Fraud Audit

Ethics investigations can be challenging for just about any organization. If done right, an ethics investigation can help you identify wrongdoing and unethical behavior and put a stop to it before your organization pays the price for not maintaining a conducive and compliant work environment.

A poorly executed ethics investigation, however, can become a full-blown legal case, with the organization risking reputational and financial damages.

Customers and Shareholders prefer engaging with a business that’s known to be highly ethical. This means your business has proper systems for reporting, investigating, and implementing recommendations to improve ethics within the company and its workforce.

But how can you conduct a successful ethics investigation to ensure the least possible legal and reputational trouble for your business? Here’s a look into the process.

What Would Warrant an Ethics Investigation?

A workplace ethics investigation is typically conducted when there’s credible information about significant misconduct, wrongdoing, or ethical lapses within the organization. These include office theft or fraud, health and safety violations, misconduct such as harassment and workplace violence, and time theft, such as altering time sheets for greater earnings.

An ethics investigation can also be warranted if there have been allegations against other employees to exclude the possibility of wrongdoing within the company. For instance, employee whistleblowers expose fraud in an organization 43 percent of the time compared to professional internal auditors, who only successfully uncover it 19 percent of the time,.

An ethics investigation aims to protect the company’s and its shareholders’ interests. It detects and prevents violations and misconduct, identifies areas where the business can improve its internal operations, and ensures the company’s activities comply with applicable laws and regulations.

An ethics investigation will unearth whether suspected misconduct did or did not take place, the circumstances leading to the misconduct, the involved parties, and whether the law or company policy was violated. An ethics investigation must be perceived to be independent, thorough, and analytical.

Whom Should Be First Informed of an Ethical Issue?

Typically, employees should be able to report potential ethical issues to their manager or supervisor. If this option is impractical or the manager or supervisor can’t resolve the issue, they should be able to speak up to people in higher positions and get the audience they need. This may include making a complaint through the company’s compliance hotline or corporate ethics office, where their reports can be heard and determined impartially and with maximum confidentiality.

Ensuring employees have a clear channel for making complaints and addressing them is crucial to avoiding lawsuits related to ethical issues and compliance and saving your organization expensive legal fees.89% of employees who sue their employers do not receive a satisfactory resolution to their issues internally.

What is the Process of an Ethics Investigation?

An ethics investigation can take various stages depending on the industry or organization and its ethics investigation process. However, most investigations take the following steps.

1. Taking the Initial Complaint
An ethics investigation begins when you’re alerted of unethical behavior by someone within the company. The employee will file the complaint through the necessary channel or people. They will be responsible for documenting as much information as possible about the alleged misconduct.

The information filed from the complaint should include who is being accused of misconduct, what information has been given about their behavior, where the misconduct allegedly happened, how it happened, and when it occurred.

This information should be forwarded to your HR team and the department most affected by the ethical incident.

2. Ensure Confidentiality
Every aspect of an ethics investigation must be kept confidential. Maintaining confidentiality is crucial to the investigation’s integrity. If the investigation is not kept confidential, you risk consequences such as:

  • Undermining the success of the investigation since others know of it
  • Reputational damage to the accused if others learn about the allegations
  • A compromised ability of the company to defend against any legal action associated with the investigation
  • Liability and negative publicity for the company
  • Retaliatory action from the accused
  • Attempts to cover up the misconduct by the accused

Confidentiality begins immediately after the complaint is received. No other party should know that an investigation is underway, who is the subject matter, the evidence and materials gathered, the processes followed, and the investigation’s results until the final report is ready.

3. Give Interim Protection
Protecting the accuser or alleged victim should be one of the top considerations immediately after receiving the complaint. Separating the accused from the alleged victim may be necessary to avoid continued harassment or retaliation.

Some protective measures include providing a leave of absence, transfer, or schedule change. However, the complainant must be willing to take these measures. Otherwise, they can view your actions as retaliatory and file a retaliation suit.

4. Select an Investigator
A competent investigator must handle an ethics investigation. Typically, the investigator should possess the following traits:

  • Investigate objectively without bias
  • Have no stake in the outcome, a personal relationship with the parties involved, or have their position in the organization affected by the outcome
  • Possess previous investigative knowledge and working knowledge of labour and employment laws
  • Strong interpersonal skills to build a positive rapport with the involved parties and appear neutral and fair
  • Right temperament to conduct interviews
  • Attention to detail

5. Conduct Investigations
Once you’ve selected the investigator, you should start the investigations immediately, working quickly to identify and stop the unethical behavior before it spirals into bigger organizational issues.

While conducting investigations, the investigator should be thorough in finding the truth and reassuring employees that their submissions are confidential and non-retaliatory. This will ensure they’re more honest, contributing positively to the process.

6. Provide Guidance and Recommendations and Document the Report
Once you’ve completed the investigations, the investigator should present all gathered information and provide a recommendation for the company moving forward. This may involve recommending disciplinary action against the accused employee and effecting policy changes to ensure such incidents don’t reoccur.

After completing this process, you should write a detailed and comprehensive investigation report to provide a reference for future investigations and clear evidence that the investigation was conducted according to procedure.

Having a written investigation report will also help your legal team make a defense in court if the accused employee disputes the disciplinary action in court.

7. Talk to a Compliance Expert
An ethics investigation is a crucial process that your organization must handle properly. An effective ethics investigation process will help your organization remain compliant and avoid damaging lawsuits that can hurt its reputation and finances.

We can hope that we will never have to conduct an ethics investigation, but at most organizations of any size, the time will likely come at some point where we must. Following these steps should ensure a sound and productive ethics investigation. Done right, a proper investigation can get to the bottom of wrongdoing, put an end to the bad behavior, and hold those responsible to account.

Audit International are specialists in the recruitment of Auditors and various Corporate Governance Professionals including Internal Audit, Cyber Security, Compliance, IT Audit, Data Analytics etc. across Europe and the US.

If you would like to reach out to discuss your current requirements, please feel free to reach us via any of the following:
Calling
– Switzerland 0041 4350 830 59 or
– US 001 917 508 5615
E-mail:
– info@audit-international.com

Audit International know the common expression, “you only get one chance to make a good first impression.” For internal audit, this chance often comes during the kickoff meeting. This introductory meeting will often set the tone for the entire audit. Its primary objective is to align the auditors and auditee on the audit’s scope, objectives, timeline, and expectations. The meeting provides an opportunity to establish clear lines of communication, clarify roles and responsibilities, and build rapport between the audit team and the auditee.

Here, Audit International will provide a step-by-step guide on how to conduct an effective internal audit kickoff meeting, highlighting its importance, objectives, key participants, and necessary preparations.

