Robust internal audit sure way to fix poor governance in firms

[Photo: Courtesy]

The need for Internal Audit has never been greater. We live in an increasingly complex and technologically advancing world where organisational progress and reputation are easily upset by shifts in value systems.  The intent of personal and organisational progress while noble, has sometimes challenged established governance structures and value systems. Recent stories of worldwide corporate failures, including in Kenya and the financial crisis like the financial melt-down of 2007, tell the painful results of improper balance between appetite for progress and value systems.

Conscience of organisation

The agency conflict risk between managers and owners (or citizens) continues to manifest itself through organisational failures, causing unwarranted pain to all stakeholders. The conflict simmers due to imperfect information flow and lack of a trusted arbiter between the parties which in modern business is referred to as governance structures. To strengthen governance and safeguard the conflicting interests of all the stakeholders, Internal Audit should be established as the conscience of the organisation. This enables the entities to self-reflect and renew their commitments on the journey towards their strategic goals.

Leaders must understand how organisations define success, implement key measurement metrics and align these with the aspirations of the societies they operate in. The clarity of purpose cascaded across the organisation builds an environment of trust and collective ownership of the vision. The narrow path of realizing the vision should be guarded by governance structures, of which Internal Audit is a critical component.

Internal audit is akin to a health check of institutional aspirations and the structural setup to achieve the strategic objectives. Effective Internal Audit activity is an asset to management, the board, and stakeholders due to its understanding of the organisation’s operations, culture and risk horizons. Internal Audit professionals strive to make an organisation’s systems as efficient, effective and transparent as possible.

The digital evolution into robotics, artificial intelligence, machine to machine interactions and others, has had a tremendous impact on how organisations are set up to operate and serve their customers. Internal Audit profession, similarly continues to adopt technology in delivering the assurance and consulting mandates within the various organisations they exist in, beyond the traditional tools. With all its glory, digital technology can never supersede the human mind.

The human element is the most critical risk to any organisation. Organisations rarely fail because systems fail, but often because human values fail. For organisations, even those that cannot install state-of-the-art technologies, establishing the right culture characterized by attitudes, beliefs and behaviours consistent with their aspirations is the right place to start. Even though technology adoption is a priority, organisation culture is predominantly attributed to the success or failure of a company.

Internal Audit executives are waking up to the realization that the most effective control system is nurturing an ethical culture among employees. These are the values that determine whether an entity achieves its vision, maintains a good reputation and maintains the loyalty of its customers. This culture facilitates natural compliance with laws, procedures and regulations. As much as it may require organisations to invest in complex controls, even small entities can still extract the most benefits from simple tools such as well designed and implemented employee code of conduct.

In the words of Richard Chambers, President & CEO of the Global Institute of Internal Auditors, “Internal audit is the brakes that allows the organisation to drive faster and is also a critical component of an organisation’s navigation system”. Effective Internal Audit functions provide organisations the ability to pursue their aspirations with the assurance that they will arrive at their destinations without crashing.

As we flip our calendars to June, many might be unaware that May was the Internal Audit awareness month, Organizations  should have taken the time to sensitize their ecosystems on ethics and integrity as these are critical to achieving the primary purpose of Internal Audit; protection of assets brand and sustainability of organisations.

 

Mr Osodo is the Director, Internal Audit, Safaricom PLC and Council Member, ICPAK