1. INTERNAL AUDIT & INNOVATION A Reality? A Paradigm Shift? Pointless Endeavour?

2. Contents  Introduction  Defining Innovation  Innovation & Internal Audit  Comments and Q&A

3. Introduction  About me  Patrick Kibe – Partner @ Inscap Associates/PK & Partners  Previous Senior Manager Experience at a Big 4 firm  Internal audit experience Involved in Rolling out 1 st Internal Audit Assignment at at a Big 4 firm Banks, Insurance, Commercial, Government & Development Sector Internal Audit Manager at CFC Group Establishing Internal Audit Units & Core Banking Systems Change Risk Advisor  About Inscap Associates  Local Niche Professional Services Provider (started July 2011)  Core Services -Internal & External Audits/Tax & IT/Management Consulting Services  Clients - Old Mutual Group/Futures First/National & County Treasuries & MOH/IFC/DFID/BANK/DANIDA/SIDA/GIZ/EU/ICRAF/AGRA/CARE/SC/JSI

4. Defining Innovation

7. Defining innovation

8. Defining Innovation  Action or process of innovating/a new method, idea, product, approach  Change/Alteration/Revolution/Upheaval/Transform ation/Metamorphosis/Breakthrough  Process of translating an idea or invention into a good or service that creates value or for which customers will pay  Evolutionary– many incremental advances in process/technology  Revolutionary– often disruptive and new

9. Defining Innovation  Innovation important  In Vogue & Buzz Word  Chief Innovation Officers  Innovation Websites & Newsletters  Pressure to link risk management & earnings performance  Proposed Enhancements to IIA’s International Professional Practices Framework (IPPF)  Internal Audit playing prominent role in: Capital projects IT systems implementations Contracts  Creativity – embrace ideas & ambiguity  Innovation – extracting value from ideas  Not always that it matters how “large” the innovation is – great results from every day process improvement and evolution

10. Defining Innovation  What is the Innovation process?  Idea generation – based on insights from experience _ what tools…  Incubation - seek viable outcome – ask internally and stakeholders (look for difference i.e. impact & can we do it (capacity & capability)  Implementation (death bed?) convert idea to outcome/project management – funding, planning, monitoring

11. Defining Innovation  Innovation benefits  Staff satisfaction/Motivation/Retention/Team work  Growth & Productivity  Performance – systems/processes  Customer satisfaction  Organisational agility  Value Addition & Business Growth & Value for Money

12. Innovation & Internal Audit  Focus on the past  Build on strengths  Entrench in business psyche  New efficiencies created/improve margins & motivate people  Focus on the future  Take business to new markets  Owned/led by management  Demands investment for outcomes  Over extended periods

13. Innovation & Internal Audit  Culture dimensions – Leadership & Team  Leadership – tone at the top & culture that enables innovation & shift traditional paradigms  Team – motivation systems & performance management systems that encourage and action on employees curiosity, courage, creativity, collaboration

14. Innovation & Internal Audit  Assess Readiness for Innovation  Is Innovation a Strategic Priority?  Willing to Invest Time & Resources to Support Innovation?  Does Business Culture Encourage Innovation?  Are People Aware or Believe They Can Participate?  What Recognition Systems Exist?  What Tools & Processes Facilitate Innovation?  What Channels of Communication for Progress, Achievements & Learning?

15. Innovation & Internal Audit  Other Important points to consider  Management Signaled Importance of Innovation  Clarity on outcomes  Engaged Involved Committed Team  Communication (Consistent & Relevant)  Road Map, Metrics & Story-Telling  Succession of Key Players

16. Innovation & Internal Audit  Leverage IA function to Corporate Strategy  IA mandate explicit & documented & Aligned with Business  IA Become Relevant by Using Organisation’s Business Strategy to Identify The Risks that Matter Most  IA Strategy (plan, execute, track, adjust, communicate)  Beyond Charter & Annual Plan  Time Horizon Aligned with Corporate Strategy  Stakeholder Expectations (Functional Relevance)  Define IA Vision  Prioritise Key IA Initiatives  Design IA KPIs  IA Operating Strategy and Implementation Plan

17. Innovation & Internal Audit  Employ Critical Enablers throughout  Continuous Assessment of Knowledge & Skills & Fill Talent Gaps Auditor Rotation Programs Guest Auditor Programs  Continuous Risk Coordination – Ensure integrated, seamless Risk Assessments Issues Reporting Work Planning Policies & Procedures Board/Audit Committee Presentations Issue Tracking  Innovation Embedded Embed data analytics in audit planning to guide risk assessment, drive efficiencies & results in tangible value to business & effective communication to management and Board

18. Innovation & Internal Audit  Run IA as a Business  Hold IA to same Standards of continuous improvements and performance as other operational functions in the business  Define, Plan, Execute & Evaluate Drivers to: Value Charter & Scorecard Leadership development Subject-Matter Knowledge Efficiency & Effectiveness of Audit Process Business Relationships, Insights & Advisory Focus Risk Coverage Utilization Optimal Operating Structure Centralized, Decentralized, Hybrid Organizational Alignment, Risk Tolerance, Culture of Organization

19. Innovation & Internal Audit  Run IA as a Business  Evaluate Success & Monitor KPIs defined in Value Scorecard Significance of findings and recommendations Completed audits per plan Length of time for issue of audit report % of recommendations implemented Length of time to resolve audit findings Budget to actual hours Process improvement recommendations Auditee & Board satisfaction surveys Revenue Enhancements & Cost Reductions Identified Requests from business for advice Support to business initiatives ROI on internal audit function

20. Comments & Q&A