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Internal Audit’s Transformation Imperative

Internal Audit’s Transformation Imperative. A Discussion on Agility and Innovation. The Case for Transformation. Changes to Stakeholder / Client Demand. Growing Responsibility & Liability. Changes to Stakeholder / Client Demand. “Paradox of Structural Expectations”.

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Internal Audit’s Transformation Imperative

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  1. Internal Audit’s Transformation Imperative A Discussion on Agility and Innovation

  2. The Case for Transformation

  3. Changes to Stakeholder / Client Demand Growing Responsibility & Liability Changes to Stakeholder / Client Demand “Paradox of Structural Expectations” Increased Interest in Strategy & Risk Management Dissatisfaction with Transparency

  4. Paradox of Structural Expectations

  5. Changes to the Competitive Landscape CROs, CCOs, CISOs, GCs Changes to the Competitive Landscape Lots to say with limited opportunities to say it Blurring of second and third lines of defense

  6. Changes to Technology Cloud, IoT, AI, Blockchain, Augmented Analytics, RPA Changes to Technology Business transformation Business disruption

  7. An Era of Disruption Data Ethics Artificial Intelligence Cloud Internet of Things Blockchain Augmented Data Analytics Robotic Process Automation Autonomous Things AI Driven Development

  8. “The world as we have created it is a process of our thinking. It cannot be changed without changing our thinking”-Albert Einstein

  9. Where to Start?Our Own KPIs

  10. Typical Internal Audit KPIs “Look What I Did” Metrics Percent of Audit Plan Complete Number of Recommendations Made vs Implemented Hours Spent per Audit Hours Spent on Training

  11. Or Worse…Incentivizing the Wrong Behavior

  12. KPIs - One Meaningful Question to Answer • Did the business unit’s KPIs increase subsequent to the audit? • Increased performance • Decreased expenses • New revenue • Better service to customers • Etc.

  13. Data analytics

  14. Data Analytics…What’s Missing? "I have an auditor on my team who likes data and knows how to use [XYZ software]. I sent him to some extra training and asked him to come up with some analytics for a couple audits. He ran some Benford's analysis and produced a bunch of rather large exception reports. I'm not sure what we’re getting out of this or what to do next."

  15. Said Another Way… “People tend to collect data, and then, because they have a lot of it, assume there must be meaning in it. That’s backwards. The first thing must be to understand what problem we are trying to solve. That leads down the path of what data is needed and how to analyze it.”

  16. To Execute, the Right Skills are Critical

  17. Data visualization

  18. What’s Wrong With This Picture?

  19. Clear and to the Point…

  20. Another example…

  21. Sometimes Text is Better… 76% of customers were satisfied with product X in 2018 compared to 65% in 2017

  22. Data Visualization Tips Understand your audience Have an objective Keep it simple and focus on what is important Design for comprehension Tell the story

  23. Artificial intelligence

  24. Artificial Intelligence Large Data Sets Customer Data Defined Criteria Public Data Objectives Decisions Market Data Sensor Data

  25. Internal Audit’s Role in AI

  26. Blockchain

  27. BlockchainSimplified 1 Transaction request 2 3 Request transmitted to a P2P network Each node validates requestor status and transaction Verified transaction (cryptocurrency, contracts or other records 4  5 Verified transaction combined with prior transactions adding a new block of data to the chain 6 7 Transaction complete The new block is added in a way that is permanent an unalterable

  28. Getting Ahead of the Block Chain The explosion of new applications of blockchain technology will involve internal audit, as does anything that requires record keeping. Boards and investors want to know what their organizations are doing in this area. Business models involving transaction intermediaries risk being wiped out. Many of the issues surrounding this transformation are known, but many more are yet to be identified.

  29. Getting Ahead of the Block Chain Internal audit must develop strategies for maintaining a sufficient level of transparency and verifying that the blockchain and related applications are performing as intended. Internal audit must be prepared to perform a detailed analysis of the technical architecture of the blockchain.

  30. Parting Thoughts Recognize internal audit’s vulnerability Embrace agility and innovation Challenge the status quo Acquire the right talent Most Importantly Set aside time to think

  31. Thank You Jim Pelletier, CIA Vice President, Standards & Professional Knowledge The Institute of Internal Auditors iaonline.theiia.org/blogs/Jim-Pelletier

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