Preparing for the Internal Audit Kickoff Meeting

There are several steps internal auditors can take to prepare for the kickoff meeting. They include:

  1. Define the Audit Objectives: Clearly articulate the purpose and goals of the audit. Identify the specific areas or processes to be examined and the desired outcomes.
  2. Determine the Scope: Define the boundaries and limitations of the audit. Specify the time frame, departments, locations, or functions to be included.
  3. Assemble the Audit Team: Select auditors with the relevant expertise and knowledge. Assign roles such as lead auditor, documentation reviewer, and subject matter experts as necessary.
  4. Conduct Pre-Meeting Research: Familiarize yourself with the auditee’s processes, policies, and applicable regulations. Review previous audit reports, findings, and corrective actions.
  5. Prepare an Agenda: Outline the topics to be discussed during the meeting. Allocate sufficient time for each agenda item and prioritize critical issues.
  6. Send Invitations: Distribute meeting invitations to the key participants, including auditors, auditee representatives, management, and any other relevant stakeholders. Provide the agenda and any reading materials.

The Internal Audit Kickoff Meeting Process

If you have prepared well for the kickoff meeting it should go smoothly. Keep in mind that auditees may have some anxiety about the upcoming audit. They will often have preconceived notions that they audit may be an exercise in the internal auditors trying to play “gotcha!” It’s important to alleviate these fears and clearly communicate the purpose of the audit.

They may also have concerns about the schedule of the internal audit work and see the audit as a distraction from their day-to-day duties. Indeed, we all have busy schedules and they may view the audit as providing extra work on top of their already full days. For this reason, it’s also important to be transparent about the scheduling of the audit work and to work to make the audit as painless as possible for the process or unit that is being audited.

The following are some steps to take during the kickoff meeting to help allay these fears, set expectations, and communicate clearly to the auditees:

  1. Introduction and Opening Remarks: a. Welcome all attendees and introduce yourself and the audit team members. b. State the purpose of the meeting and the audit’s importance to the organization. c. Outline the meeting’s agenda and expected outcomes.
  2. Review of Audit Objectives and Scope: a. Present the audit objectives, scope, and expected deliverables. b. Provide an overview of the audit methodology and explain any unique approaches or tools to be used. c. Discuss the audit timeline, key milestones, and any dependencies.
  3. Roles and Responsibilities: a. Clarify the roles and responsibilities of the audit team members. b. Define the roles and expectations for auditee representatives, including the provision of requested documentation or information.
  4. Communication and Information Sharing: a. Establish channels and protocols for communication throughout the audit process. b. Discuss the frequency and format of progress updates, status meetings, and any interim reporting requirements. c. Specify the confidentiality of information shared during the audit and any data protection measures.
  5. Document Review and Access: a. Discuss the documents, records, or systems that auditors may require access to during the audit. b. Explain the need for auditee cooperation in providing necessary documentation promptly. c. Address any concerns regarding sensitive or confidential information.
  6. Q&A and Discussion: a. Provide an opportunity for auditees to ask questions or seek clarification. b. Encourage open dialogue and address any concerns or challenges raised. c. Seek input from auditees regarding specific areas of focus or potential risks.
  7. Closing Remarks: a. Summarize the key points discussed during the meeting. b. Reiterate the importance of cooperation and commitment from all parties involved. c. Establish the next steps and confirm any follow-up actions or meetings.

Post-Kickoff Meeting Actions

Congratulations, you’ve conducted a great internal audit kickoff meeting. The internal audit team and the auditees are now on the same page and everyone knows what do expect during the audit. The initial work involving the kickoff meeting isn’t done, however. To set the upcoming audit on the right path there is still some work to do. Post-kickoff meeting activities include:

  1. Documentation and Reporting: Document the meeting minutes, including the key discussions, decisions, and action items. Distribute the minutes to all attendees for review and confirmation.
  2. Follow-up Actions: Assign responsibilities for any action items identified during the meeting. Set deadlines and establish accountability to ensure timely completion.
  3. Ongoing Communication: Maintain regular communication with auditee representatives to address any queries or provide clarifications as needed. Share progress updates and adhere to the agreed-upon reporting schedule.

Conducting a well-executed internal audit kickoff meeting is a crucial step towards a successful audit process. It establishes a foundation for effective communication, collaboration, and understanding between auditors and auditees. By clearly defining the audit objectives, scope, roles, and responsibilities, the kickoff meeting ensures a focused and efficient audit process. Preparing adequately, following a structured meeting agenda, and documenting the discussions and action items contribute to a productive engagement. By leveraging the guidance provided in this article, organizations can maximize the value derived from internal audits and drive continuous improvement within their operations.

If you have executed the kickoff meeting well, the auditees will be all smiles when you arrive to conduct the actual audit.

 

Audit International are specialists in the recruitment of Auditors and various Corporate Governance Professionals including Internal Audit, Cyber Security, Compliance, IT Audit, Data Analytics etc. across Europe and the US.

If you would like to reach out to discuss your current requirements, please feel free to reach us via any of the following:
Calling
– Switzerland 0041 4350 830 59 or
– US 001 917 508 5615
E-mail:
– info@audit-international.com

Audit International realise that for many internal auditors, the audit committee is a bit of an enigma. Most of you help the chief audit executive (CAE) or other internal audit leader with materials and content to provide to this subgroup of the board of directors. Much of your work, in summary fashion, ends up there. But, for the most part, we only know what happens behind the closed doors of the boardroom if your CAE conducts a post-meeting debrief. Yes, we know that the audit committee is important. We know that they take our work seriously. But what do they really want from us?

For internal audit leaders themselves, the meetings can be intimidating. The majority of audit committee members are experienced executives from other companies and often serve on other boards. They are generally savvy, informed individuals, who spend a part-time role executing governance duties for the organization where we work. So, while they might, at times, be proactive—meaning, they raise questions or lines of inquiry based on something they initiate—mostly they are reactive, responding to what is presented to them. That means the onus is often on internal audit leaders to help them in their role by carefully choosing what to share with them.

Yet walking the fine line between providing too much detail and maximizing the little time we have with the audit committee can be tricky. Internal audit leaders often express anxiety about meeting with the committee. It can be difficult to anticipate what they may find important versus what they would consider a waste of time. Indeed, internal auditors can be forgiven if they just want to shout the famous Spice Girls refrain: “Tell me what you want, what you really, really want!” So, let’s give that a try: What does the audit committee really, really want?

First, What the Audit Committee Doesn’t Want

During an Internal Auditors career, you report functionally to an audit committee on separate occasions, with different companies. You might foolishly think that you would give them lots of information and let them decide what was important. It’s a trap that is easy to fall into. It takes time, experience, and some good mentors to gain the wisdom to realize that is absolutely the wrong tactic.

It is an evolutionary process to slowly realize that reporting to the audit committee is not about what you want to tell them. It’s only about what they need to know. To cite an often-used phrase: “be brief, be insightful, and be gone.” Keep it short, share the needed knowledge, and let others take their place on the agenda. It’s not about you; it’s about your audit committee members.

What the Audit Committee Does Want

Here are ten things that Audit International have learned that the audit committee of the board wants from internal audit. We hope they work for you when it is your turn to directly interact with the audit committee.

