For years, auditors have used interviews and workshops to conduct successful company assessments. However, as more businesses become digitised, CFOs are having to consider more efficient approaches.
In the face of higher expectations for accuracy, they need to realise that big data is changing the way that organisations operate, and internal audit departments can’t afford to be left behind. In practice, this means that auditors need to blend traditional techniques with a more data-led approach. Despite this, PwC’s 2018 State of the Internal Audit Profession study showed that only 14% of audit professionals are advanced in their adoption of technology – clearly there is still progress to be made.
Unrivalled access to the organisation’s data provides internal auditing with a unique opportunity to support CFOs. However, with great power comes great responsibility; as business processes involve greater volumes of information and become more complex, auditors are under pressure to use analytics to turn assets into insights. This means understanding the inner workings of those processes instead of basing audits on a small data sample. But how can internal audit teams capitalise on the wealth of data available – from their own business activities as well as external sources – to increase efficiency and help CFOs understand emerging business risks?
Helping auditors drive business change
Despite the promises of data-driven methods, integrating technology into the audit process has traditionally proved difficult, given that it still relies on obtaining relevant information. However, internal teams should theoretically have the information more readily to hand than external contractors tasked with collating requests from around a business. CFOs have a vital role to play in enabling this access, by encouraging a strategy defined by continuous auditing. Therefore, analytics has become a key facet of internal audit strategy, by freeing up auditors to manage risk more proactively, rather than focusing on data aggregation.
Traditional methods have helped audit teams eliminate many manual errors. However, conducting an audit based on more accurate, real-time information can help streamline approvals, timelines, exceptions and violations in order to improve processes and avoid risks. As more advanced tools such as automated data capture enter the arsenal of the auditor, internal departments can analyse swathes of unstructured data such as contracts and trading information.
Notably, this can help identify fraudulent activity that needs investigating. More generally, it enables a focus on higher risk areas rather than arbitrarily sampling areas of a business. The increasing complexity of the modern business environment, however, requires a still more advanced approach.
It’s all in the process
The technology used in cutting-edge solutions such as process mining use the digital event logs in a company’s existing IT system to create a visual reconstruction of the business processes across an organisation. In the context of auditing, this allows the department to visualise and analyse aspects such as purchase-to-pay, order-to-cash, production and logistics, giving CFOs complete transparency into how these processes are working.
Machine learning and AI algorithms are also playing an increasingly important role in this, by guiding the auditor through the analysis and pointing out compliance issues and inefficiencies along the way. Simply put, the combination of analytics and AI acts like a personal MRI machine, providing unbiased visibility and diagnostics of an organisation’s processes.
This level of advanced analytics can support the internal auditing process from preparation through to reporting, as it helps benchmark process execution to set the right focus for the audit upfront. For example, a system containing a significant volume of un-approved purchase orders can experience real problems in the purchase-to-pay process. As the approval of purchase orders is key from a compliance perspective, visibility over all purchase orders is vital for an efficient auditing department.
Examining processes under a microscope in this way can uncover hidden bottlenecks and reduce compliance costs, as well as the cost of auditing itself. This level of visibility can also help CFOs tackle broader business challenges, such as integrating multiple systems following a merger or acquisition.
Creating a vision for audit
CFOs shouldn’t be afraid to move beyond traditional analytics to transform their internal auditing strategy. Simplifying processes, automating routine tasks, and transforming operations are just the beginning. With the ability to proactively monitor issues that could result in significant business risk, auditors can position themselves as digital leaders within their organisations and become a key strategic partner to financial leadership.
The complexity and rapid evolution of modern business require equally capable solutions. There’s no denying it – big data has transformed the way organisations operate, and finance cannot afford to neglect internal audit departments as other teams innovate. Ultimately, it is the responsibility of the CFO to turbo-charge internal audit and facilitate its empowerment with the best tools to achieve high precision and full process transparency.