Today, internal audit reviews a wide range of risks, both financial and non-financial. This makes talent management a critical task for IA leaders.
Only a few years ago, internal audit focused almost exclusively on financial controls. Today, it routinely reviews a wider range of risks – many of which, such as people and performance optimisation, are non-financial. That’s made talent management a critical task for IA leaders.
As the remit of internal audit (IA) evolves – with new risks to evaluate and new technologies to help drive process and culture transformation – so too will the variety of skills that IA needs. A glance at a survey of 400 CFOs and audit committee chairs conducted by KPMG in the US, Seeking value through internal audit, demonstrates how this requirement continues to change.
However, IA’s profile is changing too. “We seeing internal audit functions with much more prominence within their organisations,” says KPMG inthe UK's Head of Internal Audit, Katie Clinton. “They’re developing strong business partnering roles beyond the traditional areas of financial governance. And they’re thinking in a different way, with a more strategic focus – and looking at how the organisation might take advantage of its opportunities.”
The Institute of Internal Auditors makes clear that 21st century IA demands skills such as partnering, communication, diversity and teamwork. Operational and IT risks are heading to the top of the agenda for boards alarmed by disruption and seeking clarity on their transformation projects.
Simply put, IA needs more, and more diverse, skills. To secure them, it needs to focus on:
Hiring talented new people to meet the future demands of the business is crucial, particularly as it is not unusual in larger internal audit functions to see relatively high staff turnover rates.
“The task is made easier if the organisation has a well-perceived corporate culture, and if the internal audit department has a good reputation,” says Flora Spink, KPMG in the UK's Senior Manager and specialist in Behavioural Change Management and Culture. “Is it seen as being dynamic, forward-looking and a springboard for career development?”
“Internal audit should always aim to attract the best candidates and speaking to people informally from outside the organisation who share similar professional interests can be a great way to source talent,” says Tim Childs, director at KPMG in the UK.
Networking also enables heads of IA to speak to people from diverse professional backgrounds – not necessarily active in IA – who may have skills and experience lacking within their teams.
“Internal audit departments need people with deep business knowledge and experience of working on large and complex change programmes because boards want more assurance on key strategic risks,” says Childs. “Attracting people who already have that mix of experience and knowledge is invaluable and saves time,” he adds.
There is also the option of growing skills internally. “Individual and team-wide skills assessments will enable heads of internal audit to establish a training curriculum to develop individual staff,” says Childs.
He adds IA should also aim to develop their own “subject matter experts” so that the function can retain the skills and expertise it picks up on assignments. Also, succession plans are vital to ensure there is a talent pipeline in place.
However, it is important for the function to be clear about which skills it wants to develop in-house and which ones it will continue to source externally. “It’s almost certainly impossible to be experts in everything,” says Childs. “Third parties will typically be the best solution for the skills that are too difficult to develop internally, are required too infrequently, or are too costly to acquire.”
Secondments may prove a useful way to bridge a skills gap, says Jayne Vaughan, Head of Culture at KPMG in the UK. “Bringing people into internal audit from the business is a good way to deal with skills shortages. Audit heads can also do more to encourage a skills exchange with other departments such as IT and risk management so that internal audit benefits from new experiences, techniques and ways of working.”
Many larger businesses go further, with as few as 20 percent of the IA team at any one time being IA professionals. Seconding in operational or functional experts not only boosts IA’s own skills base, but also adds credibility in conversations with front-line staff and management.
Vaughan adds: “Heads of internal audit should also highlight the impact and influence of the profession, and promote internal audit throughout the organisation as a place where people can develop their careers.”
Internal audit can also make more of its relationships with co-sourcers and third-party services providers. Co-sourcing is used primarily to allow audit heads to focus on delivery. But their experience and expertise can also help the internal audit function gain access to best practice thinking.
“If the third-party is engaged to do regular work – quarterly or annually, say – it’s a good idea to ensure the same team comes back each time so that there is continuity of service,” says Childs. “This will help them to build their understanding of the business and its issues, while at the same time helping to develop a longer-term relationship that will yield a greater level of knowledge transfer – around new audit techniques and methodologies.”
Demands for more in-depth assurance on a wider range of issues – around technology, for example, or more diffuse supply chains – means that internal audit functions need to rise to this talent and skills challenge. IA must also respond to changes in the way technology changes and the way it works, too, with developments in data analytics and cognitive technologies set to bring new capabilities to IA.
“IA needs to think about how it might look as a function five and ten years out, in a more automated world,” says Katie Clinton. “The assurance demands are going to be very different. We should start to think now about what that might mean – and how we should respond.”
That starts with a clear strategy to attract, recruit, train and retain talented people with the necessary mix of skills, expertise, and business experience to help management achieve its objectives.