When faced with the proposition to either accept a map to success or receive instant success/gratification, which would you choose? Let's compare two scenarios:
- Scenario A: A business that succeeds but does not know how it succeeded.
- Scenario B: A business that fails but does not know how to succeed.
One could argue that in Scenario B the business has failed and is therefore worse-off than in Scenario A. However, in the current economic climate we have seen the importance of sustainability and consistency in maximizing profitability for all stakeholders and the impact to businesses when this is not the case. Therefore, if we look at this scenario from a more strategic perspective, both are at risk of failure.
This is because in Scenario A, the success cannot be sustained as the business is unaware of potential threats and strengths within the company that led to the success, and there is a false pretense/expectation of future success. Similarly, in Scenario B the company has the knowledge of failure and is aware of the need to tighten controls but has not identified key controls to prioritize in correcting this failure.
In the same way, companies often are faced with the difficult choice of whether to prioritize core functions and key legislative requirements for compliance, with internal audit functions often bearing the brunt of cost savings. However, this means that companies are prioritizing their short-term profitability objectives at the risk of jeopardizing the long-term sustainability of operations.
To add the most value, internal auditors should leverage their assurance role to assist businesses in identifying triggers of business failure. They can accomplish this by drilling down into objectives, identifying control failures within the operations, and advising management on the possible impact of these failures if those failures are left unattended.
To achieve this objective, management will need to view internal audit as part of its core functions and not in isolation. Internal auditors can assist management by:
- Building relationships of honesty and ethical conduct with staff.
- Expanding their knowledge of risk management practices and advocating for increased awareness.
- Embedding themselves in industry knowledge, best practices, and benchmarking activities.
- Advocating for the value of internal audit by holding management accountable.
In doing so, internal auditors will be optimally positioned to identify potential weaknesses (control failures) that could have a greater impact on the success of the businesses and the achievement of the overall strategic objectives, if not detected and addressed timely.
This means that internal audit and risk management functions can help management draw a map of controls and activities that need to be followed to take advantage of opportunities to grow the business and maximize profitability and stakeholder return. Therefore, by working with internal audit, management can build a more sustainable road map to continuous success that prioritizes profitability without sacrificing oversight and insight into the business. Ultimately, that map can enhance management's foresight.
When faced with the difficult choice between the map and the medal, it is important to understand that although the map may take you on a longer journey, there are many races to be won.
Maryam Makinde, CIA, CRMA, CSOE, is a senior associate at PwC in Pretoria, South Africa.
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