Posts Tagged “audit information”

As the threat of climate change mounts, Audit International know that businesses must take steps to counter its damaging effects. This is in order to meet ambitious government Net Zero targets, which aim to halve emissions in a little over a decade.

The promising news is that the majority of organisations now understand that sustainability must be made a priority when it comes to devising their overall strategy.

However, companies are often left in the dark as to how best to report on their ESG credentials in a way that’s impactful and means something to shareholders and other stakeholders. It’s clear that what’s needed is a uniform set of standards for measurement and reporting, just as there is for financial performance. This is particularly prevalent in the Accounting sector, where calls are increasingly being made to introduce universal and transparent ESG standards.

However, the world of sustainability reporting is a confusing and often disparate mass of names and frameworks. They include the Climate Disclosure Standards Board (CDSB), the Global Reporting Initiative (GRI), the International Integrated Reporting Council (IIRC), the Sustainability Accounting Standards Board (SASB) and the Task Force on Climate-related Financial Disclosures (TCFD).

The good news is that a forerunner has emerged that promises to offer a single source of truth when it comes to ESG reporting. It is called the International Sustainability Standards Board (ISSB). The ISSB will do for sustainability reporting what the International Accounting Standards Board (IASB) does for financial reporting. That is, develop standards for companies to report their performance to investors. Both will be under the International Financial Reporting Standards (IFRS) Foundation umbrella.

Where did the new framework originate and what exactly is it?

Created at 2021’s COP26, ISSB will provide a global baseline for high-quality sustainability reporting that supports the work being done in the US by the Securities and Exchange Commission (SEC) and the European Union (EU)’s Corporate Sustainability Reporting Directive (CSRD).

The ISSB is focused on ‘single materiality’ or the ESG information that drives valuation and matters most to investors. This is also the focus of the SEC and so the mandates are consistent. In contrast, the CSRD has a broader ‘double materiality’ mandate, which means it will cover information of interest to stakeholders, even if it is not of interest to investors. Linking the two is the concept of ‘dynamic materiality’, meaning that more light can be shed on ESG issues – such as climate change – moving forwards.

The ideal outcome is that ISSB becomes a global standard which integrates the work of all previous standards and frameworks focused on investor needs. Ideally, the SEC and EU can use its standards. The EU can then top these standards up with those covering double materiality. As dynamic materiality makes these relevant to investors, the ISSB can then take over responsibility for the standard setting process.

How can ISSB success be achieved?

The corporate community has a key role to play in ensuring the success of the ISSB. Investors are increasingly demanding information on a company of interest’s sustainability performance. At the same time, companies are increasingly being accused of greenwashing their sustainability reporting by making it appear more environmentally sound than it is.

Having standards, with proper audits, addresses both issues. That said, it’s important to note that standards aren’t targets for issues like carbon emissions or diversity and inclusion. Rather, they provide credible information on the reporting done by a company on its progress in achieving whatever targets it decides to set, if any.

While ensuring that ISSB is a success, companies can also take steps to secure their own long-term viability. The first way is to participate in the standard setting process. As with financial standard setting, exposure drafts for proposed standards will be published in the public domain. Companies need to join investors in providing their input, including constructive critiques. If a company has an opportunity to participate in any advisory councils and working groups or share its views in comment letters, it should make the effort to do so.

The second approach is to proactively adopt these standards. There will be an inevitable lag between when the standards are published and the country in which the company is headquartered making them mandatory. However, those who wait will likely lose out.

As some companies quickly adopt ISSB’s standards, investor pressure will mount for others to follow suit so they can compare companies’ performance and do their own analysis. Failure to report won’t give a company the benefit of the doubt. Rather, investors will likely assume the worst, all to the possible detriment of the company’s stock price.

Ultimately, the ISSB will make life better for any company which cares about having a sustainable, long-term corporate strategy. Therefore, companies should give their full support to make these standards the best and most accurate they can be.

​“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:
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E-mail:
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In this final article of the series, Audit International focus on the third element of ESG- Governance risk. This differs from the first two elements – Environmental and Social – in that several governance risks have long been recognized and included in our audit plans. However, many more have recently gained prominence. Therefore, it is important that internal audit understands these risks and is well positioned to provide assurance.

Governance risks :

Some governance risks are broad in nature. Others, are very narrow. Some have little in terms of universal benchmarks, while others have well-established frameworks or regulations. Here are some of the main risks that should be considered:

– Shareholder rights and engagement – are there any limitations on certain classes of shareholders, and does the business engage effectively on important issues?
– Board structure and diversity – are there independent directors, and does the board have sufficient diversity of experience, style, and background? Increasingly, neurodiversity is a consideration, and in some countries a workers’ representative is a requirement.
– Executive compensation – is this structured to be in line with corporate objectives, and is it consistent with peers in comparison to the wages of other staff?
– Anti-bribery and corruption – many countries have a comprehensive legal framework.
– Tax transparency and policy – what is the organization’s approach to tax, and particularly the jurisdictions it operates and pays taxes in?
– Ethics and culture – a broad topic, ethics encompass all the above and more. Culture has become a hot topic over the past 15 years with the link between a strong organization-wide culture and performance becoming increasingly apparent.
– Data protection – often also included as a social risk, good information governance is relevant here as well.
– Typical impacts for the organization will be reputational, legal and regulatory, people, financial, and ultimately strategic.

