The recent white paper I co-authored on the attributes of highly successful chief audit executives identified seven traits that are frequently observed in those who are the most effective leaders of internal audit organizations. One of the traits we discussed was "superior business acumen." Based on questions I have received in the wake of presentations on the topic, I thought it might be useful to explore this topic further.
One of the complaints I hear from management far too often is that "internal auditors don't understand the business." As we have shifted our emphasis away from an exclusive focus on financial controls over the past two years, I am hearing the complaint more frequently. That is because we are returning to a more balanced portfolio of audit coverage and including a lot more operational auditing in our coverage. Many of our newer internal audit colleagues have little or no experience in operational auditing, having spent most of their time in recent years focused on financial controls.
For generations, accountants and auditors have been referred to disparagingly as "bean counters." I have never cared for the term personally. However, if we have been guilty of counting beans, it's time to demonstrate our true capabilities and value for our organizations. It's time to move beyond "bean counting" and begin to fully comprehend "how the beans are grown." We must understand the fundamentals of the business of companies and the industries in which they operate. Such a comprehension will be an important reflection of the business acumen that we bring to the table.
So how do we enhance our business acumen in general and increase our understanding of the businesses in which we operate? There is no simple answer to this question, but I am convinced that it starts with a passion to learn. When I joined the U.S. Postal Service Office of Inspector General (IG) many years ago, the IG's Office had only been in existence for about a year. We were recruiting hundreds of talented audit professionals into the organization who did not have a clue about the business processes or operations of the Postal Service. It was fascinating to observe how some of the auditors quickly developed expertise in the areas of the business for which they audited while others did not. I soon realized that it all came down to the passion to learn about the business and to leverage that knowledge to enhance our credibility with management and value to the organization.
I believe we can develop business acumen as internal audit professionals. While there are many ways that we can enhance our knowledge, I would offer the following advice:
Become a "sponge" for information about the business. Read and learn everything you can about your organization and the industry in which it operates. While a typical 10K report for a publicly traded company can present a lot of dry reading, it also presents a "treasure chest" of information about the business and strategic risks facing your company.
Seek out variety in your internal audit assignments. While it is great to become an expert in a specific area of business operations, you will be even more valuable if your expertise spans multiple areas of business operations.
Be passionate about every internal audit assignment. At the Postal Service, those auditors who truly impressed management were the ones who quickly became conversant enough to discuss business risks and controls with 20-year veterans of the business.
Seek rotational assignments in business operations. As much as we would like to think we can learn everything we need to know about the business by wearing an internal audit hat, there is simply no substitute for hands-on experience.
Identify your own gaps in understanding the business, and seek out training or other professional development opportunities. As the newly appointed IG at the Tennessee Valley Authority in 2001, I enrolled in a basic utilities course so that I could better understand the fundamentals of electric power generation, transmission, and distribution. Certainly no one directed me to do it. However, I felt it was critical for me to understand the essence of the company for which I was the newly appointed chief audit executive.
Be patient. Gaining comprehensive knowledge of the business and enhancing your overall business acumen takes time.