1) The essence of the quintessence: This phrase, “the essence of the quintessence,” was shared by a chief operating officer of a bank once, and it stuck with us. Basically, he was expressing that he and the other execs were busy folks and they want to get right to the bottom line. Don’t just tell me what you are telling me, but tell me why you are telling me. Get to the essence of the quintessence! And that’s what the audit committee wants too! So, if you feel you really must share something with the audit committee, ask yourself why it is so important that they know it. If you can start your phrase with, “this is important because …,” then they probably need to know it. They want the bottom line and the why. The rest is superfluous.

2) Not how you did something, but what you concluded: Have you ever asked someone how their vacation went and they start by telling you about the car ride to the airport? You are being polite, but all the while you wish they’d just answer the question. You want to know about the experience at the destination, not how they got there. Well, the same is true with the audit committee. All the work we did to arrive at our conclusions is important to us, but not to them. They only want to know the conclusion. So, cut to the chase. They trust you did all the right work to get there.

3) Your opinion, not just the facts: Internal auditors follow standards, confirm everything, and don’t spout wild, unsupported views on subjects. We are methodological in our pursuit of facts and the truth. So, when we have made a conclusion, we are usually armed with supporting facts. If not, we tend to refrain from going out on a limb with an opinion. Resist the urge, however, to stick only to the facts. You are not a robot; you are a person with a brain. You have a range of experiences to draw upon and see more of the organization than most anyone else. So, does the audit committee want a Joe Friday, “just the facts ma’am,” approach? Not really. They trust you have done the work and want to hear your views on various topics. If they ask your opinion, trust your instincts and give it to them. If you don’t, you really aren’t adding as much value as you can.

4) Your concerns, audited or not: Whether you are new to an organization or have been there for many years, your well-honed internal audit skills will leave you with an innate ability to have concerns about certain things, whether you have actually done internal audit work on the topic or not. If you had unlimited time and resources, you’d go check out all those nagging worries, and confirm or deny them. But you don’t. The audit plan may not have prioritized it, but that doesn’t mean the concern isn’t valid.

Now, the audit committee has no desire to hear lots of speculation or theories, nor are they interested in trivial things. But, believe me, if you have a good relationship with the audit committee, they want to hear your top concerns, even if you don’t yet have all the facts. You just need to be extra careful in how you position what you say, and you do so rather infrequently. But they do want to know. As they say, that’s why you get paid the big bucks.

5) Something of substance in executive session: One experience that is among the trickiest for a CAE to navigate is the executive session with the audit committee. During the typical executive session everyone who is not a board member leaves the room and the internal auditor meets with the audit committee alone. Over the course of a few years of executive sessions with the audit committee, I can say from experience that there are two things you never want to do: one is to have something to tell them in every executive session, and the other is to have nothing to tell them in any executive session. So, the goldilocks theory applies here, you want to strike the right balance. What to bring up, how to bring it up, and what you need to do both before and after you bring it up is a whole course in and of itself. It is an art, not a science. Don’t be trivial or cavalier about what you bring up. The audit committee wants you to bring things up, and they want them to be of substance.

6) Proof you really get the business and the strategic plan – Whether it is deserved or not, a common complaint by operating leaders and managers within many companies is that internal audit does not understand the business. The last thing you want is for the audit committee to second guess your conclusions. So, if you are confident that you know the business and the strategic plan (and you’d better be), let it show. It should show up in your audit plan, your priorities, and your explanation of internal audit’s observations and conclusions. Don’t risk having the audit committee doubt you. They want comfort that you know the business and are in lockstep with the strategic plan. Give them the confidence that you do.

Another point to make here is to remember that you are a businessperson. As we go about our internal audit work, we tend to put blinders on, as if the audit plan and the audit projects are the only reason for our existence. Of course, they are not. So, when we update the audit committee on what we are doing, what hat are we wearing? An auditor’s who happens to work for the business? Or a businessperson’s who happens to be an auditor? The audit committee wants the latter.

7) That you align with second line functions: Not always, but often the only way that second line functions (risk management, compliance, security, and others) coordinate and collaborate with internal audit is if internal audit (namely the CAE) initiates the coordination and takes a lead role in it. Apart from the added cost of redundant activities, the audit committee doesn’t want a bunch of disjointed terminology, reports, and conclusions coming from the various “risk and control” functions of your organization. They want you to coordinate and collaborate across the second and third lines. If they aren’t telling you that, they are telling someone else behind your back!

8) Courage: Like everyone else in the organization, days are always going to bring obstacles, difficult co-workers, things not going according to plan, changed schedules, broken promises, and other hurdles. But, more often than many other employees in other departments, you will from time to time be called on to summon up some courage. From an obstinate audit client that is making your job difficult to a senior audit client manager that is disagreeing with you no matter how right you are—not to mention fraud investigations, hotline accusations, and executives who are doing questionable things—you are going to come across matters that are so egregious that you must raise them, regardless of the consequence. They are, hopefully, rare, but if you are in internal audit long enough, those times will arise. They will require backbone and strength of conviction, and are not for the faint of heart. But guess what, that is exactly what the audit committee wants from you: a reservoir of courage and the ability to call on it when it matters most.

9) That you understand the politics, but are not political – All organizations are political by nature. Whenever people get together and resources are scarce, win-lose games happen. Corporate politics are a fact of life. As much as we’d all like to be apolitical and let the facts drive what the right answers are, if we don’t learn how to navigate the organization’s politics, we will not be able to get our jobs done effectively. Does that mean we need to use the politics to our advantage? Sheepishly, the answer is yes, but not in an underhanded way. It’s important to know who to talk to, about what, and when; how to position what you are going to say; who needs a heads-up on what; who are the influencers in the organization; and so on. We need to know all that and leverage it to our advantage. Our audit committee members are some rather experienced and savvy businesspeople, and they are also navigating the organization’s politics to do their governance jobs. So, yes, they do expect you to understand the politics to get your job done well and know how to report things to them with an understanding of how the politics works, but they also don’t expect you to be overly political.

10) That you know when you may not be objective: Objectivity is such an important tenet to what internal auditors do and how we do it that we need to be ultra vigilant and self-aware when there is a risk of our objectivity being impaired. Audit committees expect us to be self-aware of when our objectivity might be impaired, or even the potential appearance of it being impaired. So, park that ego, realize you are subject to your own biases, and be self-aware enough to advise the audit committee when your objectivity could be impaired. They expect you to do that.

Earning that Paycheck

Even though they may not tell you directly, take it from us that your audit committee wants you to: be brief, tell them only what they need to know, share your professional opinion, be open about your concerns, leverage executive sessions properly, understand the company’s strategic objectives and strategic plan, collaborate with the second line, be courageous, know the business, navigate organizational politics, and say when your objectivity might be impaired. Easy peasy. Well, not really. But, as we concluded, that’s why you get paid the big bucks.

 

Audit International are specialists in the recruitment of Auditors and various Corporate Governance Professionals including Internal Audit, Cyber Security, Compliance, IT Audit, Data Analytics etc. across Europe and the US.

