Audit in action – the powers of active management
Front-line managers are under relentless pressure to improve the service or product they deliver with fewer people and smaller budgets, and internal audit should have the same imperative to deliver year-on-year efficiency gains. More efficient internal audit provides audit committees with helpful choices. It means we can deliver more audit work for the same cost, or the same amount of audit work at a lower cost. Offering this choice to our audit committees every year is vital for our credibility and relevance.
The pandemic has only accentuated and accelerated this trend by forcing industries and organisations to respond rapidly to unprecedented levels of change.
However, achieving year-on-year efficiencies requires a transformational approach. We must move away from step-by-step linear structures, policies and procedures to develop new, more flexible delivery models. This also involves developing internal audit managers to help them support teams that can flex dynamically to meet the unique requirements of varying needs.
“Dynamic flexibility” is not typically associated with the audit function. So what do we need to change and how can we achieve it?
The problem with passive internal audit management
Traditional internal audit management is often passive and runs on the following lines:
1 Efforts to boost efficiency focus on process (methodology) and systems change.
2 Internal audit managers and engagement leads have a passive approach which leads to inefficiency and process failures.
3 Internal audit management training and development fails to address this because it applies generic management competencies and does not provide post-programme accountability and support.
Passive functional leaders struggle to achieve breakthrough efficiency gains because they get lost in multiple process improvement initiatives that fail to deliver the gains expected.
Increasingly, evidence suggests that successful and sustainable efficiency improvement requires a holistic approach, focusing not just on systems and process change, but also on other aspects of functional change such as operating model optimisation and management operating framework design and associated training.
However, even well-managed and integrated change initiatives may not have a deep, lasting impact if the human behaviour supporting them is flawed.
Unless we focus on developing the skills of our internal audit teams – and especially those of our internal audit engagement leaders – to enable a more empowering, proactive and future-focused approach,
no amount of system or process improvements will achieve the fundamental shift we need.
What does this mean in practice?
Heads of internal audit and internal audit engagement leads are typically promoted to these roles because they are good internal auditors, not because of their operational management skills. Many view the team’s work passively as a series of tasks, rather than focusing more actively on performance. This causes them to manage planning and prioritisation, stakeholder management, team development and engagement in a passive way, rather than with an empowering, active approach. Many are unaware that the links between these activities impact the team’s overall performance.
These weaknesses can include inconsistent practices in fundamental areas such as effective meeting facilitation, action planning, managing challenging conversations and strategic thinking. In combination, they can cause process failures that cause delays and areas that must be reworked because of problems that could have been actively managed in advance.
What does passive management look like?
• Managers react to the day ahead, rather than viewing weeks and months in advance. They employ limited strategic thinking and performance planning, which are particularly important to maximise the performance of multi-skilled internal audit teams and teams that operate remotely.
• Managers spend limited time providing support, coaching, leadership and team engagement. These activities are the key to unlocking higher team engagement and productivity.
• Managers lack structure in their management routines and don’t have the knowledge and skills to access the tools they need to manage actively.
Consequent efficiency and performance problems lead to many familiar complaints from internal audit leads (see figure 1 opposite). If you can fix this, not only will productivity improve, but internal audit team members will become more engaged and will be more satisfied with their contribution.
An “active” approach
What do managers with an active approach look like?
They coach, guide and support the team to deliver its goals. This coaching is performance-based, focused on the commercial need for higher productivity, greater output and alignment to the organisation’s goals. Active managers are goal-orientated strategic thinkers who plan ahead to anticipate problems and exploit opportunities, and they base decisions on the end goal. They understand the balance they want to achieve between task, team and time.
However, most internal audit leadership training is generic and neglects active management competencies. It often fails to address the specific skills and behaviours needed to manage our processes well – such as scoping, stakeholder issue negotiation, issue follow-up and accountability.
Effective support and development needs to be grounded in our daily internal audit work, and should reflect the nuances of the internal audit team’s role so that leadership skills and behaviours link to tangible outcomes.
Furthermore, managers are rarely held to account for deploying these skills when they return to the office and are not given the ongoing support and challenge to make the investment in their skills development really count.
What would a programme that achieves these aims look like? One large international financial services firm recently took this approach and achieved tangible benefits for the internal audit team and its audits in just 12 weeks, according to several measures. The participants also believe that this transformation will be sustainable.
A case study
The first step was to evaluate the organisation’s post-pandemic management operating framework against an exemplar – identifying the management rhythms, behaviours, principles and practices at which internal audit managers and leaders needed to excel to ensure efficient and effective audit delivery, including in remote operations.
This fed into a development programme for management and engagement leads. Once all the participants understood the key tools, behaviours and skills, they began to work on active internal audit leader and team coaching.
This coaching was embedded in their day-to-day work and coaches worked with managers to explore more active approaches to their leadership in the context of genuine management practices and internal
audit methodology.
Supported by their coach, managers and engagement leads practised the skills they needed to introduce a more empowering approach to their management. They explored when and how they should engage with their teams and stakeholders throughout the internal audit cycle, from planning sessions, “tollgate” reviews, sign-off points and engaging with stakeholders as issues emerge, to drafting the final report. They improved their team and time-management skills, identified when they needed to get out of the way of their teams and how they could spend more time looking ahead to anticipate opportunities and challenges to reduce failures in the process.
The coaching also included observations, support and feedback, including action coaching live in meetings to encourage the behaviours they wanted to exhibit and the skills they were practising and developing. An online support hub backed this up with the tools and knowledge they could draw on.
Active impacts
Over three months, the managers shifted to a point where they were using these tools and behaviours to manage actively around 70 per cent of their time. The team’s operational performance became more efficient and individual internal auditors believed their audits were having more impact.
An important element in this success was the fact that the directors were leading from the front, testing and trying new approaches with and alongside their team, and receiving live, in-the-moment coaching at critical points in the internal audit process. In addition, the focus on the team members, including helping analysts and junior managers to learn core skills around stakeholder management, communication skills and time and task management, helped the whole internal audit function to work more actively.
As a result, new post-pandemic operating processes began working better, internal audit efficiency improved and employee engagement reached a record high.
They measured success in several ways. Assessments of the effectiveness of the management operating framework showed a shift from “inadequate” and “highly inadequate” classifications across activities such as risk assessment and planning, effective meetings and conclusion validation to “effective” or “highly effective”.
Feedback from internal audit team members throughout the programme showed not only engagement in the change, but real impact for the business and individuals – there was an average 23 per cent increase in team engagement. They also tracked operational measures of efficiency – internal audit cycle times, for example, fell by an average of two weeks.
These benefits have been sustained, because the team changed not just the “what” and “when”, but also the “how” and “why”. Individuals as well as the wider organisation saw real benefits. Becoming active is not “finished” – this wasn’t about transferring knowledge, it was about transformation and active audit leadership is the team’s new business as usual.
Becoming more “active” is not about doing more, it’s about doing the right thing, at the right time, with the right skills and the right mindset. It’s about balancing task, time and team and focusing on the combined impact of decisions, activities and behaviours on the end goal. Getting fit is not necessarily pain-free – it takes effort and persistence – but to be outstanding we need to become “comfortable with being uncomfortable”.
Jonathan Chapman is senior adviser at Bearing Point and Louisa Latham is senior manager at Bearing Point.
This article was first published in September 2022.