Getting started – Determining the key risks :
Compared with environmental and social risk, it is much more difficult to take a holistic approach to governance risk, given the breadth of topics. However, it is likely that many activities and risks are already in your audit universe. A governance code may have been adopted by your organization, although these may only cover some of the issues described above. Understanding the relevant governance code(s) –mandatory or optional – is a good starting point. This will depend on jurisdiction(s), market listings, regulators, and industry practices. Governance codes can be principle-based or more prescriptive, and will typically define some or all of the following, often on a “comply or explain” basis:

– Clarity of purpose
– Leadership
– Integrity
– Board composition and division of responsibilities
– Board effectiveness
– Decision making
– Risk management, internal controls, and audit
– Accountability, transparency, and reporting remuneration

In understanding governance risks, you should also take into account what specific legal or regulatory requirements there are around any of these issues. This may include reporting requirements around diversity or executive pay or matters which must regularly be reported and considered by the board. Also, consider what other stakeholder expectations are relevant. This is likely to focus on investors, as they have been increasingly vocal and prepared to vote against boards that do not adequately address specific issues.

With this background information, along with your consideration of the issues highlighted earlier in this article, you can ensure your risk assessment incorporates relevant governance risks.

How internal audit can make an impact :
As always, we should leverage work done by the first and second lines in considering where we can make the biggest impact. We should consider our risk assessment alongside any new information we have about regulatory changes, emerging issues in our sector, or jurisdictions, and investor interest.

Some Examples :
– Governance framework
– Governance codes were mentioned earlier in this article. Whether your organization has adopted a code in full or developed its own framework, it will need to produce a regular (typically, annual) report of compliance with the code. Assessing the processes supporting this reporting is often a good way to execute broad audit coverage of governance risks. Such reports are expected by regulators, provide assurance to the board, and are sometimes published (at least in part in the annual report). – Therefore, it is important that they give an accurate picture.

Reports may take many forms and will often include qualitative assertions and specific data or examples. It is important that any data reported is accurate, but equally as important that narrative assertions or examples are supported by evidence. Internal audit can provide assurance over the processes to collate this evidence, ensuring it is complete and accurate and that the right oversight controls are in place. We can also review the report and verify that the conclusions reached fairly reflect the evidence available. Generally, we take a combined approach to provide comprehensive and broad assurance.

Board composition :
Board composition has been under the spotlight, and while practices have improved there is often still a lack of transparency in recruitment, objective evaluation, and diversity. This is a sensitive audit which needs to be conducted by experienced auditors. When done well, it provides real insight and impact.

It is important not to make this about the individuals currently serving on a board, but about the effectiveness of processes around recruitment, structure, skills-determination, and performance evaluation. Consider some or all of the following:

Is there an evaluation of the skills required on the board and an up-to-date skills matrix? Is this specific enough to ensure the board members possess the right range of skills and experience but sufficiently flexible to attract a diverse pool of candidates?
Do recruitment processes include defining an ideal candidate profile, pre-determined selection criteria, and stakeholder involvement in the exercise? Are candidates sourced in a way that ensures a wide pool of candidates, recognizing that there may be a need for confidentiality?
How are conflicts of interest identified and managed?
What are the rotation policies/term limits for non-executive board members?
How is board performance evaluated? Is there a self-assessment process and a periodic independent assessment?
Is there a training plan for the board and individual board members? Is there an individual appraisal process?
Does the committee structure support effective delegation but ensure the board maintains its responsibility for strategy and oversight?
How effective is the relationship between executives and non-executives? Does the structure facilitate both support and challenge?
Is there an effective process for succession planning?
Do boards allow time for open discussions and strategic thinking, as well as formal meetings?
Some of this can be done by document review — including board papers and minutes, skill matrix, recruitment process documents, etc. But much of this will also require interviews with board members and those who support the board, such as the corporate/company secretarial or corporate governance team.

This article concludes the series on what internal audit should know about ESG risks. If you missed the first two articles, be sure to go back and read our previous blogs, to get you up to speed on our suggestions on how internal audit can approach environmental and social risks.

“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”

Here at Audit International this week, we are are all talking about the Chartered Institute of Internal Auditors dropping their ‘Risk in Focus 2023’ report. The report compiles the results of 9 in-depth interviews, 4 round table events with 39 participants, and responses from 834 Chief Audit Executives (CAE)’s from across 15 European countries. In a nutshell, the report has some solid contributors, meaning, the top 10 areas which are concerning other CAE’s, might be worth you thinking about also – especially as you prepare your 2023 annual plan.