If you would like to reach out to discuss your current requirements, please feel free to reach us via any of the following:
Calling
– Switzerland 0041 4350 830 59 or
– US 001 917 508 5615
E-mail:
– info@audit-international.com

Audit International now bring you the second part in this three part series – Having introduced the initial concepts of what is involved with auditing organizational culture in the first article of this three-part series, we now can begin the process of drilling down and more closely examining the first five of the top ten tips to conduct a culture audit.

Identify your cultural levers:
The first step to successfully conducting a cultural audit is to identify the daily management activities that occur throughout the organization – your cultural levers. These levers look to align the culture we desire with the day-to-day activities of everyone in the organization. If we understand what leaders focus on to deliver this alignment, then we have a starting point for identifying what to test to provide our opinion on the effectiveness of culture.

Cultural levers often vary from organization to organization, so you need to work with management to identify what is influencing behavior within your specific organization. However, there are areas that I would expect to see. Published value statements are significant and an indication of what should be happening. Leadership is also significant, not just at the top but cascading throughout the organization at all levels. In this context, the organization’s approach to people management is vital with the impact this has on encouraging the behaviors that are needed for success. However, culture goes much deeper and is present in the management of other resources, including areas such as customer engagement, complaints handling, supplier management, corporate responsibility, risk management structures and profile, and internal and external communication.

This may appear daunting, but a well-organized approach to assessing each lever can quickly identify areas that are not truly aligned with the espoused values; a clear indicator that desired culture is not operating as expected.

The next four tips examine these cultural levers more closely to illustrate what they mean and to help inform you about the questions you might want to consider testing in order to arrive at an opinion on the organization’s culture.

Reputation:
Employees watch what leaders and key individuals in organizations do and how they operate. They see the dissonance between what the organization is saying, both in its external and internal communication, and their lived experience of working there. Assessing whether there is alignment is a key aspect of any audit of culture. This is even more important given the increased focus over recent times on aspects of corporate and social responsibility and the push for Environmental, Social, and Governance (ESG) activity from investors. Acquisitions of ‘greenwashing’ in your communications can be hugely damaging. This means that it is important to pay attention to external reputation and its alignment with internal messaging and should be considered across all social media.

Leadership:
The third tip is all about the examination of leadership’s role in owning and managing the culture in the organization. In internal audit, we need to examine whether this is occurring both at design and operational effectiveness levels. We are there to check that the activities of leaders are aligned with the espoused values and are supporting the delivery of the business strategy. In our audit work we should be looking for a consistency of message and actual managerial behavior. Leaders play a pivotal role in managing the business such that there is consistency across activities and that they work toward delivering the required culture for success. To do this practically, we need to build audit programs that look for evidence of areas such as misalignment in leadership actions and customer-centric examples that manifest in the practical activities of front-line colleagues. Leadership should be able to clearly demonstrate actions that they have conducted that help move the organization closer to accurately living the culture and evidence-measurement activity that supports this.

In this context, during an audit, I would expect leaders to be able to articulate how they ensure the culture is embedded through their team’s day-to-day activities, including examples of how they role model the culture in their own activities and interactions. Interviews will form a significant part of assessing these. However, data analytics can also be used to examine areas such as communications from leaders over a period of time looking for references to culture.

Simply put, what you are looking to establish here is whether the fine words on a page have a living connection with reality and link through to a real impact on the delivery of the organization’s strategy.

People management:
This leads us to the next cultural lever – people management. The key here, as with all aspects of cultural audit, is alignment. Across the entire employee lifecycle the behaviors we need to exhibit for the business to be a success need to be front and center. This starts with the employment brand, which should signal to potential recruits what the organization’s values are and includes the testing of new recruits against this. Objectives need to be set not only about what is needed to be delivered in terms of financial results, for example, but also how these results will be achieved.

Performance management needs to be expertly conducted to explore the colleague’s contribution to delivering organizational success in the way we want it delivered. This should be a continual process and include ongoing dialogue, not just an annual form-filling event. Promotion decisions should clearly consider this aspect and signal to all colleagues how behaving in the right way counts for personal success.

In developing your audit program, you need to consider all aspects of the employee lifecycle: attraction, reward, management, development, and exiting colleagues. In reviewing all these aspects, you need to be cognizant as to where the controls are operated. In most organizations, while the Human Resources function is likely to have a key role in the design of many of the practices mentioned, the management of the risk and operation of the controls largely sits within the business units of the organization. That is the place you need to be testing reality, not just within the HR function.

Identify key processes and assess alignment:
Next, we move on to two heavily connected cultural levers: process and change. When reviewing your organization, a key step is to identify the processes that are critical to the management of the organization’s culture. From this, you can review whether their operation is consistent with the outlined culture. In this case, we mean the culture promoted not only to your employees but outside your organization through your brand and external image to customers and other important stakeholders.
Employees, in their scanning of the organizational environment, will spot processes that do not sit well with declared ideal behaviors and values, where potentially the organization is looking to put short-term gain before longer-term goals. If these exist, it sends a huge signal to customers and colleagues that leadership does not really mean what they say. Included in these key processes are likely to be many of the internal processes around people and supplier management, but, most significantly, processes around how you deal with customers and how you respond to their feedback and complaints.

Alongside this, consideration needs to be given to how the organization’s change programs identify how changes they are looking to enact to systems and processes promote the desired culture. Change programs are a key touch point where the organization can ensure that the culture is being reflected in operating practices. However, they can also be a point of risk. Delivering efficiencies, while at the same time undermining the desired culture, can create problems that are hugely difficult to unpack.

Next up, in the third and final installment of this article series, Audit International finish identifying and discussing the remaining top ten tips to audit culture and conclude the journey that set out to help you deliver cultural insights within your organization. We hope you’ll stick with us.

Audit International are specialists in the recruitment of Auditors and various Corporate Governance Professionals including Internal Audit, Cyber Security, Compliance, IT Audit, Data Analytics etc across Europe and the US.

If you would like to reach out to discuss your current requirements, please feel free to reach us via any of the following:
Calling
– Switzerland 0041 4350 830 59 or
– US 001 917 508 5615
E-mail:
– info@audit-international.com”

In 2023, organizations may face new and expanded cybersecurity and compliance mandates, which could vary from location to location and from one industry to the next. As a result, your organization may be looking to obtain a certification or will need to pass an audit for a specific set of standards or requirements.

While recognition for demonstration compliance or receiving certification is a great reason to celebrate, the process leading up to that is often time-consuming and sometimes dreaded, especially if you must undergo an audit first.

But audits don’t have to be as frustrating as they once were. With the right resources and tools, you can pass your next audit with ease. Here are five tips from Audit International to help:

Know your current program state.
Don’t wait until the audit is underway to find out where you might have gaps or weaknesses. Go ahead and assess your current compliance state so you know what you need to address before your real assessment gets underway. Consider using a cybersecurity compliance platform that automates these assessments for you and look for a platform that gives you real-time compliance scoring, so you’re never caught off-guard if something isn’t functioning as you intended or you’ve overlooked an important control or other security measures.

