2014-09-01
I had an interesting conversation with a vendor (now a friend) just the other day. We were talking about the ongoing evolution in audit and she said something very thought provoking. For years I have carried the mantra that the value of audit is directly related to the amount of insight an auditor gains and shares. I define insight as knowing the intricacies of the businesses we audit; understanding the nuances of the marketplace towards those intricacies; showing an ability to analyze both—thereby determining the combined impact to the control environment; and, ultimately, arriving at the nature of the business risk and impact of controls.
While my newfound friend acknowledged the importance of insight, she matter-of-factly said: “Having insight is not good enough. We should already be moving beyond that and demonstrate foresight in our auditing activities.” She further stated that this is what executives want, what regulators expect and what other stakeholders are demanding. Not one to sit around and wait, I have given this some thought, done some research, and have reached a conclusion. My friend is right! Regardless of whether anyone expects it of us or not, Internal Audit needs to move beyond insight and right into demonstrating foresight.
Honestly, this will be a challenge. Many of our fellow audit groups are only now learning the art of insight. There is still so much to do within audit processes and education around this topic that many are not ready to even consider tackling the idea of foresight. But I have to keep moving forward; so, to help us along, let’s start by defining both terms:
Secondly, let’s do exactly what Tevye did in the movie and play, The Fiddler on the Roof. When faced with progress versus tradition moments, he measured impact and, when right, he moved forward with progress. So, say good bye to traditions that are no longer relevant. It will not be easy, this transition from insight to foresight. Just consider: ‘No one can predict the future!’ versus ‘People can be clairvoyant!’ Or: ‘Those who fail to learn from the past are doomed to repeat it!’ versus ‘If we change one factor, the past will change!’ Or even: ‘When hiring, past performance predicts future behavior!’ versus ‘People change so they will react differently!’ And finally: ‘Past credit history indicates future credit behavior!’ versus ‘People learn from their mistakes!’
There are a lot of conflicting statements that have proven true or false depending on situational details. As auditors, we should be able to sift through the conflict and arrive at thoughtful clarity. Can anyone predict the future? Yes, within certain parameters. Can you change the past? No, but you can interpret it differently. Do people really learn from their mistakes? Sometimes! It really is not easy to discern a correct response to any of these situations. Imagine how hard it then becomes for an auditor to gain foresight.
By removing ourselves from the inherent conflicts of future versus reality, let us hypothesize how auditors can gain this skill of the future, if it is possible at all. I call this the auditor’s 5 Step Plan to Foresight.
By understanding the nature of things, one begins to more fully comprehend the predicable aspects of behavior. If you don’t have insight today, create a work group that can help you obtain the knowledge you seek through their own experiences. This will cut your own learning time in half and you will be ready much sooner to move towards the future.
There are indicators in the environment that provide a roadmap of possibilities, and your insight will narrow those possibilities down into probabilities. Always remember that the environment includes your team, your company, your geography, your industry and your planet. Global events do impact even small regional or community banks, for example. Don’t sell yourself short by forgetting about those items.
Migrate to data-driven auditing as fast you can. Teach yourself and your team the ins and outs of analysis, data interpretation and data management.
This will provide you a general geography, if you will, of where you will be able to go in your discussions with them. Linking your foresight to their strategy will resound in a meaningful manner and they will objectively listen to your suggestions.
Make a decision based on the information you have obtained. You can determine, with a good degree of predictability, what probably will occur tomorrow if some things do not happen today. Communication of your conviction will be the difficult part as many managers do not like to decide on things without concrete evidence that it has happened.
(Source: ACL Blog)
