal audit out in front of creating change, how internal audit can partner with the business to create that change. As a result, people think of us not as auditors, but as change agents. In fact, I recently got a call from a business unit saying it was going through a layoff and asking for our help in thinking through the process to make sure the layoffs didn’t adversely affect the control environment. We were able to help in advance instead of their calling internal audit later to help clean up the mess.

Q: What do you hope your legacy at the conclusion of your time as chair will be?

I’d like for people to use a word like passionate: “He was “passionate” about continuous learning; passionate about us as individuals rising to higher levels; passionate about the profession being of greater relevance than it was before.” If you interviewed all the members of the NAB, in fact, you’d see that commonality around the profession. We all want to make sure we add the greatest relevance we can and that we can measure it. That’s what it’s about right now. We’re in tough times. This is the time for internal audit to really demonstrate to management that we can help identify efficiencies where we are over controlling and under controlling and identify the corresponding potential operational savings. We can be advocates for making sure that even in tough times our companies do the right thing. We’re shaping the future by being relevant today.

 

---

Internal Audit Profession
I must say that internal audit has greater relevance today than any time in the past for the following reasons. (1) Internal Audit profession itself has been understood better in this digital e-commerce world better than before since there is need to have a better process, better system and interact better with individuals who speak differently who come with different cultural background than we normally come across in the on site office audit or exam locally. (ii) Competition that is brought to the higher level of playing field when demand for quality, efficiency and effectiveness are measured instantaneously in the automatic feedback built within this digitally connected system. (iii) As correctly pointed out in the IIA publication, there is greater demand for individual's own investment in their career professional training on audit that is relevant to the business world on an ongoing basis. This brings enhanced risk management techniques combined with risk focused audit techniques.
Posted By: Harish Kumar
2011-10-10 8:30 PM

---

Internal Auditor is pleased to provide you an opportunity to share your thoughts about the articles posted on this site. Some comments may be reprinted elsewhere, online, or offline. We encourage lively, open discussion and only ask that you refrain from personal comments and remarks that are off topic. Internal Auditor reserves the right to edit/remove comments.

Name:

Email:

Subject:

Comment:

---

To make something bold:
<strong>Text to bold</strong>

To make something italic:
<em>Text to italicize</em>

To make a hyperlink:
<a href="URL">Text to link</a>

---