Document and evidence.
You can do everything correctly and score 100 on your current assessment, but if you don’t have a document repository that puts everything you need right at your fingertips in one place, or if you can’t supply all the necessary proof and evidence an auditor may want, you likely won’t get credit for what you’re doing right. Put away those binders of dusty old printouts you haven’t looked at since your last audit. Instead, use a cybersecurity management platform to track and retain all of your evidence and documentation all in one place for easy, shareable access with your auditors.

Put teamwork to work for you.
Instead of chasing down who’s responsible for which compliance requirement and trying to understand what they’re doing and how well they’re doing it, use a compliance management platform to help you automate task assignments, track progress, send alerts when those tasks are complete, and assign new tasks as they pop up. A platform like Apptega can even externally alert your auditor when your team has completed an evidence request or other necessary task.

Communicate across your organization.
One of the challenges in building a compliance culture is often that program managers speak industry lingo and not the same language that people in different roles within the organization can understand and relate to their day-to-day responsibilities. Instead of scrolling through hundreds, maybe even thousands of rows of data to find what you need for your next compliance conversation, consider using a compliance management platform that has a pre-built library of reports you can quickly draw on for your next engagement, whether that’s your C-suite, an auditor, or your tech team.

Don’t go at it alone.
While you can meet all the requirements on an audit prep checklist, the reality is when you work on a program, it’s easy to overlook issues an outside eye might catch. Before your next audit, go beyond a self-assessment and consider working with an outside compliance consultant to take a closer look at your existing program and help you seek out and address issues before your auditor finds them.

Audit International are specialists in the recruitment of Auditors and various Corporate Governance Professionals including Internal Audit, Cyber Security, Compliance, IT Audit, Data Analytics etc across Europe and the US.

If you would like to reach out to discuss your current requirements, please feel free to reach us via any of the following:
Calling
– Switzerland 0041 4350 830 59 or
– US 001 917 508 5615
E-mail:
– info@audit-international.com”

Audit International are stating the main Risks and Actions companies are putting on their 2023 internal audit plans. The past year concentrated attention and shone a spotlight on the increasing fragility of organizations. With a complex set of risks manifesting simultaneously, audit committees are prioritizing some of the most serious implications resulting from the ongoing war in Europe and a triple squeeze of supply chain, workforce and inflation pressures.

According to data from Gartner’s 2023 Audit Plan Hot Spots report, which identifies the key risks and recommended actions for Audit to benchmark their efforts against in the coming year, 81 percent of Chief Audit Executives polled have cyberthreats on their agenda to cover in audit activities over the next 12-18 months, with an additional 13 percent tentatively planning to do so. Even in a year with a high number of varied and seemingly imminent risks facing organizations, cyberthreats remained an agenda topping item for Audit Committees and senior executives as the drivers of the risk shifted from a generalized focus on inadequate security controls to specific need to prepare for highly sophisticated state-sponsored cyberthreats and new cyber breach disclosure requirements. Even as some risks remain perennial threats, shifting drivers can change the nature of the risk and need for updated mitigation and coverage plans.

Cyberthreats, however, are not the only vulnerability an organization faces in an increasingly fragile world. In developing this year’s report, the need for Audit to support their organizations through rethinking their approach to resilience in the face of growing fragility became evident as a key theme underlying several top organizational risks. These risks are generally under-covered in audit plans for 2023, in some cases less tangible and immediate than the category of risks that have been urgently prioritized as a result of the headline events of this year.

Resilience-related risks are manifesting with real world and high-velocity consequences all the same, and Audit needs to understand the risk indicators, urgency drivers and the right questions to ask the business to ensure that rethinking resiliency is on the agenda in 2023.

Below I review three such risks and strategies for Audit on how to approach them.

Climate Degradation
Nearly six in ten CAEs have no specific plans to provide assurance over climate degradation next year. This in and of itself is a key risk indicator for most organizations, as a failure to refresh business continuity plans related to climate risks puts an organization at higher risk for a key infrastructure failure and related loss of productivity among other risks.

While CAEs generally express limited confidence in their climate coverage plans, rethinking resilience means going beyond sustainability reports and identifying vulnerable assets. Audit departments need to incorporate in their plans the inevitability of increasingly severe weather events and mitigation strategies for the loss of key infrastructure, both their own and that of key third parties, such as suppliers.

Culture
Even more challenging for Audit is culture, traditionally a key source of resilience for many organizations that now is fraying under the weight of new working models (hybrid/remote), social and political polarization and a general lack of connection felt by employees who are reporting witnessed misconduct at rates 30 percent lower than pre-pandemic.

Despite such challenges, only 16 percent of CAEs are revisiting culture in light of shifting sociopolitical expectations of their workforce, investors and the media for next year, and just 10 percent report they are highly confident in providing assurance in this area. Internal Audit needs to push the business on reassessing how employee expectations and engagement are monitored in a hybrid and remote world, while policies related to political and social issues need to be formulated now and not in real time during a crisis.

Organizational Resilience
Ultimately, rethinking resilience means covering organizational resilience as a dedicated risk that is part of the audit coverage plan. Organizational resilience, broadly defined, is an organization’s ability to withstand shocks. This is likely to become ever more important in the face of new and ongoing geopolitical tensions, which can abruptly trigger a set of interconnected but differentiated risks to manifest simultaneously. While refreshing scenario planning and mitigating against change fatigue are necessary steps in this process, building true organizational resilience requires a view into the interconnected risks facing an organization and developing resilience-related initiatives across the enterprise.

With less than half of CAEs definitely planning to cover organizational resilience next year and just 32 percent highly confident in providing assurance specifically on matters of resilience, it’s clear there is more work to do in establishing this as a top audit priority. Chief Audit Executives can regain momentum by launching activities that encourage collaborative discussions between business units on interrelated risks and reviewing plans to address change fatigue within their organizations at a time when events over the past two years have likely dramatically diminished capacity in this area.

While these resilience-related risks feel less tangible and urgent than mitigating against “clear and imminent” dangers like supply chain vulnerabilities and state-sponsored cyberthreats, they are important and increasingly acute risks in their own right. Viewing them through the lens of rethinking what it means to be a truly resilient organization can be a useful framework for starting the right conversations within the Audit Committee and formulating effective coverage in next year’s audit plans.

Audit International are specialists in the recruitment of Auditors and various Corporate Governance Professionals including Internal Audit, Cyber Security, Compliance, IT Audit, Data Analytics etc across Europe and the US.

If you would like to reach out to discuss your current requirements, please feel free to reach us via any of the following:
Calling
– Switzerland 0041 4350 830 59 or
– US 001 917 508 5615
E-mail:
– info@audit-international.com”

With businesses facing the strongest economic headwinds in years, the Chartered Institute of Internal Auditors is urging internal auditors to embrace data analytics to navigate more risky, uncertain, and volatile times ahead.