The Risk in Focus 2023 report has had a great refresh and shows the movement of each of the risks over the years. This year’s report shows 15 categories worth consideration:

– Mergers and acquisitions

– Health, safety and security

– Communications, reputation and stakeholder relationships

– Fraud, bribery and the criminal exploitation of disruption

– Organisational culture

– Organisational governance and corporate reporting

– Financial, liquidity and insolvency risks

– Supply chain, outsourcing and ‘nth’ party risk

– Business continuity, crisis management and disasters response

– Climate change and environmental sustainability

– Digital disruption, new technology and AI

– Changes in laws and regulations

– Macroeconomic and geopolitical uncertainty

– Human capital, diversity and talent management

– Cybersecurity and data security

The report finds that the greatest movers, in terms of focus / attention given to this particular topic by CAE’s, found the following four categories had the most increased attention and focus since 2020:

– Macroeconomic and geopolitical uncertainty

– Human capital, diversity and talent management

– Supply chain, outsourcing and ‘nth’ party risk

– Climate change and environmental sustainability

This years report also highlights the impact the war in Ukraine has had on many of the businesses and risks highlighted in the report.

For each of the risks, the report provides suggestions on how Internal Audit can help the organisation.

“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”

A recent study revealed that 82% of finance and business leaders must comply with sustainability requirements or ESG regulations. Even without mandatory regulatory standards in place, Audit International would bet their bottom dollar that more companies would voluntarily take on sustainability initiatives and thus, produce ESG reports.

Why? Because more stakeholders are looking.

The number of parties with vested interests in ESG performance has dramatically increased. The tendency is to think of investors as the sole consumer, judge, and jury of ESG reports, but that’s changing, especially as other stakeholders find themselves subject to ESG expectations.

So, who’s really looking at your ESG reports? And why do they care?

Investors
Let’s start with the obvious: investors! Today’s investors want to ensure their money supports organizations that align with their values. Increasingly, those values are moving further and further away from brown stocks. Investors are leaning away from companies that might risk damaging the environment, operate with inequities, or are vulnerable to corruption.

While sustainable investing is value-based for many investors, it’s also the safer, more lucrative investment in many cases.

A study by Nordea Equity Research reported that, over three years, companies with high ESG ratings outperformed the lowest-rated companies by as much as 40%.

A Bank of America Merrill Lynch study found that firms with a healthier ESG record yielded higher three-year returns. They were also more likely to become high-quality stocks, less likely to experience significant price drops, and less likely to go bankrupt.

All this to say, an ESG score isn’t just a number. It indicates to investors that your company is a proactive, forward-thinking entity that will satisfy the investor’s need for ROI and their conscience.

Internal stakeholders
Many stakeholders within a business can benefit from ESG performance data.

For example:

Sales and marketing can use ESG data to showcase a company’s sustainability performance in their efforts to entice new customers.
IR and PR teams can tout ESG successes to improve the company’s reputation.
HR reps can use social data to attract talent.
Finance teams and chief executives can use ESG insights to improve profitability, contain costs, identify new business opportunities, and recognize areas of investment and divestment when ESG data is connected to financial performance.
Organizations can put ESG performance data to work in many ways. Regarding business value, ESG reports can give every department leverage in furthering the growth and goodwill towards an organization.

ESG scoring bodies
A good ESG score is a golden ticket to a favorable ESG reputation. To receive one, you’ll have to complete surveys or create reports designed by third-party providers, who then calculate ESG scores based on the metrics and ESG performance you reported. Like a credit score or a bond rating, an ESG score demonstrates your company’s ability to meet its ESG commitments, performance, and risk exposure.

Notable ESG scoring organizations are Bloomberg ESG Data Services, Sustainalytics, ESG Risk Ratings, JUST Capital, MSCI, Refinitiv, Dow Jones Sustainability Index Family, and RepRisk.

Banks and financial institutions
Banks, capital markets, and wealth managers are moving towards ESG agendas. This is not just an ethical move but one of demand, risk, and reward.

In terms of demand, millennials lean significantly towards sustainable investments. A survey by EY found that millennials are twice as likely to invest in a fund or stock if social responsibility is a component of the value creation narrative. (Might I remind you millennials are the demographic soon to be society’s primary wealth holders.)

In terms of risk, the liability to banks is two-fold. First, banks are subject to the same sustainability scrutiny as other businesses — customers want to bank with sustainably responsible banks. And second, banks face similar challenges to investors: lending to companies that aren’t sustainable could also pose threats to their business. Will a coal mine be able to repay its debts when sustainable alternatives take over? While banks might not be in this scenario just yet, in the future, it’s possible that businesses could see requests for funding denied if they don’t prove to be sustainable enough.

