Adding Value Via Internal Audit Transformation: Finding the Right Balance NOVEMBER 27, 2018

NOVEMBER 27, 2018

Adding Value Via Internal

Audit Transformation:

CPE and Support

CPE Participation Requirements | To receive CPE credit for this webcast:

 You’ll need to actively participate throughout the program.  Be responsive to at least 75% of the polling questions.

 Please refer to the CPE & Support Handout in the Handouts section for more

information about group participation and CPE certificates.

Q&A | Submit all questions using the Q&A feature on your screen. Presenter(s) will review and answer questions submitted as time allows. *Please note that

questions and answers submitted/provided via the Q&A feature are visible to all participants as well as the presenters.

Polling Question 1 (Test)

How did you spend Thanksgiving?

A.

B.

C.

Brian Kirkpatrick, MBA, CIA, CRMA

Managing Director | Risk Advisory Services

Brian is a managing director in BDO’s Risk Advisory Services practice. He has more than 20 years of experience in delivering internal audit,

compliance, and consulting services and solutions to Fortune 500 and middle market companies.

Brian has expertise in consulting and performing Internal Audit Services (including External Quality Assessment Reviews), Enterprise Risk

Management (ERM), Sarbanes-Oxley (SOX) including SOX Readiness and Compliance Management Services, Finance and Performance

Management and Business Risk Assessments.

Brian’s clients include a variety of middle market and Fortune 500 companies across a broad range of industries including healthcare, financial services, manufacturing & distribution, transportation,

information technology (IT) services, energy and property management services.

PROFESSIONAL AFFILIATIONS

The Institute of Internal Auditors (IIA), Member and local Chapter Treasurer

EDUCATION

M.B.A., Baldwin-Wallace College

B.S., Accounting, Penn State University, The Behrend College

John Pagac, CPA

Managing Director | Risk Advisory Services

John is a managing director in BDO’s Risk Advisory Services practice. He has more than 24 years of professional experience with the last 10 years being in management roles in professional services and industry

delivering internal audit, compliance, and consulting services and solutions to large pubic and private international companies. He has significant experience in performing and delivering Internal Audit Services (including value added operational assessments and establishing internal audit functions), Enterprise Risk Management (ERM), Internal Controls Over Financial Reporting (ICOFR) and Sarbanes-Oxley (SOX) testing including initial implementation/readiness

assessments, and corporate governance.

John’s clients have included a variety of global middle market and Fortune 500 companies across a broad range of industries including automotive, retail, manufacturing & distribution, transportation, and medical devices.

Prior to joining BDO, John was previously with a Big Four public accounting firm, providing internal audit services to several large global companies which included assisting five companies in establishing an internal audit function. In addition, he also served as the Internal Audit Director for a

PROFESSIONAL AFFILIATIONS

Certified Public Accountant, State Of Michigan

The Institute of Internal Auditors (IIA), Board Member Detroit Chapter

EDUCATION

Today’s Learning Objectives

At the conclusion of this course, participants will be able to:

 Discuss value and what this means for IA departments;

 Discuss what the right balance means for your internal

audit organization and what changes may be needed to add value;

 Describe how to implement strategies to arrive at the right

Value and What It Means

for IA Departments

Today’s Environment - Disruptive Changes

 Investor & Stakeholder

Expectations

 Talent Supply & Hiring

Internal Factors

 Value Creation & Adding Value  Innovation

 Talent Management

 Transparency & Accountability  Independence

 Access

2018 BDO Global Risk Landscape Report

Value - Defined

 Assessed differently by stakeholders

 Understanding stakeholder needs and expectations

 Deliver through “Value Proposition”*

Assurance

Insight

Objectivity

Polling Question 2

How does your organization define ‘Value’ from Internal Audit?

A.

B.

C.

The Role & Function of Internal Audit

“The role of internal audit is to provide independent assurance that an organization’s risk management, governance,

and internal control processes are operating effectively.”*

The scope of the work of internal audit can encompass many aspects of an organization’s operations and activities.