To support their call to action the Chartered IIA, a professional organization for internal auditors in the U.K. and Ireland, in partnership with AuditBoard has published a new report “Embracing data analytics: Ensuring internal audit’s relevance in a data-led world.” The report is aimed at encouraging internal auditors to fully embrace data analytics in the age of systemic risk.

The aftermath of the pandemic, the war in Ukraine and now a recession has all magnified and exacerbated a multitude of business-critical risks. These major risk events are having compounding downstream effects on supply chains, inflation, growth, costs, Forex rates, cybersecurity, and workplace mental health. Creating an adverse business risk environment of a kind not seen for decades. Making it challenging for boards to keep pace with the myriad of risks they now face.

“Data is key for organizations to navigate more risky times ahead and it is key for the future of internal audit. Understanding what the data shows about risk resilience in today’s complex environment will help ensure organizations’ success. We urge businesses and internal audit to embrace data analytics,” says John Wood, Chief Executive of the Chartered Institute of Internal Auditors.

However, in these challenging times harnessing and embracing the power of data analytics can enable internal audit to deliver faster and more incisive insights on fast moving risks, that boards can then act upon swiftly. Helping organizations to quickly identify, manage, and mitigate emerging risks during rapidly evolving situations.

Needs Improvement
The report is based on a survey of 298 internal audit executives from the private, public, and third sectors across the UK and Ireland. The survey revealed:

60% of internal audit functions are already using some for of data analytics, an additional 7% having advanced to AI. However, this still leaves a third yet to adopt data analytics.
The top three risk areas for using data analytics are financial (62%), fraud (17%), and legal and compliance (6%).
The top three benefits of using data analytics include greater level of assurance (48%), 100% audit coverage (21%) and enhanced efficiency (14%).
The top three barriers to fully embracing data analytics include lack of skills (49%), lack of resources (24%) and lack of time to implement (12%).
Only 17% expressed concern that internal auditors could be replaced by robots in the future. Instead, data analytics and AI can free up internal auditors’ time to focus on strategic and systemic risks that could be coming down the track.

The report makes several recommendations for boards and internal audit, including:

– Boards and internal audit should ensure that senior management has defined the organization’s top five risks, and that the data support this view and is correct and reliable.
– Boards and internal audit should ensure that the organization has its own data strategy in place.
– Boards should work with internal audit to identify what data is available to improve risk assurance, and how data analytics could be applied to this data to improve assurance coverage across the organization.

– Boards and internal audit should work together to champion a data analytics culture and promote a data-first mindset.
“Given the warp speed at which risks can emerge and wreak havoc, embracing data-analytics is non-negotiable for boards and internal audit if they are to stay on top of the multitude of risks that organizations are now wrestling,” says Richard Chambers, Senior Internal Audit Advisor of AuditBoard, and former President of the Global IIA. “Data analytics enables faster and higher quality assurance for boards to then act on. In stormy economic times a data-led approach has never been more urgent.”

Audit International are specialists in the recruitment of Auditors and various Corporate Governance Professionals including Internal Audit, Cyber Security, Compliance, IT Audit, Data Analytics etc across Europe and the US.

If you would like to reach out to discuss your current requirements, please feel free to reach us via any of the following:
Calling
– Switzerland 0041 4350 830 59 or
– US 001 917 508 5615
E-mail:
– info@audit-international.com”

Audit International believe effective communication of information on risks associated with hazards and control measures, is an essential and integral component within the risk assessment process. The fundamental goal to communicate the outcome of your risk assessment thereafter to the rest of the organization, contributes to the health and safety of your (peer) employees.

A risk assessment is usually executed by you as a safety professional, being part of the safety department of an organization. For you, the outcome of the risk assessment is often quite clear and simple to follow. However, struggles do arise to communicate about risk outside the safety department. How do you communicate to different organizational levels effectively? How do you make sure everyone in your organization is not only aware of, and but also understands the risks they are dealing with? Audit International have these tips.

In this short blog, we will focus on the Communication and Consultation step. You must communicate about your risks and its treatment, but how do you handle this? If you communicate too much no one will know what to listen to nor remember it. If you communicate too little, no one will understand the context or details of the information. Use the tips below to overcome such struggles.

Tips for effective risk communication:
1. Have a common ground
Before talking about risks, people need to understand the basic concepts of safety. Do not assume that everyone is on the same page regarding risks. Define concepts clearly to avoid confusion. Make sure that there is a common definition of risk established, so employees manage risk based on the common concept and view of what constitutes as risks. Inform your organization about the nature of the risk management and why you are doing it.

2. Make sure everyone can understand
As you communicate to different levels and departments in de organization, it is convenient to tailor your message to the one who receives the message. One of the goals for risk communication is to provide meaningful, relevant, and accurate information in clear and understandable terms. Be aware that these criteria can be different for people on the operational work floor than for higher management. Adjust your information to your target audience, so everyone in the organization knows their role in managing the risks they face. This will help you filter the information effectively.

3. Consider the form of communication
How often do you want to communicate to your colleagues? Depending on which colleagues, this could be every day, every week, monthly, or yearly. If the frequency is yearly, writing a report will not be too much trouble. If the frequency is weekly, writing a report will likely be too time-consuming to create and read. It won’t be long before your employees are demotivated which will likely lead to less clear communication – or worse, confusing communication! Think about other ways of communication, such as videos, posters, or interactive means. A one-sided communication strategy is likely to be less effective.

4. Build a sense of inclusiveness and ownership
You know that managing risk is not a one-person job. This process involves different departments and colleagues. It is impossible to manage risk effectively if there is no communication and consolation with each colleague that is involved – with each stakeholder. To optimize the communication and consultation you need to make sure that each stakeholder understands, knows and agrees what is expected from them in relation to the management of risk.

By communicating on risk management, you will involve your colleagues and create inclusiveness and ownership. Ownership is important, because let’s face it: risks that are not owned are often not managed. Clarity on personal responsibilities is very important to prevent incidents from happening. There is no need to have accidents that could have been prevented through effective communication between stakeholders.

Audit International are specialists in the recruitment of Auditors and various Corporate Governance Professionals including Internal Audit, Cyber Security, Compliance, IT Audit, Data Analytics etc across Europe and the US.

If you would like to reach out to discuss your current requirements, please feel free to reach us via any of the following:
Calling
– Switzerland 0041 4350 830 59 or
– US 001 917 508 5615
E-mail:
– info@audit-international.com”

Audit International recommend five ‘Under the Radar’ Areas to Audit that May Not Be on the Audit Plan.

As internal auditors, we all have a “spidey sense” of what we should be auditing.

Sure, we should, of course, conduct comprehensive risk assessments that drive our audit plan, and many of the usual suspects will end up on that plan: cybersecurity, regulatory compliance, financial reporting, third-party relationships, and you know the rest.

But there are things, we would strongly profess, that should be audited, even if we aren’t formally auditing them and they never make it to the actual audit plan. Just by being aware—casting that web, if you will—you should constantly informally “audit” a few critical areas.

