Accessibility Links

How can technology optimise the internal audit function?

23 / 04 / 2019

Is your internal audit function an evolver, a follower or an observer when it comes to technology adoption? These terms, defined by a 2018 PwC report, provide a useful starting point for how internal audit departments approach technological innovation.

Evolvers are the trend setters; they adopt new technologies quickly and set the pace of change within the industry. Followers are close behind, and while they're slower to deliver results, they're keen to implement winning strategies seen elsewhere. Observers are simply watching at the moment - they often have little to no use of technology in their departments.

Last year, followers and observers comprised 46% and 37% of internal audit functions, respectively, according to PwC. Clearly, technology adoption is still in the early beginnings across many teams, despite the much-touted benefits of cutting-edge developments.

But how is technology helping internal audit departments deliver better services? Which technologies are having the biggest impact? And what is preventing auditors from adopting new technologies? Let's try to answer some of these questions.

The benefits of technology adoption in internal audit

Investing in innovative technology doesn't come cheap. Organisations often have to make a significant capital outlay, train existing staff, recruit new auditors with future-proof skills and keep up to date with the latest developments.

Are the results worth the extra time, resources and investment required? Put simply, is the juice worth the squeeze? Here are some of the benefits:

Deliver more value: Internal audit professionals are rated as far more crucial to the business when they are part of a technology-driven team. Three-quarters of internal audit evolvers contribute significant value to their business, PwC found. This figure is just 54% for followers and barely more than one-third (34%) for observers.

Our latest Internal Audit Market Report shows a fierce war for IT and cyber skills is currently underway. Many firms are refusing to put an upper limit on salaries for IT auditors with considerable cyber security experience.

A more integrated risk approach: Organisations also report that technologically adept audit departments are more collaborative with other lines of defence and better aligned with stakeholder expectations. PwC's data showed only 45% of followers work closely with risk management and compliance professionals regarding technology issues, compared with 82% of evolvers.

Better understanding of technology risk: Auditors who use the latest technology within their own teams are also well equipped to understand the associated risks, including cyber security issues and system failures.

Our research found that 44% of employers cited a lack of technical skills as their biggest recruitment hurdle in 2018. If auditors aren't skilled at using the latest technologies in their own departments, how can they provide assurance for these risks elsewhere?

Free up resources: Adopting new technologies typically results in more automation, which enables internal auditors to move away from repetitive and mundane tasks towards more strategic assignments. Some auditors may view automation as a risk to their jobs, but tackling more value-oriented duties will ultimately move departments - and the profession - forward as workplaces evolve.

Lower costs: Automation often goes hand-in-hand with cost reductions, and introducing new technologies into the audit function can improve efficiencies across the board. The initial investment and the transformation projects required for such large-scale changes may act as a deterrent for many firms, but cost-effectiveness is likely over the medium to long term.

3 key technologies for internal audit 

There are many emerging technologies revolutionising how business is done worldwide and three in particular are expected to have a significant impact on internal audit now and in the future.

1. Data analytics

This isn't the first time that we've commented on data analytics within the internal audit function. In the three years since our last article, adoption progress has been slower than expected. Data analytics maturity remains relatively low, with auditors largely using analytics tools as point solutions rather than embedding the technology into a wider strategic focus. Our Internal Audit Market Report found 41% of audit teams were not using any form of analytics within their departments, while 21% had an off-the-shelf package or provider. That said, 38% currently have a dedicated analytics or artificial intelligence team. Data analytics enables businesses to draw insights from massive databases quickly and continuously, providing a real-time internal audit function that can guide a more proactive approach to risk. As audit departments increase maturity, they can begin using predictive analytics, which leverages modelling and simulation to identify risks before they happen.

2. Artificial intelligence (AI)

AI, machine learning and robots are all inextricably linked, with businesses keen to automate key processes through intelligent computers. You can learn more about robotic process automation (RPA) and similar AI projects in one of our previous blogs.

Very few organisations are using advanced AI in their audit functions - PwC claims less than 2% - but RPA is gaining momentum. Internal audit is a traditionally rules-based profession and automating the more prosaic and monotonous elements of the job is an appealing prospect.

Internal auditors are expected to become more knowledgeable about AI as it is introduced into other areas of the business, which will likely happen before the technology is implemented within the department directly. Our surveys show 88% of organisations believe data-driven auditing will make the profession more efficient. A recent Protiviti study also found businesses are confident that AI will eventually increase revenues, profitability, productivity and shareholder value.

3. Blockchain

Blockchain is largely known as the underlying system that allows cryptocurrencies like Bitcoin to operate, but the technology is quickly emerging as a powerful disruptive force in finance and other sectors.

Admittedly, blockchain is in a nascent stage and applications within internal audit are a long way down the road. However, forward-thinking businesses are already beginning to assess how the technology could transform the wider auditing profession. For example, EY last year announced its Blockchain Analyzer, which is designed to facilitate the Big Four firm's audit teams in gathering an organisation's entire transaction data across a variety of blockchain ledgers.

Meanwhile, blockchain facilitates self-verifiable transactions to help reduce fraud and human error. Auditors can therefore begin auditing in real-time rather than waiting until the financial year ends to view statements. The increased transparency and agility associated with real-time auditing could help businesses identify a number of risks ahead of time, potentially swerving scandals such as the collapse of Carillion.

Is internal audit ready for technological change?

The pace of technological change has been slower than many experts anticipated within internal audit, especially when it comes to leveraging strategic data analytics.

But as innovation picks up speed within organisations worldwide, internal auditors that take a proactive approach to technology adoption can enjoy a number of benefits. Lower costs, greater organisational value and a more integrated risk framework are just some of the advantages that innovative analytics, AI and blockchain could provide.

To transform their departments, businesses must invest in the people and skills needed to propel them forward. If you'd like to discuss your internal audit recruitment strategy, please phone 0207 936 2601 or contact me directly at rb@barclaysimpson.com.

Our 2019 Market Report combines our review of the prevailing conditions in the internal audit recruitment market with the results of our latest employer survey.

Photo by Samuel Zeller on Unsplash

Photo by Pavan Trikutam on Unsplash
Add new comment
*
*
*