Supplying value – award-winning internal audit at Lidl

Pandemics, lockdowns, war in Ukraine, bird flu, disrupted supply chains, soaring fuel and energy costs, natural disasters – all create challenges for the food retail industry. Rapid reactions and communication are critical to responding to these as they arise, and internal audit has an important role to play in supporting resilience.

Discount retailer Lidl’s GB internal audit team had just embarked on a major transformation programme when Covid-19 sent the country into lockdown. The way it grew through the crisis, supported the business and emerged stronger, more agile and better connected in the following months won it the Audit & Risk Outstanding Team – Private Sector award.

When the pandemic struck, the Lidl internal audit team GB had to think on its feet. Supermarkets and distribution centres could not close, so colleague and customer safety was a paramount concern.

At the time, Lidl was opening around a store a week in Britain. “Internal audit covers all stores in the country, from the Orkney Islands to Penzance, from Lowestoft to Haverfordwest,” explains Adam Webley, team manager at Lidl GB. The internal audit team was also expanding rapidly, from just ten people in 2016 to 35 today. It brings together a collective 250 years of Lidl experience and expertise from other areas of the business, Webley says.

The team’s initial response was to switch to helping out directly in stores and distribution centres to ensure that food reached the shelves. Next, they moved swiftly to conducting Covid-19 safety audits to ensure that frontline colleagues and customers were safe according to government guidelines.

So far, so good, but Lidl’s internal audit team went further to expand the ways in which it supported the growing business and to increase understanding among, and cooperation with, business managers. Communication and demonstrating value has been the key to creating real and lasting improvements. In the process, they have identified and helped the business to resolve potential issues, again demonstrating their value to management.

Within the team, an increasing headcount has been matched by further opportunities for training and development. All team members are Chartered IIA members, or are working towards it, and some are on internal audit apprenticeships. 

Two-way flow

However, the aim is also to ensure that the team is multi-skilled by bringing in a variety of expertise from other roles within the business. “Recruiting in-house brings specialists into the team who help us to develop and to explore new avenues of audit,” Webley explains. Internal audit has therefore opened its doors to secondments from the business, hoping not only to increase knowledge within the internal audit team, but also to send managers back into the business who understand what internal audit does and why it matters. Some have chosen to stay in internal audit permanently after their secondment.

“Store managers have joined us on secondment, which not only upskills them, but also improves the operational knowledge of the rest of the team. They can then take knowledge back to their regions and further develop their teams,” Webley says. “Alternatively, if there are positions available, they can continue their journey in audit. For example, one store manager who joined us on secondment is now one of our most experienced audit consultants. Another team member, who was a regional inventory consultant, now conducts audits into fraud, inventory loss and cash processes, bringing 16 years of experience from her previous role in the first line, into the third line.”

The skills that this has brought into the team, plus closer working relationships with management across the business, have led to new audit scopes. “We now trial audits for our international counterparts and work on audit programmes that are later rolled out in all 32 Lidl countries,” Webley says. Another unusual feature is that the internal audit team works alongside the customer service team. The view is that customer service is “the voice of the customer”, so should operate independently of management in much the same way as internal audit does.

The close relationship means that the internal auditors hear about customer complaints or changes in customer satisfaction rapidly and can check whether it indicates a control or governance failure that needs management action.

Right person, right place

One of the advantages of structuring internal audit and customer services together is that internal audit reports are more likely to reach the people who can best use them, according to Tobias Homolka, head of audit and customer service at Lidl GB.

“Too often, senior managers get a report, but it never reaches the person responsible for making changes to future operations, or issues that come up in one area or store are not shared with others that may have the same problems,” he says. “We have over 940 stores and we do a short audit for each twice a year, while others undergo a deeper audit. We use these and our connection with customer services to identify common failings and to track down the root causes. However, the next stage is to communicate this, so managers can check whether it’s happening elsewhere without us conducting further audits.”

