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​The Audit Committee Connection

Internal audit's ability to serve as a trusted advisor to its primary stakeholder is key to organizational success. 

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Trusted advisor relationships are all the rage nowadays. Consultants in various industries have made a case for their services as trusted advisors, and the term has become part of the lexicon of internal audit. But does anyone really know what it means? No listing for it can be found in a dictionary, though informal definitions include words like mentor, guru, and go to. Given the term’s nebulous meaning, why are internal auditors so determined to promote themselves this way? And without a universal definition, how do they know they have achieved trusted advisor status? 

The answers can be found, in part, by examining internal audit’s relationship with the audit committee. The committee will always be internal audit’s primary stakeholder. Auditors owe it to themselves and the audit committee to maximize this relationship, and nothing characterizes its ideal state better than the phrase trusted advisor. This status is earned over time with painstaking attention to detail — it requires effective communication, strong relationships, and a willingness to facilitate organizational change. These overarching areas form pillars of trust with the audit committee, and by examining each closely internal auditors can help determine whether they’ve become trusted advisors. Failures may occur along the way, but these failures can help cement the trusted advisor relationship. Getting this relationship right is essential to the organization’s success.

Presence and Voice

Unlike the old adage that children should be seen and not heard, internal auditors need to be both seen and heard, loud and clear. They must have a presence in the boardroom, the C-suite, and wherever significant organizational decisions are made. But they shouldn’t be a fly on the wall — auditors need to provide insight and promote change. They also need to know when it’s appropriate to escalate an issue and push for resolution. 

Have an Opinion Internal auditors can’t just point to potential risks and opportunities. They serve as the eyes and ears of the audit committee, and committee members will frequently ask for their opinions. Auditors need to deliver opinions that are not only informed, but supported by facts and in line with the organization’s objectives. Trusted advisors don’t stop at explaining the risks and potential outcomes. When the audit committee asks internal audit’s opinion on the progress or potential impact of a key initiative, auditors should be well-versed enough to provide useful, relevant information. 

Engage With Passion Practitioners from the chief audit executive (CAE) down to the newest staff auditor need to be engaged and passionate about helping the organization achieve its goals. A passionate, energetic audit team elicits confidence from the audit committee and shows commitment to the organization. Internal auditors can demonstrate these qualities, for example, by immersing themselves in the organization’s activities and stepping outside their comfort zone. They need to bring enthusiasm and drive to everything they do — the audit committee will take notice in the internal auditors’ communications and actions, as well as the results they produce. 

The Right Cadence Nobody wants a reputation for “crying wolf,” but sometimes internal audit needs to be persistent to have its message heard. The audit committee needs to know internal auditors are doing their job, and at times that means delivering bad news. Early in my career, I expressed concern about a particular department’s culture and the risk of it losing a large percentage of employees due to poor morale. Similar to the boy who cried wolf, my message received lots of attention at first but not nearly as much upon subsequent warning. By the third time, my prediction about staff departures unfortunately came true. If I had developed the right cadence, my message would have achieved greater impact. Internal audit can’t have a trusted advisor relationship until the audit committee knows the auditors can gauge the appropriate frequency, tone, and timing for effective communications. 

Agents of Change

While internal auditors may have a reputation for bringing awareness to important issues, how often are they the ones willing to take action and facilitate organizational change? In their capacity as advisors, practitioners can perform a great deal of change-oriented work without compromising their
independence. And nothing can solidify internal audit’s trusted advisor relationship with the audit committee more than demonstrating the audit function’s ability to drive positive change. 

Wield Personal Power The audit committee needs to know that internal audit can facilitate change based on its influence. However, influence can’t be achieved solely through positional power, or the authority held by virtue of one’s place in the organization’s hierarchy. It must come from personal power as well, drawing on personality, knowledge, and social skills. 

Positional power strategies can only go so far — often, they are effective in the short term but damage relationships and create resentment over time. CAEs who use their personal power to exert influence are much more effective. It can be a powerful tool for helping drive organizational change, establish buy-in, encourage collaboration, and foster a more positive culture. Successful CAEs rely almost exclusively on personal power, but they can also draw on positional power if needed. When the audit committee sees the audit function leading change in the organization, driven by personal power, it will be more likely to view internal audit as a trusted advisor. 