In terms of reward, again, we see companies with strong ESG performing better than those with weak ESG. An analysis completed by global investment manager BlackRock found that up to 88% of sustainable funds outperformed their non-sustainable counterparts between January 1, 2020, and April 30, 2020. Why would a wealth manager allocate funds to an unsustainable stock when a more sustainable and equally (if not more) profitable alternative exists? Why choose to lose/win when you could choose to win/win?

Regulators
Incoming! A stampede of regulations is making its way into the ESG reporting arena. Two regulations of note are:

The EU’s Corporate Sustainability Due Diligence (CSDD)

In February 2022, the European Commission published a draft of the CSDD. If passed, the CSDD would require companies to disclose the impacts of their operations on human rights and the environment.

The US’s new climate-related disclosures

In March 2022, the SEC proposed expansive new climate-related disclosures related to greenhouse gas emissions, climate risks, transition plans, and governance.

Sullivan and Cromwell LLP has a great round-up of the latest (up to May 2022) ESG regulatory advancements here. The bottom line: ESG is being written into everything from litigation to financial institutions, disclosure and governance, and law. While your particular flavor of ESG regulation will be subject to your jurisdiction and industry, you can bet on increased regulatory scrutiny coming your way soon.

Consumers
B2C companies find themselves with a consumer who cares about their product, how it’s made, and who’s making it. Recent PWC research found that:

Consumers aged 17 – 38 years are almost twice as likely to consider ESG issues when making purchasing decisions than others.
Over half of consumers surveyed said that a company’s purpose and values played a role in their purchasing decisions.
49% of consumers and 66% of millennials use the internet to learn more about a company’s ESG practices before buying a product or service.
From this, we can conclude a few things. The future of the sales will be dependent on ESG performance. And consumers aren’t satisfied with marketing promises — they want the ESG evidence, and your reports will be front in center of their investigations.

Everyone’s looking at ESG
Don’t make stakeholders struggle to seek out your ESG performance. By using a corporate performance management approach to ESG reporting, you can tell your sustainability story, disclose according to multiple new and evolving frameworks, and connect financial outcomes, operational activities, and ESG performance to ensure sustainability is always tied to doing good for the earth, people, and your bottom line.

“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”

Transit systems. Healthcare facilities. Financial services firms. What do they all have in common? Organizations within these sectors — and essentially all industries, for that matter — have been hit by ransomware, a type of malware where cybercriminals demand a ransom payment to unlock access to your private and confidential systems and files.

While many cybersecurity risks exist, ransomware is often one of the more pressing challenges. Not only can it bring operations to a screeching halt, but it can also cause issues like data leaks and reputational damage. A global survey by cybersecurity software company Sophos finds that 66% of surveyed organizations suffered ransomware attacks in 2021. “It took on average one month to recover from the damage and disruption,” Sophos adds.

Given the severity of ransomware risk, internal auditors should aim to help their organizations reduce these threats, along with overall cybersecurity risks. How? As Audit International will examine in this article, internal audit departments can take steps such as conducting IT/cybersecurity audits and using technology like internal audit management software to improve internal controls and collaboration.

Review IT practices and controls :
Even though internal auditors generally aren’t responsible for choosing cybersecurity software and establishing employee training to recognize ransomware risks, they can still provide assurance over IT practices and controls, such as with an IT audit.

When IT teams conduct phishing tests to see whether employees are tricked by email scams that can cause ransomware issues, internal auditors are then able to review those results and ensure that the organization is meeting a sufficient standard to prevent social engineering. If the results demonstrate gaps in employee preparedness on ransomware risk or other cybersecurity risks, then internal auditors would likely want to communicate that risk to other stakeholders, like boards and senior management.

Internal audit leaders might also review remote work policies to ensure that IT teams are appropriately managing these with ransomware risk in mind, rather than just focusing on the functionality of work-from-home environments. While internal auditors often rely on guidance from IT leaders, they can still audit areas like access logs to ensure that only approved devices, with the appropriate threat intelligence and data protection technologies, are connecting to their networks.

Align key stakeholders :
Improving ransomware protection also means internal auditors need to align key stakeholders, rather than just collaborating with IT. That means pulling together information from multiple departments to make sure everyone’s on the same page.

Internal auditors should check with finance teams to see how they’re accounting for the potential costs of a ransomware attack, and then ensure that other key stakeholders, like boards and senior management, understand and agree with this approach. Otherwise, issues like not having a sufficient budget to recover from a ransomware attack may arise.

“Regardless of their size or revenue, organizations should assume they will be targeted with ransomware, and they should examine their prevention, detection, mitigation, response, and recovery measures,” notes Zachary Ginsburg, research director for the Gartner Audit and Risk practice, in a Gartner press release.

Leverage internal audit management software :
Internal auditors can mitigate ransomware risk by leveraging internal audit management software. Many technologies are designed to assist with cybersecurity risk management, but from an audit perspective, internal audit management software is important for gaining assurance.

Overall, internal audit teams have an opportunity to make a significant impact when it comes to ransomware risk management. Planning ahead and focusing on internal alignment can go a long way toward reducing ransomware attacks and other cybersecurity risks.

