The Audit Committee and the Evolving role of the Internal Audit function Dr Claudelle von Eck

The IIA is the creator and custodian of the international Standards for the Professional Practice of Internal Auditing. The Standards

Provides Moral Compass through the Code of Ethics

Navigating through a volatile environment

Internal audit uniquely positioned to be a trusted advisor to the leadership in the organisation

Lack of understanding of the role of internal audit

VALUE PROPOSITION OF INTERNAL AUDITING FOR KEY STAKEHOLDERS Governing bodies and senior management rely on Internal Auditing for objective assurance and insight on the effectiveness and efficiency of governance, risk management and internal control processes.

Key factors for Internal Audit to add value Objectivity Independence Compliance with the IIA’s Code of Ethics Providing independent objective assurance and consulting Compliance with the International Standards for the Professional Practice of Internal Auditing

Lack of support from leadership Findings not taken seriously Recommendations not implemented Too many instances where Audit Committees are not displaying enough strength Death threats where internal auditors blow the whistle

Audit Committee Oversight Public interest? Audit Committee Oversight Ask the right questions Ask the tough questions

Value of oversight Accountability – Complex systems vs primitive nature What gets measured gets done

What gets measured get done If you don’t measure results, you can’t tell success from failure If you can’t see success, you can’t reward it If you can’t reward success, you are probably rewarding failure If you can’t see success, you can’t learn from it If you can’t recognise failure, you can’t correct it If you can demonstrate results, you can win public support” (Osborne L. Gaebler, 1992)

Changing focus of internal audit 2010 Operational audits Auditing financial risks Evaluating effectiveness of control systems Next five years Executive compensation assessments Quality/ISO audits Business viability assessments Investigations of fraud and irregularities Social and sustainability audits Audits of compliance with regulatory code requirements Due diligence reviews for corporate acquisitions/mergers etc

In camera meetings Tone at the top Management’s response to findings and recommendations Internal audit’s independence (70% of internal auditors report intimidation/coercion to sweep finding under the carpet – Where were the Audit Committees?) Interpret what is not said in the audit reports and ask why In camera meetings

One-on-one between the Audit Committee Chair and the CAE Strategy to protect internal audit One-on-one between the Audit Committee Chair and the CAE

Combined Assurance Internal Audit coordinates

Questions to ask the CAE CAE’s capacity IA Function’s capacity Adherence to Standards and IIA SA Career path standards? Budget adequate?

Questions to ask CAE Is the audit plan risk based? Is the audit plan balanced with enough focus on strategic risks Does the audit plan have adequate focus on matters such as ethics, governance, assessing the risks related to reputation, customer service and environmental factors Seniority and reporting lines? Follow-ups being done?

Quality Assurance Reviews King III Chapter 3 : 3.7.3 The audit committee should ensure that the internal audit function is subject to an independent quality review as and when the committee determines it appropriate

Why are Quality Reviews important? For the evolution of the Internal Audit Activity Review of the current activity – Assess current internal audit structure, methodologies and resources Conformance with the IIA Standards Benchmarking with Best Practice Identify opportunities to improve internal audit capabilities and processes Clarify and validate management and shareholder expectations of the department Develop actionable strategic plans to align internal audit with corporate goals

Governance is a Leadership issue Let history judge us kindly

President Jacob Zuma ‘ It can’t be business as usual’ “We will not be able to blame apartheid if some villages still have no water, no electricity and no roads. We will not be able to blame anyone else if children still study under trees, if hospitals are falling apart, and if there are still thousands who live in abject poverty” (extract from Mail and Guardian –23 April 2010)

Thank you! claudelle@iiasa.org.za