Speak the Language Internal auditors need to show the audit committee they are multilingual, though not in the traditional sense of fluency in foreign languages. Organizations, and even individual business units, often have their own unique language, jargon, and culture. Suppose internal audit needs to speak with the external auditors, relay a message to the IT department, and then coordinate with the head of sales. Even in the most seamless environments, what are the chances that all of these functions can easily understand each other, much less effect organizational change initiatives? Internal auditors have a wide breadth of reach within the organization that enables them to connect the dots and interpret for others. They can synthesize what one area is trying to communicate into relevant information for another. Most importantly, internal auditors can relay those communications to the audit committee. They will know they’ve become a trusted advisor to the committee when they can interpret highly technical or jargon-filled language and distill it into meaningful information that committee members can easily digest and act upon, creating the desired change in the organization. 

Be Proactive Taking on a project at the request of the audit committee is an easy decision. Almost all of the time, the answer needs to be yes. But trusted advisors go a step further by getting involved even before they’re asked. If auditors pay close attention to organizational developments, they can proactively assess emerging priorities before the audit committee requests their assistance. Questions often arise from committee members when the organization receives negative publicity — they want assurance that the organization is protected. Trusted advisors will take the initiative to evaluate the situation, consider it carefully, and present an objective picture to the audit committee in anticipation of its queries. 

Relationship Building 

Relationships play a key role in establishing trust. Without adequate familiarity and comfort with the CAE, members of the audit committee may not fully leverage internal audit’s capabilities. Several building blocks can strengthen audit’s relationship with the committee and provide confidence in its ability to deliver value. 

Maintain Integrity Auditors’ integrity represents the foundation of their role as trusted advisors. The audit committee needs to have full confidence that audit practitioners are above reproach, their motives are pure, and they will act in the best interest of the organization. Without such assurance, a trusted advisor relationship cannot exist. When faced with situations that may damage relationships, hurt the organization’s bottom line, or reflect negatively on the audit function, practitioners must act in accordance with their core values. Some painful conversations may be required along the way, but the audit committee will appreciate internal audit’s commitment to integrity. 

Answer All the Questions When the audit committee asks questions, more pressing issues often lie beneath the surface. As trusted advisors, internal auditors must get to the root of questions — the underlying reasons behind them. For example, the committee may ask, “How receptive have departments around the organization been to implementing the new technology?” Is the question really about departments’ receptiveness, or is the committee seeking to understand whether the technology has been worth the investment, or if there is a holdout department that needs to be addressed? Or perhaps it’s seeking to probe an even deeper issue. Auditors will know they have achieved trusted advisor status when they answer all of the audit committee’s questions, both explicit and implicit. 

Back Words With Action Internal audit’s status as a trusted advisor is contingent on its ability to fulfill commitments to the audit committee — every time. Auditors commit to completing audit projects as part of the audit plan, and they must back that up. They commit to performing their work with the necessary skills, abilities, and expertise, and they commit to remaining independent and objective in the process. I recall a time when our team was struggling to complete the audit plan as promised in light of late-year turnover within the function. After completion of the plan, one of the audit committee members pulled me aside and told me the deck was stacked against us — that we shouldn’t have been able to complete the plan. I replied that we made a commitment and had no intention of falling short. Instant credibility was established, and the path to becoming a trusted advisor was set. Trusted advisors fulfill commitments and support their words with actions. 

Confidence and Trust

Maintaining an effective relationship with the audit committee is vital to organizational success. When CAEs invest in that relationship and build a stronger connection, mutual trust and confidence is more likely to emerge. No one can become a trusted advisor overnight, but once achieved the benefits for both parties, and the organization as a whole, are well worth the effort.  

Seth Peterson
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About the Author

 

 

Seth PetersonSeth Peterson<p>​​​​​Seth Peterson, CIA, CRMA, QIAL, is vice president, internal audit manager, at The First National Bank in Sioux Falls, S.D.​ He was recognized as an <a href="/_layouts/15/FIXUPREDIRECT.ASPX?WebId=85b83afb-e83f-45b9-8ef5-505e3b5d1501&TermSetId=2a58f91d-9a68-446d-bcc3-92c79740a123&TermId=c560bc9b-0726-4453-b8ac-ef425a3a79ec">Emerging Leader​</a> by <em>Internal Auditor</em> in 2013 and serves on​ The IIA's Global and North American Boards of Directors, and its Emerging Leaders Task Force.</p>https://iaonline.theiia.org/authors/Pages/seth-peterson.aspx

 

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