“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”

This week Audit International are taking a look at the 4 ways how Internal Audit can get a seat at the table.

When it comes to risk management and compliance, most organizations operate on a 3 Lines of Defense (3LOD) model, in which operational management, compliance, and internal audit work together in tandem to assess and mitigate risk and manage controls and compliance.

This model may be successful in theory, but as the risk management and compliance functions have grown more complex, it doesn’t always work as well as you might hope. Given the rising sophistication of cybersecurity threats and incidents of fraud, and the increasing compliance requirements posed upon organizations of all sizes, it can be difficult to keep an organization-wide pulse on threats and breaches in compliance as they arise.

The problem is, the three branches don’t always collaborate effectively, which may leave internal audit out of the loop and unable to provide much value to the organization. They may not have access to the data they need to generate effective recommendations. The internal audit team’s focus may be simply on checking boxes and ensuring compliance, rather than providing strategic insights that will help your organization understand and take steps to mitigate new threats.

If you want your internal audit team to move the needle at your organization, you need to get the ear of executives who can advocate for your work. By partnering with leadership, you’ll be able to spearhead new initiatives and gain critical access to data that will help your organization save money and reduce risk, proving your team’s value.

Here are four strategies for doing that effectively:

Identify the key people who can support you, and make a plan to build relationships with them
Your audit team will naturally be in touch with the managers who can provide key information needed to conduct your audits—but by focusing only on these contacts, you’re missing out on building relationships with the leaders who will be able to help you gain a more visible role in the organization. Build a plan for conducting periodic outreach to higher-level executives within your organization, such as your chief risk officer or your CTO. You can solicit feedback from them on any open questions they may want your team to review in your audits, or provide high-level executive briefs showcasing work that you’ve done and issues they may want to explore in further detail. Make sure that they know you and your team are available to support them and open for feedback.

Proactively address organization-wide trends
Rather than focusing solely on issues identified in individual audits, start looking at your audit results in aggregate to identify trends. Is a single department or office location having trouble resolving a specific compliance issue, or is it an across-the-board trend that should be shared with your executive team? Review your data frequently to understand risks that should be mitigated, and come up with step-by-step action plans for how they should be addressed, including who’s responsible and what the benchmarks for success are.

Pay close attention to third-party risks
Many audit teams take an insular view of risk management, failing to uncover the external risks brought on by vendors and technology partners. Make sure that you have policies in place to carefully vet and automate compliance on your third-party vendors, pulling in external data that will alert you to any financial or legal issues they may face. Regularly track all of your solutions and technology partners for red flags, and ensure that you have a strategy for mitigating them. You can showcase your findings in sessions with executives and other partners throughout the business, and collaborate to come up with a plan for any of your scenarios. Keep in mind that risks from big providers such as Amazon or Facebook may impact a lot of your customers or partners as well, so ensure that you map out all of the variables that may impact your company’s business model across the board.

Use best-in-class GRC technology to automate compliance and analyze data
In order to provide the most useful insights to your leadership team, it’s important to integrate your entire risk management function across an easy-to-use GRC platform. Your GRC platform should come with pre-built content that will help you automate your controls framework, regardless of your industry. It should make it easy to monitor compliance status and risk levels across the organization at any given time, with triggers prompting action when control levels are not being met. You should be able to easily drill down into your data and generate executive dashboards, so that you can share insights to justify recommendations and help your leadership team make better informed business decisions.

By building a cohesive strategy for integrating with the 3LOD, backed by in-depth data analytics, real-time data feeds, and workflow automation, your audit team will be able to generate insights that can help to identify new risks, and develop new strategies for mitigating risks across the entire organization. This will help you to become a highly visible, influential, and trusted partner to the business.

“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 were in awe to hear this revolutionary news from the billionaire founder of the outdoor fashion brand Patagonia. He has announced just yesterday he is giving away his company to a charitable trust.

Yvon Chouinard said any profit not reinvested in running the business would go to fighting climate change.

The label has amassed a cult following due to sustainability moves like guaranteeing its clothes for life and offering reasonably priced repairs.

The brand’s website now states: “Earth is now our only shareholder.”

Mr Chouinard has always said he “never wanted to be a businessman”.

A rock climbing fanatic, he started out as making metal climbing spikes for himself and his friends to wedge into rocks, before moving into clothing and eventually creating a hugely successful sportswear brand with a cult following.
Founded in 1973, Patagonia’s sales were worth around $1.5bn this year, while Mr Chouinard’s net worth is thought to be $1.2bn.

He claimed that profits to be donated to climate causes will amount to around $100m (£87m) a year, depending on the health of the company.

“Despite its immensity, the Earth’s resources are not infinite, and it’s clear we’ve exceeded its limits,” the entrepreneur said of his decision to give up ownership.
The Californian firm was already donating 1% of its annual sales to grassroots activists and committed to sustainable practices. But in an open letter to customers, the apparently reluctant businessman said he wanted to do more.