Foundations of an IA Function

Governance

 Purpose and Expectations  Mandate

 Access and Relationship  Operations

 Quality

 Reporting and Communication  Audit Execution  Resource Management Infrastructure  Knowledge Management  Technology  Methodology  Resources  Staffing  Training  Career Development Governance Operations Infrastructure Resources

The Roles & Function of Internal Audit

 Monitor and assist the Company with Risk Management

 Assist with documentation and development of the

Company’s internal control framework

 Monitor/test the effectiveness of the internal control

framework (SOX 404 requirement; some testing recommended for all companies)

 Monitor/test the company’s operational processes for

Finding the Right Balance

Challenges & Disruptors

 Traditional Auditing

 Consulting Vs. Assurance

 Independence/Professional Skepticism  Subject matter expertise

 Talent Management & generational differences in workforce  Technological Advances

 Speed of Risk/Change  Perception of Value  Budget Restraints

Finding the Right Balance

Questions to Consider

 What and/or is there a right balance?

 What should our focus be?

 What are the needs of our stakeholders and who are our

stakeholder?

 How do we as a department define our Value Proposition

 Are we aligned with our Company’s Strategies and strategic

Polling Question 3

How do you think key stakeholders would define the role of Internal Audit within your organization?

A.

B.

C.

D.

Value Proposition

 Independent

 Independent and objective assessment of risk management

 Provides a systematic, disciplined approach to evaluating

and improving the effectiveness of risk management, control, and governance processes.

 Provides visibility of the processes and controls and issues to

the Board and Audit Committee

 IA Department required by The New York Stock Exchange

Balancing Change

 Adopt Enterprise risk focus

 Development of Key Performance Indicators (KPIs)

 Develop agility to balance ever-changing stakeholder needs

 Need to be more than just in compliance with Standards

 Understand what value is/defined from stakeholders

 Align with Strategic Plan

Balancing Change, cont’d.

 Include others

 Understand and define Independence

 Talent and Resource Management

 Be accessible and have access

 Be an agent of change

 Be proactive

 Consultant/Advisor

Strategies to arrive at the right balance

for your organization

Make Investments

Shaping the Future of Internal Audit through investments in:

 Personnel

 Time

 Technology

Invest in Personnel & Time

 Diverse & Critical Thinking

 Welcome new ideas and perspectives

 Continuous Learning - providing ongoing education,

resources and guidance

 Empower through new and emerging opportunities

 Accountability and Transparency

 Put in the Time

Flexibility

Consistency

Recruitment & Retention

 Do not compromise – get the best people

 Understand your culture and the candidate’s ability to fit

into that culture

 Value potential

 Become fully engaged in the recruitment effort

 Acquire skills to address broader needs and to keep up with

Invest in Technology & Resources

 Audit software

 Data Analytics

 Robotic Process Automation (RPA)

 Continuous Auditing/Monitoring

 Work with management to identify and analyze their data

Be Agile

 Embrace & be open to change

 Be Flexible

 Be proactive vs reactive

 Stakeholder “Buy-in”

 Frequent updates/reporting

 Provide independent & objective assurance

 Be Insightful

 Benchmark

Concluding Thoughts

Be a Leader:

 Be a role model / Inspire key stakeholders

 Communicate – Utilize business acumen

 Embrace and anticipate change – “visionary”

 Invest in personal and staff/team development – Redefine

talent when necessary

 Make the time / be available and accessible

Concluding Thoughts

Transformational Change

 Have the right reporting relationship and cadence

 Ensure active Board/Audit Committee participation

 Be Present

 Invest

 Learn

Concluding Thoughts, cont’d.

Transformational Change

 Embrace new technologies

 Attract and retain professionals – Understand and embrace

generational differences

 Balance business acumen and technical know-how (Learn

the business)

Questions

Now Available!

2019 Internal Audit Webinar Series

will be live this week at the following link:

www.bdo.com/IA-webinar-series

Register early or watch your email for invitations to register throughout the year

2018 Global Risk Landscape Report