The IIA recently released Global Perspective and Insights — a whitepaper that includes some sobering information regarding how the internal audit profession is addressing emerging risks globally. The paper is based on a survey of more than 2,200 internal auditors in more than 100 countries and territories around the world. The good news is that internal auditors recognize the degree to which culture, cybersecurity, and big data present risks in their organizations. Yet, the percentage of respondents who had not undertaken any internal audit work in each of those three areas was startling: 62 percent had not audited culture, 25 percent had not audited cybersecurity, and 26 percent had not audited big data.
As surprising as the rate of "no shows" was when it came to auditing three critical emerging risks, I was struck even more by the reason those risks are often left off of internal audit plans: A lot of internal auditors acknowledge that they simply do not know how to audit them. In fact, 25 percent of those who hadn't audited culture cited a lack of competence. Even worse, 65 percent of those who hadn't audited cybersecurity cited a lack of necessary skills, as did 46 percent of those who had not audited big data.
One could argue that these are not risks that the profession historically audited, and that it will take time to embed the appropriate skills. However, if we are to audit at the speed of risk, time is a precious commodity. When future corporate calamities invariably foster questions about "where were the internal auditors," one answer that won't be satisfactory is, "Oh, it was a new risk, and the internal auditors hadn't yet the time to learn how to audit it."
If internal audit is to be poised for the future, one of the five imperatives it must address is agility. We must be agile enough to recognize and address emerging risks and to assess risks continuously, then adapt our audit coverage accordingly. And, we must be agile enough to recognize gaps in our capabilities and close them quickly. Success in the future will come to those internal audit departments that have a dynamic talent-management strategy.
Buzz terms like "talent-management strategy" are often dismissed as "consultant speak," and are not widely present in the internal audit departments I have looked at. Yet, it is really not a complex concept. An effective approach to internal audit talent management requires a vision (e.g., the ability to address key enterprise risks in the future), a gap analysis (what skills will we need that we do not have now and what gaps might develop in the future), and a plan to address the gap (how will we acquire the skills/capabilities to address tomorrow's risks).
To address any exiting or looming talent gaps, there are three obvious strategies that should be considered:
- Develop the skills within the existing staff. This requires investment and persistence. It also affords the least disruption, and enables us to integrate existing corporate knowledge with newly required skills. Developing skills to audit an emerging risk, such as corporate culture, would likely generate much faster success than hiring someone new simply because he or she has audited culture elsewhere. The IIA's Audit Executive Center offers strong thought leadership in this area and others for chief audit executives looking to strengthen their teams.
- Acquire new skills in the marketplace. Some emerging risks are so complex that the best strategy may be to acquire the expertise. However, competition for such talent can be intense. After all, emerging risks, such as cybersecurity, are rarely isolated and are likely emerging everywhere. But a word of caution when deciding to acquire expertise: Make sure the risk is going to hang around awhile. It may not make a lot of sense to hire someone with the necessary expertise to address a risk in 2017 that will have faded by 2020.
- Use co-sourcing strategies. If developing a new expertise is deemed too expensive or time-consuming, or if hiring new professionals with the expertise is not practical, then the obvious answer is to leverage experts in the marketplace. Third-party service providers can be an excellent resource for internal audit departments faced with the challenge of quickly addressing complex and specialized risks. Naturally, co-sourcing necessitates an adequate budget. However, the last time I looked, more than half of the Fortune 500 internal audit departments in the United States maintained co-sourcing relationships with one or more third-party service providers.
In the end, a sound talent-management strategy likely depends on a combination of all three of these approaches. What's important to remember is that effective talent-management strategies are continuous. After all, the only thing you can say for sure about emerging risks is that they keep emerging.
I welcome your thoughts, and any ideas you might have on effective talent-management strategies.