PwC has some advice for internal audit departments that are feeling a little under-appreciated in their organizations: take a fresh look at how you measure your success, and what those metrics say about your value to the company.
In its 2014 State of the Internal Audit Profession Study, PwC found that internal audit shops that are seen by management more as a “trusted advisor” rather than strictly as an “assurance provider” are more valued by their stakeholders. Those acting as trusted advisors generally outpaced the more traditional assurance providers in performance in a wide range of areas, from audit planning to leveraging of technology, the firm says.
Many internal audit functions measure their success with metrics such as adherence to budget, coverage of the audit plan, and timeliness of reporting, all of which are focused on the audit function internally, PwC says, but they don’t align with metrics that stakeholders value most. In a new report analyzing those survey results more closely, PwC found a correlation between audit shops acting as trusted advisors and the metrics they use to measure their success. “Internal audit functions with metrics that report the value they deliver to stakeholders are receiving higher performance marks from stakeholders,” PwC reports.
“We all know the saying that ‘what gets measured, gets managed,’ but what is measured should be valued,” says Michelle Hubble, a partner with PwC’s U.S. internal audit practice. Internal audit shops have a variety of stakeholders, a changing risk landscape, and competing priorities for resources, she says. “These realities have driven leading internal audit functions to evolve their metrics to not only report on operational efficiencies, which drive performance results, but also to more deliberately focus on reporting the value they are delivering,” she says.
PwC suggests internal audit shops tailor their performance metrics to the interests of the various stakeholder audiences who rely on their work. PwC’s report suggests ways the internal audit shop can retool some of its traditional metrics to provide better alignment between internal auditors and stakeholders, producing more immediate improvement in the control environment. “When stakeholders weigh in on what matters most to them, it enables internal audit to develop a more balanced scorecard which can drive improved performance in the areas that matter most,” says Hubble.