Mr Chouinard said he had initially considered selling Patagonia and donating the money to charity, or taking the company public. But he said both options would have meant giving up control of the business and putting its values at risk.

Instead, the Chouinard family has transferred all ownership to two new entities. The Patagonia Purpose Trust, led by the family, remains the company’s controlling shareholder but will only own 2% of its total stock, Mr Chouinard said.

It will guide the philanthropy of the Holdfast Collective, a US charity “dedicated to fighting the environmental crisis” which now owns all of the non-voting stock – some 98% of the company.

“Each year the money we make after reinvesting in the business will be distributed as a dividend to help fight the crisis,” Mr Chouinard said.
Patagonia combines high-end outdoor fashion with its own brand of environmental and social activism. It’s a heady combination that certainly appeals to a loyal, if predominantly well-heeled following.

Part of the attraction comes from the fact that its environmentally conscious stance isn’t new. It was preaching eco-awareness years before sustainable fashion became fashionable.

But it’s still pretty hard to save the planet, if your business depends on selling stuff, however many recycled or renewable products you use.

By ringfencing future profits for environmental causes, Patagonia’s founder Yvon Chouinard has done his best to square that circle.

But he is also clearly trying to ensure that Patagonia brand is future-proofed and can never fall into the hands of the kind of companies he has accused of greenwashing in the past.

It’s nice to bring a good news story to you readers, and it will be interesting to see if any other climate conscious companies will follow suit. The bar has well and truly been set.

“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 aware that public sector organizations face a variety of risks, ranging from cyber threats to budget constraints to compliance concerns. While internal audit teams in the government sector might not be responsible for solving all those risks, they need to make sure that they are following through with relevant risk management protocols.

Therefore, it is essential that internal audit teams are conducting internal audit risk assessments to figure out what these risks look like.

“Risk-based auditing ensures that the internal audit activity is focusing its efforts on providing assurance and advisory services related to the organization’s top risks… This requires internal auditors to have a working knowledge of basic concepts, frameworks, tools, and techniques related to risk and risk management,” explains the Institute of Internal Auditors (IIA).

In this article, we’ll examine five tips to help public sector internal auditors build better risk-based audit plans. These include:

1) Define your goals
Before you get too bogged down in the specifics of running an internal audit risk assessment, take a step back and consider what you’re trying to accomplish. Doing so includes finding internal alignment within your audit team and with other stakeholders.

As Baker Tilly advises, internal audit teams “should meet with the various stakeholder groups – management, the audit committee, and the governing body – to explain the process, set expectations for the results and listen to any desired outcomes, as a means of adapting the approach or identifying other activities where internal audit can add value.”

2) Organize your data
Conducting an internal audit risk assessment also requires strong data practices. But before you can get to a place where you are using data analytics to identify key risks, public sector organizations often need to organize their data first.

Information might be held in a variety of systems that makes analysis inefficient, if not ineffective. Tools like TeamMate+ use a data exchange API framework to pull together data from different sources, such as governance, risk, and compliance (GRC) systems and enterprise resource planning (ERP) tools, giving you a complete picture of what’s happening within your organization.

3) Get agile
If you go through an entire risk-based audit without getting any feedback along the way, then it’s easy to get off track. For one, risks might have changed from the time the audit started to when it eventually wraps up. And when you present to stakeholder leaders at the end of the risk assessment, it can be tough to then incorporate their feedback into your internal controls and assurance processes.

Engaging in agile auditing can help. By breaking an internal audit risk assessment down into more manageable chunks — where different risk areas go from the planning to presentation stages in short sprints — public sector internal auditors may have an easier time adapting to change and incorporating feedback.

4) Go dynamic
Agile auditing creates a dynamic internal audit risk assessment. Instead of approaching these assessments as an annual occurrence, you can review public sector risks on more of an ongoing basis.

That means collaborating with other departments throughout the year to keep up with emerging risks, which is where good data-sharing practices also come in handy. Dynamic or continuous risk assessments can also result in more frequent reporting so that you can keep everyone in the loop and get their timely feedback. Having a strong internal audit risk assessment tool like TeamMate that can help you simplify risk scoring and create efficient audit reports makes a big difference.

5) Keep up with public sector requirements
Lastly, working in internal audit in the government sector means staying on top of general risks like cybersecurity and financial concerns, along with meeting specific public policy guidelines and regulations. Public sector internal auditors often turn to sources like Wolters Kluwer, which provides resources like webinars and other Expert Insights so you can learn what you need to do to strengthen internal audit as a government organization.

Following these five tips can go a long way toward creating a strong internal audit risk assessment and a better audit process overall. Even if it seems like your organization doesn’t face many risks, conducting a risk-based audit can help you stay on top of any changes to your risk level. Rather than being caught off guard, building a reliable internal audit risk assessment plan can help your organization control risk, however that takes shape.

