Internal Audit Performance Versus Internal Audit Value. Is There a Difference?

May 16, 2016

The concepts of internal audit performance and value add are used interchangeably more often than not. How often has one heard that the internal auditors have completed their annual plan, or their recommendations have been accepted and as a result, they have added value. Has the term “Adding Value” been thrown around, twisted and changed to now mean an entirely different thing? Does it mean that if internal audit performs their work they are paid to do, they are actually adding value? Do these two concepts have the same meaning or are they totally different?

For years internal auditors have been using various indicators to measure their performance. What may however be questionable is whether internal auditors have changed their indicators to adapt to the changes in the business environment, changes to the institute of internal auditing standards and of course adapted to the ever increasing expectations of stakeholders. Have internal auditors not been focusing too much on the work that they perform than on the ways to measure the value of their work? Or do they believe that effective performance and value add is one and the same thing?

The value-add concept has become a very contentious subject. Different stakeholders view value-add differently. Do internal auditors understand what their stakeholders view as value-add? Are there differing views between stakeholders of what constitutes value add internal audit services? For the internal auditors the concept of value-add can be even more confusing as a result of different individuals or governance structures having different expectations regarding value-add. Take for example the Chief Financial Officer. Would finance related matters not be more important than the achievement of strategy? Would the Audit Committee not be more concerned about assurance of the operations of the organization? Taking cognizance of the fact that persons in various positions of authority are normally concerned with their areas of responsibility, just adds more confusion. A state of internal audit profession study performed by PWC in 2013 further confirms that executive management and board members have different views with regards to the internal audit value add concept. Arguably so, different objectives follow different paths.

Further challenges with the Value Add Concept is to first of all understand what is meant by Value, then how to identify it, and finally, how to quantify it. Value is normally determined by the customer or service user. Quite often Value seems to be determined from the perspective of the service provider or internal auditor. Without input from the perspective of the customer, value cannot be determined. Many internal audit functions fail to satisfy their stakeholders because they do not understand their stakeholders’ requirements, expectations and needs. It is relatively easily to meet the requirements because that is what the internal audit’s core functions are designed to do. It is less easy to meet expectations, and it is a sign of a truly customer-focused internal audit function when needs are met.

So coming back to the question: “Is internal audit performance and internal audit value different concepts?” You decide…………………………..

Wayne Poggenpoel (Mphil IA, CIA, CCSA, CGAP)