Internal audit in a digital world
In today’s fast-changing business world, digital technology is transforming industries and organizations at an equally fast pace.
As companies embrace digital innovation, internal audit functions must adapt to stay relevant and proactive. This article discusses how internal audit can thrive in a digital landscape.
What is digital disruption?
Digital disruption is the impact of new technologies like AI, blockchain, cloud computing, big data, and IoT (soon to become IoE – Internet of Everything) on traditional business models.
These technologies offer great benefits but also bring new risks and challenges, which constantly be monitored to ensure that organisations do not go under as they embrace these new technologies and the attendant business models.
The changing role of internal audit
Traditionally, internal audit focused on compliance, financial reporting, and operational efficiency.
This focus yielded and continues to yield value and will surely be a focus in the future. However, in a digital world, internal audit should also focus on the following:
1. Technology risk assessment: Internal audit must be constantly evaluating risks from the use of new technologies.
2. Cybersecurity: Internal audit must assess the organization’s defenses against cyber threats and data breaches.
3. Regulatory compliance: As the digital landscape evolves, regulation also tries to catch up. Internal auditors must keep up with new regulations related to digital innovations.
4. Strategic advisory: Internal audit should be advising management on leveraging digital technologies while managing risks.
5. Continuous monitoring: This involves using real-time tools to quickly detect and address issues.
Strategies for internal audit
In order for internal audit to play its key role and remain relevant, it should adopt the following strategies.
1. Enhance digital literacy:
Training and development: Organisations must necessarily invest in ongoing training to help internal auditors understand digital technologies. The fundamental rule in audit is that you cannot audit what you don’t understand.
Hiring specialised talent: Experts in data analytics, cybersecurity, and AI, must be brought on board and knowledge sharing should be encouraged within the team.
2. Use data analytics
Advanced Analytics: Internal audit must embrace and learn how to use appropriate tools to analyse large datasets, identify trends, and spot potential risks.
Predictive analytics: They should also be able to anticipate future risks and trends and offer guidance to their respective organisations in order to help them proactively manage risks.
3. Integrate technology tools
Audit management software: Internal audit leadership should invest in software that would help to streamline audit processes and improve collaboration and reporting.
Continuous auditing tools: There are tools that provide real-time insights into the organization’s control environment and risk landscape. Internal auditors must learn to use these tools as well.
4. Collaborate with other departments
Cross-functional teams: Internal audit must begin to work with and collaborate closely with IT, cybersecurity, compliance, and other departments to gain a comprehensive understanding of digital risks and controls. This is also important because it will help to avoid instances where internal audit does work that has already been done by the other second line functions.
Shared insights: Share audit findings and insights with other departments to promote a holistic approach to risk management and digital transformation.
5. Focus on strategic risks
Enterprise risk management (ERM): Internal audit must align its activities with the organisation’s ERM framework to address strategic risks, including those from digital disruption. The annual audit plan must be in tandem with the risks that feature in the risk register.
Scenario analysis and stress testing: Internal audit must work with risk champions to evaluate the potential impact of digital disruptions on the organization’s operations and strategy.
Conclusion
Internal audit functions must evolve to stay relevant in a digital world. By enhancing digital literacy, using data analytics, integrating technology tools, collaborating with other departments, and focusing on strategic risks, internal audit can become a proactive and strategic partner in the organization’s digital transformation.
Embracing these strategies will help internal audit provide valuable insights, mitigate risks, and contribute to the organization’s success in a digital era.
The writer is an independent Internal Audit Advisor, Enterprise Risk Management Consultant, and professional trainer.