“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:
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– US 001 917 508 5615
E-mail:
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Audit International have been thinking recently about what internal audit should know about ESG risks, and where best to start but with the E, which is for Environmental.

In this, the first in a series of three articles, we will drill down on Environmental risk and explore how internal audit can have an impact by focusing on key risks.

Environmental risks :
There’s no single taxonomy of environmental risks. Consider what categories your organization uses and what is used elsewhere in the sector. The following should all be covered, at a minimum, but may be described in different ways using different terminology:

Climate change :
This should include the effect of greenhouse gas (GHG) emissions – we usually talk about carbon dioxide but there are seven gases covered by the GHG protocol
Pollution from emissions and discharge (i.e., water, soil, air)
Biodiversity loss and deforestation
Waste management
Resource use – impacts of raw materials, production, transportation, and distribution (consider water, energy, and other natural resources)
Hazardous materials
There is clearly an interplay between these risks, but as they represent the major environmental impacts, this offers a good starting point.

This should fit neatly into your existing risk assessment process. Typical impacts for the organization will be reputational, legal and regulatory, financial, operational, and ultimately strategic. All things we are very familiar with.

Getting started – Determining the key risks
Every organization is different. You will need to start with a risk assessment to determine the key risks, potentially using the list above. To do this, you will need to understand the main environmental issues in your business, considering a number of factors:

What sector(s) you are in, and what are the main impacts of that sector. Search out industry guidance from standard setters such as GRI (Global Reporting Initiative), international business groups, such as the World Economic Forum, and thought leaders, such as McKinsey. It is important to consider all the main parts of your business, from the environmental impact of the raw materials you source, through transportation, production, and sales. Although focus on your immediate impacts may be easier, the impacts outside your organization’s immediate control are often more significant. For example, a significant environmental impact of electronics is the extraction of rare earth metals essential for their production.
Where your business is based, the places in which you operate, where you source materials from, and where you sell to. This is important for a number of reasons. It drives the nature and extent of legal and regulatory risk that the organization faces. It also influences the attitudes of stakeholders, such as customers and consumers, as these may vary significantly. But bear in mind, that these factors can change quickly and this needs to be built into any risk assessment.
Requirements of your customers. This may be contractual for government or corporate procurement, or the preferences and attitudes of consumers. This is also partly based on location (as mentioned above), but in global markets, it is never that simple.

All of this (and more) should have been considered by the business (first or second line) and internal audit should leverage their work, effectively challenging and validating. If this has not been done, internal audit needs to be taking a step back and conducting a more basic evaluation of the maturity of the organization’s risk assessment process.

Some types of environmental impact will be universal and significant no matter what your business activity. These include climate change and waste, which Audit International will dig a little deeper into later in the article. Others may apply to a much greater extent in certain industries, such as those in extractive industries (oil and mining for example) and heavy manufacturing (where there may be high levels of resource use – both raw materials as inputs and energy and water in the production process).

How internal audit can make an impact :
As with any aspect of audit planning, the greatest value internal audit can bring will depend on the major risks identified. But we can’t just consider the inherent risks, we need to understand what other sources of assurance are in place and, most importantly, what activities are contributing to both the risk and the assurance. Think about the following:

What do we know about environmental management processes that are in place? What is the scope of these systems and processes?
What reporting is in place? Are external reports assured? Which stakeholders use and rely on these reports?
Are environmental factors (risks and costs) incorporated into project evaluation and capital decisions?
A common factor across many environmental risks is availability and the quality of the data. Process and controls for environmental data are generally less mature and systems are not always equipped or configured to meet the complexities and nuances of this data. This is often a great opportunity for internal audit to add value, both by providing assurance over processes and systems, and by validating the data itself. Both leverage core internal audit skills.

We can also go further, confirming that reports meet whichever standards are being applied, that management reports or projects evaluations fairly, and that these completely reflect risks as well as opportunities. However, this may require more specialized knowledge.

Some examples :

Climate change
All organizations need a response to climate change, and so while the specific needs will differ, this is an issue increasingly relevant for everyone. How can internal audit add value? Let’s look at two potential opportunities:

Has the business considered the potential physical and transitional impacts of climate change? Best practice suggests this should be done using scenario analysis that includes a range of realistic scenarios. Physical vulnerabilities may result from gradual, long-term changes in climate (chronic risks), or short-term (acute) risks, such as storms and fires during heatwaves. These potentially impact the cost-of-capital, the availability and cost of insurance rates, and cause operational disruption. Transitional impacts include changes in legislation, markets, technology, and stakeholder expectations. Internal audit can review the process used to establish scenarios and determine the impacts and, more importantly, assess actions to improve resilience, mitigate risk, and maximize opportunities.