Homolka believes that investing time and energy in communications pays dividends, since information is exchanged effectively while boosting the reputation of internal audit and creating contacts with business managers. The team holds quarterly meetings with key stakeholders to highlight trends and the top issues they’ve recently identified that need action. Additionally, the team hosts “consultancy days”, where they hear the concerns of regional managers and help to identify business improvements. They have also introduced a module in Lidl’s training package enabling colleagues across the business to shadow internal audit for a day to help them understand the core processes of a store.

“Our experiences in Covid made us develop a more agile approach, because we need to shift our resources quickly to be where we are most needed when events change,” Homolka says. “We developed the way we conducted audits and our planning as well as the way we talked to managers and the business – we can now say to stakeholders ‘you tell us what you want us to look at.’”

If managers understand internal audit, then they will involve the internal auditors in new projects from the start, he adds. “This year we hosted an open day for head office colleagues, where we introduced the team and explained our mission and value. People attended from every area of the business and we will look to conduct this again in the future.”

Increased communication with management has multiplied opportunities for junior internal auditors to gain presentation experience and exposure, adds Christy Durell, audit manager in the team. 

Destination internal audit

One less predictable benefit of the internal audit transformation is its effect on talent at a time when most internal audit teams across all sectors are struggling to recruit. The team is still growing, but its secondment programme, reputation and development opportunities mean that people from elsewhere in Lidl are queuing up to join – while its experienced internal auditors are reluctant to leave.

“We have a very stable team – the last person who left went 13 months ago, and we have no problem filling vacancies,” Homolka says. “We posted a role a few weeks ago and got 28 internal applications of a high standard within a few days. Internal audit is seen as the place to go to understand the whole business.”

It wasn’t always so rosy. “Historically, we had problems recruiting people because internal audit was not seen as attractive. We had to make it attractive by showing how it adds value to the business,” he says.

The team’s growth is itself testament to how it explains its value to the business. Homolka recalls that some resourcing decisions have required “lots of conversations and influencing”. “You can only do this by delivering – you need to demonstrate value with existing resources before you highlight what you could do with more,” he advises.

Winning the award presented another opportunity to boost the team’s reputation – the awards logo is displayed on Teams backgrounds, email correspondence and even on auditors’ phone cases. They have also produced a video to explain and promote internal audit to the business.

“We put the logo up in meetings so we can discuss it. The fact that it’s an independent award by our professional body is important. We can see from the shortlist that we were judged against large organisations in all sectors doing very good things,” Homolka says proudly.

The award provided evidence that they were performing at the top level. “It was a big thing for the team because this has been hard work,” Homolka adds. “It validated what the whole team was doing.”

This reputation has tangible results. “I was in a store the other day and one of the store managers asked me about vacancies,” Durell says. He is keen to use this reputation and the wide experience of the business within the team to innovate and drive new areas for internal audit.

“Additionally, I think it is vital to identify future leaders within our team to futureproof our operations, so we need to upskill colleagues to move internally and continue their development,” he adds. Developing knowledge and allowing internal audit team members to move into other areas of the business is essential to boost collaboration still further, he explains. 

Challenges ahead

Food retail is again at the forefront of political and social debate as inflation and the rising cost of living hit incomes, and energy and supply chain concerns affect businesses. The Lidl GB internal audit team sees big challenges ahead.

“Food supply is a huge issue worldwide, so we will have three full-time internal auditors exclusively looking at our supply chains and meeting our suppliers for the next 12 months,” Homolka says. “We want to identify where problems might occur and improve our communications with suppliers so we can understand their pressures and resource planning.”

He adds that internal audit is in a good place to offer consultancy support. “Some of our suppliers are much smaller than us and don’t have the internal audit resources that we do. We want to have open conversations about how we can work better together.”

“Our team is the most important thing here because our people speak directly to the business, customers and suppliers,” Homolka says. “Each time we do an audit, we ask for feedback on our performance. Was our report useful? How did they find the process?”

Auditors hand out business cards at the end of each audit giving their personal contact details and a QR code linked to information and a feedback form – so if a manager wants to contact the person who did the audit directly, they can.

“Our feedback has been 98 per cent positive and this gives the team confidence when they do new audits,” Homolka adds. “We know that ‘who stops getting better, stops being good’. We have to question ourselves constantly and ask how we can improve what we do.” 

This article was published in January 2023.