What might be some of those things we should (lower case) audit, even if we aren’t (upper case) Auditing them? Here’s Audit Internationals take on five:

1
Culture: Are Disconnects, Even if Subtle, Surfacing?

So much has been written and said about doing culture audits and internal audit’s potential role in doing such a review. Perhaps, however, your organization doesn’t support internal audit doing a full-blown culture audit. Does that mean you throw your hands up and do nothing with the topic? Heck, no!

Look, we are among the very few in the organization who have the benefit of both grasping the desired culture and viewing the entire company because of our day-to-day work. So, why not leverage that and tune into what is going on around us and notice the organizational behaviors, actions, and attitudes that are consistent with, as well as (importantly) counter to, the desired culture.

So, what’s an internal auditor to do?

Some caveats, though. First, be sure you completely understand the desired culture, both what is formally stated through things like the organization’s listed core values as well as what is implied in the “how things are done around here” subtleties. The formal and the informal culture are equally important. Then, as you go about your work in various departments and interact with people at all levels of the organization, be cognizant of behaviors, language, demeanor, protocols, and other elements that seem inconsistent with what you expected.

Now, if you witness such imbalances, and you’ll know because it will make you a bit uncomfortable, talk with close colleagues or discuss it amongst your team. If something seems amiss, continue to keep your eyes and ears open and provide your internal audit function leadership with examples of what you are witnessing. If there are culture issues in a particular area of your organization, it is likely manifesting itself in a number of other issues as well. Your internal audit function leadership will guide you on what to do and may provide guidance on the next course of action. Chief audit executives will need to consider when and how to elevate such delicate issues. Yes, it’s a sensitive topic, but something that might be critical to address. Your spidey sense will guide the way.

2
Employee Engagement: Are People Checking Out?

While it has been a topic in the corporate world for more than 20 years, at least since the Gallup Organization and their Q12 employee survey instrument brought it into the lexicon, “employee engagement” has re-emerged these days. By now, we’ve all heard the new buzz phrase “quiet quitting.” While it’s a catchy label that has been slapped on what is, in essence, just disengagement, it’s not to be taken lightly. Employees who have become disengaged in your company’s mission, vision, and values don’t have passion to do their best. This should be deeply problematic to executive leaders and, in turn, to you. It is a significant and costly drain on everything your organization does.

So, what’s an internal auditor to do?

Just like with the culture topic, we, as internal auditors, interact with more of the organization across all levels (along with HR) than most anyone else in the entire organization. Therefore, we have our finger on the pulse when it comes to engagement and its evil twin, disengagement. Do we have a general sense though the course of our internal audit work that people care or if they are they just going through the motions? Sure, we do.

We don’t need to be scientific about it, and we don’t have to call anyone or any function, department, or location out, per se, but if we see that there is a trend developing toward greater levels of disengagement, let it be known. Make it a part of what we absorb about the organization on a daily, weekly, and monthly basis. Elevate the concerns, whether to HR, department levels, or even the senior management. In other words, don’t ignore it.

3
The Physical Facilities: Are Things in Disrepair?

As much as we may not all be going into a physical office as much anymore, many employees will still spend at least some time in the office or at company facilities. And, the physical state of the office location, branch, facility, or building space is important. Not only can facility disrepair be unhealthy or unsafe, but it can also just negatively affect employee psyche or customer impressions. Pay attention to what things look like and what is the state of the physical environment around you. It may signal deeper problems or an overall neglectful view of the business.

We all have stories about what we’ve witnessed. I remember walking past a locked closet and smelling a damp odor. I could have just ignored it, thought it was just me, or figured that someone else was probably aware of it. Instead, I decided to mention it to the facilities manager of the location. And, lo and behold, behind the rightfully locked door a roof leak had infiltrated the space and it was a wiring closet. It could have been a big problem if it were ignored for any length of time.

So, what’s an internal auditor to do?

Keep your eyes and ears open as you go about your work. Does something seem amiss regarding the physical location? Mention it to someone who could do something about it. What’s the worst that could happen? They tell you “thanks, we are aware of it.” At best, you help address an issue before it gets out of hand. Sometimes we all become blind to our physical surroundings because we’ve just been there for so long. But a fresh set of eyes and ears might just help the organization out and make employees and customers even more appreciative of the physical space they show up to and that the organization spends so much money on. Internal audit can have a unique perspective of noticing what gets unnoticed.

4
The Parking Lot Check: Is Fraud Hiding in Plain Sight?

Closely related to the physical state of the facilities is the state of the employees. Ever see a change in someone’s habits that don’t sync-up with what has gone on in the past, and you wondering “what’s up with that?” Perhaps someone is showing up to the office in a new luxury car, expensive clothes, or talking about some lavish vacation they went on?

Most often, there is a great explanation, and it is none of our business. But, also, any of us who have been around the block a few times will also know that, occasionally, these changed behaviors are clues that something is amiss and that someone may be on the take. You could call this “doing a parking lot audit.” So many frauds and embezzlements have left a trail of these clues as the perpetrator wanted to channel their ill-gotten gains into the fruits of luxury and apparent success. It’s not an outright indicator or fraud, of course, but it might be a red flag to dig deeper, especially if things weren’t adding up already.

So, what’s an internal auditor to do?

Just keep your eyes and ears open, being observant to uncharacteristic behaviors, purchases, and chatter could provide clues to someone who is taking advantage of their position and situation to pilfer from your company. No, don’t go around accusing people of things where you have no proof, of course. But eyes open and be vigilant. And, if you see something, say something to a trusted colleague within your internal audit department. If necessary, elevate it within your department and, if warranted and approved, do some follow-up in a clandestine manner. You may just catch something in its preliminary stages and head it off at the pass, so to speak. Most people steal from the company in small increments, and it escalates from there if they feel they are getting away with it undetected. But, in hindsight, there were usually always clues … perhaps no further away than in the parking lot.

5
Hotline Activity: Is Volume Up, or Has Volume Decreased?

Most internal audit functions have some role in monitoring their organization’s whistleblower hotline for employees, and sometimes also third parties, to file complaints. This may seem like a no-brainer, but you’d be surprised how often small complaints (that point to bigger problems) go unnoticed. Your internal audit function may have complete ownership of managing what comes though, you may partner with someone else in the organization, such as compliance, human resources, or legal, or you just get things passed to you for review or investigation as needed from one of these organizational partners. Regardless, you need to have some role in monitoring the volume of activity. What types of activity are coming through? Are there recurring issues? What are the trends? It doesn’t take an audit, but it does take awareness. Changes in volume can be very telling, and that could be changes in either direction (increased or decreased volume).

Increases in activity might spell some brewing issues of a more macro sense and, alternatively, decreases in volume may spell a level of distrust in the confidentiality of the hotline or a perceived lack of seriousness with which reported items might be getting addressed.

So, what’s an internal auditor to do?