Many corporations are now publishing disclosures under TCFD (Task Force on Climate Related Disclosures). These are becoming mandatory in some countries and are an increasing expectation from investors. External assurance, if any, is usually very limited in scope. Internal audit can provide assurance over the processes to collate data and support assertions made in the disclosures. It can also audit the data and assess the evidence supporting those assertions. Other organizations may provide (voluntarily or by regulation) data on, for example, energy use or emissions. Again, internal audit can provide similar assurance over these processes or this data, as any external assurance will generally be limited.

Waste :
Waste is an issue for all organizations, although the specific impacts will be very different across businesses. As well as the environmental impact, businesses have a cost-incentive to reduce waste, as it is increasingly expensive to treat and dispose of. Internal audit can add value in a number of ways.

Here are some examples:

– Assess whether policies support the organization’s waste strategy. Are they specific to the business and relevant for the types and locations of waste produced? Do they take into account legislation and regulation in each jurisdiction? Are they effectively implemented, understood, and followed?
– Companies often report waste information, either in annual reports or to different public authorities. How is this validated? For example, how do we know that waste is recycled or reused? Are there controls to independently verify how the waste has been treated? In many countries, responsibility for safe disposal rests with the waste producer, not the waste contractor.

To summarize, we have described the importance of environmental risk to all organizations and have shown how internal audit can respond to some of those risks. Internal audit can use existing tools and skills to get started, and leverage widely available sources of knowledge to find out more.

Keep an eye out for our next blog, discussing the S in ESG, which of course stands for ‘Social’.
We will explore how internal audit can address important social risks.

“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”

The world of internal audit continues to advance. In recent years, audit teams have increasingly used data analytics and cloud technologies to increase efficiency and improve assurance. Now, emerging technologies like AI and robotic process automation (RPA) are further making their way into internal audit. Audit International take a look at what effect this will have on Internal Audit and Financial Services in the future.

It’s still early days, but the trend toward automation is clear. In fact, when asked about emerging technology, 20% participants of a recent audit teams survey said they’re already using RPA. In addition to that, 12% said they’re using AI, 3% said they’re using blockchain, and 15% said they’re using more than one type of emerging tech.

These technologies, particularly RPA, have the potential to enhance audit quality. For example, RPA can enable internal audit teams to spend more time collaborating with other departments and sharing results with boards, rather than getting bogged down in repetitive, less strategic tasks.

And in data-centric industries like financial services, these technologies can make a particularly large impact, as we’ll examine in this article.

What is RPA?
Physical robotics can perform motions that automate repetitive tasks, like putting a cap on a bottle or moving a box from one place to another. Similarly, RPA automates repetitive tasks, but the difference is that RPA is centered around software, not hardware.

“Robotic process automation (RPA), also known as software robotics, uses automation technologies to mimic back-office tasks of human workers, such as extracting data, filling in forms, moving files, et cetera. It combines APIs and user interface (UI) interactions to integrate and perform repetitive tasks between enterprise and productivity applications,” explains IBM.

What does RPA mean for internal audit?
One way that RPA can be used for internal audit is to make data-related tasks more efficient.

“If we cut to the chase, the job is straightforward: we download data, analyze it, and use it to discuss processes and controls…The issue is that we waste a lot of time obtaining and formatting data for each audit—the same tables and charts repeatedly,” writes Jean-Marie Bequevor, Expert Practice Leader Internal Audit at consultancy TriFinance, in an article for Internal Audit 360°.

RPA can also help to automate periodic reporting. If you know certain information is needed in every report, then an RPA program could potentially be set up to obtain and fill that information.

That said, RPA can also carry risk, both in terms of the use of RPA in audit programs and the use of RPA across other departments. Internal auditors need to consider RPA internal controls to make sure that RPA is being used appropriately. You wouldn’t want to end up with a misprogrammed bot that creates errors or security holes.

What does RPA mean for financial services?
In addition to being used for auditing, RPA can also play a role in corporate finance and the financial services industry more broadly.

Finance professionals — ranging from corporate treasurers to wealth managers to mortgage lenders — deal with large quantities of data. With RPA, financial services professionals can automate data-related processes like data collection, data cleansing, and analysis.

For example, an investment analyst might use RPA to improve their research process. Instead of manually creating and assembling a clean spreadsheet full of financial data, an RPA tool could automate that, freeing up time for the analyst to engage in more complex, nuanced tasks.

RPA in financial services can also help when it comes to client service and marketing tasks. For example, banks could automate activities like identifying customers that are a good fit for credit card offers or loan products. Rather than sending out these offers to all customers or manually reviewing every client file, an RPA program could be set up to compile a list of customers that meet certain criteria.

These are just a few of the many ways that RPA can be used in financial services and internal audit in general. A repetitive, data-oriented business process tends to be a good candidate for RPA. Many of these types of tasks exist in the financial services industry in areas ranging from compliance to customer onboarding.

With automation, financial services firms can free up time and focus on higher-value work, like building customer relationships and identifying new revenue opportunities. Meanwhile, internal audit professionals can use RPA to efficiently provide assurance.

“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”