With businesses facing the strongest economic headwinds in years, the Chartered Institute of Internal Auditors (Chartered IIA) is urging internal auditors to embrace data analytics to navigate more risky, uncertain, and volatile times ahead.
To support their call to action the Chartered IIA in partnership with AuditBoard has published a new report ‘Embracing data analytics: Ensuring internal audit’s relevance in a data-led world’. The report is aimed at encouraging internal auditors to fully embrace data analytics in the age of systemic risk.
The aftermath of the pandemic, the war in Ukraine and now a recession has all magnified and exacerbated a multitude of business-critical risks. These major risk events are having compounding downstream effects on supply chains, inflation, growth, costs, forex rates, cybersecurity, and workplace mental health. Creating an adverse business risk environment of a kind not seen for decades. Making it challenging for boards to keep pace with the myriad of risks they now face.
However, in these challenging times harnessing and embracing the power of data analytics can enable internal audit to deliver faster and more incisive insights on fast moving risks, that boards can then act upon swiftly. Helping organisations to quickly identify, manage and mitigate emerging risks during rapidly evolving situations.
The report is based on a survey of 298 internal audit executives from the private, public, and third sectors across the UK and Ireland. The survey revealed:
- 60% of internal audit functions are already using some for of data analytics, an additional 7% having advanced to AI. However, this still leaves a third yet to adopt data analytics.
- The top three risk areas for using data analytics are financial (62%), fraud (17%), and legal and compliance (6%).
- The top three benefits of using data analytics include greater level of assurance (48%), 100% audit coverage (21%) and enhanced efficiency (14%).
- The top three barriers to fully embracing data analytics include lack of skills (49%), lack of resources (24%) and lack of time to implement (12%).
- Only 17% expressed concern that internal auditors could be replaced by robots in the future. Instead, data analytics and AI can free up internal auditors’ time to focus on strategic and systemic risks that could be coming down the track.
The report makes several recommendations for boards and internal audit, including:
- Boards and internal audit should ensure that senior management has defined the organisation’s top five risks, and that the data support this view and is correct and reliable.
- Boards and internal audit should ensure that the organisation has its own data strategy in place.
- Boards should work with internal audit to identify what data is available to improve risk assurance, and how data analytics could be applied to this data to improve assurance coverage across the organisation.
- Boards and internal audit should work together to champion a data analytics culture and promote a data-first mindset.
An Post, Lloyds Banking Group and the Government Internal Audit Agency are all included as case studies in the report.
John Wood, Chief Executive of the Chartered Institute of Internal Auditors, said: “The aftermath of the pandemic, war in Ukraine and now recession has exacerbated a myriad of business-critical risks. Data is key for organisations to navigate more risky times ahead and it is key for the future of internal audit. Understanding what the data shows about risk resilience in today’s complex environment will help ensure organisations’ success. We urge businesses and internal audit to embrace data analytics.“
Richard Chambers, Senior Internal Audit Advisor of AuditBoard (and former President and CEO of the Global IIA) said: “Given the warp speed at which risks can emerge and wreak havoc, embracing data-analytics is non-negotiable for boards and internal audit if they are to stay on top of the multitude of risks that organisations are now wrestling. Data analytics enables faster and higher quality assurance for boards to then act on. In stormy economic times a data-led approach has never been more urgent.”
The full report is available here.