Seldom is it due to control weakness or process inefficiency but because of strategic decisions.
In February 2018 in the days after Carillion went into administration, former Institute CEO, Dr Ian Peters, noted that ‘too often internal audit has been preoccupied with detailed low-level risk and has failed to focus on the bigger picture’. The Institute is exploring the creation of a code of practice for both the corporate sector and public sector to achieve this, akin to the one put in place for financial services following the crisis of 2008, revised and updated in September 2017.
In the meantime, audit leaders can be proactive. This paper takes a positive approach as to why and how internal audit should undertake audits in the strategic arena.
Strategy is just another process
There are two clear elements to strategy; its creation and its execution. Internal audit should provide assurance across both, although often restricts itself solely to execution; the projects and processes that are familiar territory.
Strategic decisions, the creation of a strategy, set the direction for the organisation; its goals, objectives and business model. If something goes wrong at this level, it permeates through everything, just like culture and the widely acknowledged importance of the ‘tone from the top’.
Psychological research by Franck Schuurmans, Wharton Business School found that people mainly learn by discovery, heuristics, which limits decision making capabilities for complex problems…unless supported by a robust process. He explains his theory in a video and how to overcome the problem with improved framing, bias dissonance and decision feedback.
All strategy is based on a decision and that decision, regardless of whether it is made by an individual or a collective, can and should be subject to assurance for the protection of all stakeholders.
Audit leaders are adept at…