Out of the box: can I make the value of internal audit ESG work more widely appreciated?

Added value has been the remit of internal audit for many years. Internal auditors are constantly being told to find new ways to add value and many teams have done this on multiple occasions. However, while this is a worthy end in itself, it’s good to receive as well as to give and innovative leaders and teams will benefit more if they can also demonstrate what this “value” means to their organisation in practice.

Environmental, social and governance (ESG) is one area where internal audit is adding value by offering organisations support that extends well beyond traditional audits – from advice on auditable data and emerging risks to assurance on supply chains and behaviours. This, therefore, is an area where it pays to consider what exactly the “added value” is and how it can be quantified so that management and others across the organisation fully appreciate what internal audit can offer.

This appreciation is not purely a morale boost. It is also an advertisement for the internal audit team, which is useful when seeking more resources and recruiting. If management understands what a high-performing internal audit can do, it is more likely to equip internal audit to carry out work rather than hiring an external agency – potentially duplicating skills and knowledge that are already in-house.

As Richard Moriarty, CEO of the Financial Reporting Council, wrote in Audit & Risk March/April issue: “Within organisations, forward-thinking internal audit leaders can implement pragmatic solutions to mitigate compliance costs and friction. By advising management on avoiding unnecessary governance procedures, they become an ally in balancing oversight with business objectives.”

He was referring to any compliance costs associated with the revised Corporate Governance Code, however the same principle applies to other governance areas. Third-party organisations will be quick to offer help to companies facing new challenges, for example, rapidly developing environmental and cyber concerns. This will come at a price.

Internal auditors may require additional specialist support to take on these tasks, however they start from a vantage point of understanding the whole company and its governance structures. If they can acquire the skills and knowledge themselves – and incorporate what they already know from their everyday roles – they may provide the same (or better) support more cost-effectively. What’s more they will develop their capabilities and understanding of emerging issues and, potentially, enlarge their teams, offering team members more challenges and opportunities. This, in turn, can help teams to attract applicants for vacant roles.

This produces a virtuous circle in which management can see a clear financial and governance gain and therefore starts to value everything internal audit provides more highly. The wheel becomes easier to move as it turns faster. Internal audit teams starting from a strong position with an excellent understanding between chief audit executive (CAE) and board will find it easier to roll with the changes than those that do not yet have this relationship. But being able to put a price on the added value your team can offer is a good way to get the wheel moving.

And there is plenty of research that can help you to put a value on what internal audit can offer.

Anyone seeking more support for their case should check out the Chartered IIA’s reports on Supply Chain ESG Risks and on Organisations’ preparedness for climate change: An internal audit perspective, as well as its Risk in Focus 2024 report. Further reports are available on Cultivating a Healthy Culture and Harnessing Internal Audit Against Climate Change Risk.

The institute also offers training courses on the Basics of sustainable supply chain management and technical guidance on a host of issues, including Auditing supply chains and Climate impact within supply chains.

Internal auditors know the value of internal audit – and, as the annual Audit & Risk Awards showcase, many are adding to it using technology and new ways to respond rapidly to emerging risks. It is essential that this value is appreciated across the organisation and among investors and consumers. It’s hard to put a value on crises that internal audit prevents, but putting a price on the work it undertakes in emerging areas such as ESG creates new opportunities to raise the profession’s profile among those who need to know more.

This article was published in May 2024.