It doesn’t have to be you, so long as someone in your internal audit function is attuned to the trends, both in terms of volume and types of activity. And, if there are notable changes in the trends, up or down, it might be time for a deeper understanding of what might be going on. This could be a signal of troubles brewing that are inconsistent with the desired culture.
—-
To be clear, internal auditors don’t need a formal audit plan initiative to keep abreast of important developments in the organization. It’s not easy, I know, as the formal audit plan has us busy enough, but a little observation may go a long way. Head up, eyes and ears open, use all your senses and leverage your well-honed intellectual curiosity and professional skepticism. Do some ad-hoc auditing of things you might not be able to (upper case) Audit and don’t necessarily make it to the formal audit plan. The organization will be better for it, and you will enhance your engagement and contributions innumerably.

As popularized in the Spiderman comics of yesteryear and said in more recent movies, “with great power comes great responsibility.” Wield it judiciously!

“Audit International are specialists in the recruitment of Auditors and various Corporate Governance Professionals including Internal Audit, Cyber Security, Compliance, IT Audit, Data Analytics etc across Europe and the US.

If you would like to reach out to discuss your current requirements, please feel free to reach us via any of the following:
Calling
– Switzerland 0041 4350 830 59 or
– US 001 917 508 5615
E-mail:
– info@audit-international.com”

There is a common joke among physicists that fusion energy is 30 years away … and always will be. You could say something similar about artificial intelligence (AI) and robots taking all our jobs. The risks of AI and robotics have been expressed vividly in science fiction by the likes of Isaac Asimov as far back as 1942 and in news articles and industry reports pretty much every year since. “The machines are coming to take your jobs!” they proclaim. And yet, all of us here at Audit International still head to the office or log in from home each weekday morning.

The reality is less striking but potentially just as worrying. Most people expect that one day some sort of machine will be built that will instantly know how to do a certain job—including internal auditing—and then those jobs will be gone forever. More likely, is that AI and smart systems start to permeate into everyday tasks that we perform at work and become critical parts of the business processes our units and companies conduct. (Indeed, many professions and industries have already been greatly disrupted by AI and robotics.)

Technology companies have been so successful over the last 30 years because of the common mantra of “move fast and break things.” And that was maybe just about acceptable when it meant you could connect online to your friend from high school and find out what they had for breakfast or search through the World Wide Web for exactly the right cat meme with a well-crafted string of words.

When the consequences now might mean entrenching biases in Human Resources processes, or mass automated biometric surveillance, not to mention simply not even understanding what a system is doing (so called ‘black boxes’), the levels of oversight and risk management need to be much higher.

The Regulatory Environment :
There is some existing regulation which covers aspects of this brave new world. For example, in the European Union, article 22 of the General Data Protection Regulation (GDPR) on automated individual decision-making, provides protection against an algorithm being solely responsible for something like deciding whether a customer is eligible for a loan or mortgage. However, the next big thing coming to a company near EU is the AI Act.

The proposal aims to make the rules governing the use of AI consistent across the EU. The current wording is written in the style of the GDPR with prescriptive requirements, extraterritorial reach, a risk-based approach, and heavy penalties for infringements. With the objective of bringing about a “Brussels effect,” where regulation in the EU influences the rest of the world.

Other western jurisdictions are taking a lighter touch than the EU, with the United Kingdom working on a “pro-innovation approach to regulating AI,” and the United States’ recent “Blueprint for an AI Bill of Rights” moving towards a non-binding framework. Both have principles which closely match the proposed legal obligations within the AI Act, hinting at the impact the regulation is already having.

Much of the draft regulation is still being discussed, with a final wording soon to be agreed. There are disagreements across industries and countries on whether some of the text goes far enough or goes too far. For example, whether the definition of “AI” should be narrowed, as the current wording could encompass simple rules-based decision-making tools (or even potentially Excel macros) or even expanded to greater capture so-called “general purpose AI.” These are large models which can be used for various different tasks and therefore, applying the prescriptive requirements and risk-based approach of the AI Act can become complex and laborious.

The uncertainty over the final wording has given companies an excuse to not make first moves to prepare for the changes. Anyone who remembers the mad rush to become compliant with the GDPR will remember the pain of leaving these things to the last minute. The potential fines, which may be as high as 6 percent of annual revenue depending on the final wording, could be crippling and have a cascade effect on a company’s going-concern.

What Can Internal Auditors Do?
As internal audit professionals we can start the conversation with the business and other risk and compliance departments to shine the light on the risks and upcoming regulations which they may be unaware of. It is our objective to provide assurance but also add value to the company and this can be done through our unique ability to understand risks, the business, and provide horizon scanning activities.

Performing internal audit advisory or assurance work, depending on the AI risk maturity level at the organization, can highlight the good practice risk management steps that can be taken early to help when the regulation is finalized. These steps could include:

1) Identify AI in Use: To be able to appropriately manage AI risks throughout their lifecycle stakeholders need to be able to identify systems and processes which make use of them. Agreeing on a definition of AI and developing a process to identify where it is in use is the first step. This would include whether it is being developed in-house, is already in use through existing tools or services, or acquired through the procurement process.

2) Inventory: Developing an inventory which includes information such as the intended purpose, data sources used, design specifications, and assumptions on how and what monitoring will be performed is a good starting point and can be added to, based on your company’s unique characteristics and any specific legal requirements that are implemented in the future.
3) Risk Assessments: Since a key aspect of the AI Act is it being “risk-based,” it is important to have a risk assessment process to ensure you take the necessary steps as required in the regulation, based on the type of AI used. For example, what level of robustness, explainability, and user documentation is necessary based on the risk tier provided. It is also important to consider the business and technology risks of using the AI. For example, machine learning using neural networks requires large training datasets, which can raise issues of data protection and security, but may also perpetuate biases that are contained in the datasets. Suitable experts and stakeholders should be involved in the development and assessment of the risk assessment process.

4) Communications: One area that is often forgotten is communication. It is all well and good having a policy or a framework written down but if it isn’t known and understood by the relevant stakeholders it’s worth less than the paper it’s printed on. Involving key stakeholders during the development of your AI risk management processes can help develop a diverse platform of champions throughout the business who can act as enablers as the requirements are communicated and regulation finalized.

5) On-going monitoring: Risk management is not a one-off exercise and this is no exception. Use cases, technology, and the threat landscape change over time and it is important to include a process for on-going monitoring of AI and the associated risks.

The machines may not be coming to take our jobs just yet, but the risks are already here and so are the opportunities to get ahead. There may be a long and winding road in front, as we all prepare for a world where AI is commonplace and new regulations and standards try to shape its use, but each journey starts with a step and it’s never too early to get going.

“Audit International are specialists in the recruitment of Auditors and various Corporate Governance Professionals including Internal Audit, Cyber Security, Compliance, IT Audit, Data Analytics etc across Europe and the US.

If you would like to reach out to discuss your current requirements, please feel free to reach us via any of the following:
Calling
– Switzerland 0041 4350 830 59 or
– US 001 917 508 5615
E-mail:
– info@audit-international.com”