Facing expanding agendas and heightened oversight expectations, audit and governance committees are increasingly reliant on internal auditors to feed them good information and sort out what’s most important.
Internal auditors can fill that need not just with good auditing skills, but also with good communication skills, according to governance experts who addressed a recent national conference for internal auditors.
“Very often, governance committees don’t know what they don’t know,” said Mike Cronin, a director focused on enterprise risk management at Deloitte. “I spend a lot of time in audit committee and other governance committee meetings giving them a forecast of what they should be thinking about, trying to help them understand their limitations without necessarily pointing out their limitations.”
The most recent “State of the Internal Audit Profession” study by PwC concluded good communication is one of the hallmarks of successful leaders in the profession. The survey said more than 90 percent of internal audit leaders who were considered effective were also exceptional in their ability to communicate. In its report, PwC says communication is critical because internal audit must relay key messages to both internal and external stakeholders who may have different expectations.
The responsibilities of audit and governance committees vary across organizations, said Melissa Jolly, senior manager at Deloitte & Touche. Some audit committees, for example, may have more responsibility than others for keeping an eye on economic risks, crisis readiness, or enterprise risk management, she says.
Internal audit leaders need to tune in closely to exactly what’s on each committee’s agenda and what’s being addressed by other parties, like external auditors, compliance, and others whose duties may intersect, said Jolly. “The most important thing is good collaboration with the board and other committees,” she said.
Solid presentation skills are critical, said Ron Steger, a retired Big 4 audit partner who now serves on the audit committee and as chair of the governance and risk assessment committee at Overseas Shipholding Group. “Having sat in hundreds of audit committee meetings, I have seen how communication skills are important, particularly verbal,” he said. “I’ve seen internal auditors with greater materials, but they failed because they couldn’t communicate themselves.”
“Having sat in hundreds of audit committee meetings, I have seen how communication skills are important, particularly verbal. I’ve seen internal auditors with greater materials, but they failed because they couldn’t communicate themselves.”
Ron Steger, Chair of Governance and Risk Assessment Committee, Overseas Shipholding Group
Audit leaders need to not only develop that skill themselves, but they also need to develop it among staff auditors, said Steger. “Many auditors want to control everything,” he said. “We don’t give people early in their career an opportunity to present and develop those oral skills.” Simple mistakes like not making eye contact, spending too much time looking at notes, and stammering need to be addressed, he said. “Institutionally, the reason they fail is we don’t give our younger people a chance to present. We need to fix that.”
Style also counts, said Steger. “Have an appropriate level of confidence and develop a chemistry with the chair of the committee,” he said. “You should spend time developing a relationship with the audit committee chair so he or she feels confident in your abilities.”
Below the PwC study discusses what stakeholders think about communication with management.
Stakeholders describe leaders with executive presence as being con dent, composed and possessing characteristics marked by authenticity and integrity. Nine out of 10 very effective internal audit leaders excel in demonstrating executive presence, communicating bold perspectives, and thinking broadly about the organization.
A primary means by which very effective leaders establish executive presence is through stakeholder communication. In interactions with stakeholders, internal audit leaders must inform, educate, and influence stakeholders as well as earn their trust. Without effective communication, internal audit is less likely to gain stakeholders’ attention related to issues and root causes; and stakeholders will be slower to effect change.
But internal audit leaders face a specific and difficult communication challenge: they must communicate with a variety of internal and external stakeholders, each with different expectations of internal audit. According to Dan Schurr, Audit Committee Chair at CHS Inc., “Communication skills are critically important, in part because internal audit has to explain the value it brings to the company to many different stakeholders that may not have the same view point on internal audit’s value.”
Our study shows that very effective leaders communicate in a concise manner and on a frequent enough basis to result in effective decision making. In fact, when it comes to communication, the difference between very effective leaders and those who are less effective is startling. Whereas just 31% of less effective leaders and 65% of effective leaders are strong communicators, more than 90% of very effective leaders communicate exceptionally well. Very effective leaders set the right communication cadence, provide timely and effective communications (including concise communications enabled by visual reporting and dashboard analytics), and can communicate with impact.
Simply meeting with the audit committee chair before a meeting is no longer enough. Very effective leaders focus on the quality of their interactions.
They communicate with stakeholders outside the context of an audit project or committee meeting so as to provide an informed point of view on emerging risks, offer ideas on the root causes of thematic issues, and help connect the dots on trends. This often takes the form of “board education” or other informative or consultative communications that go beyond the formal reporting of audit results. Very effective leaders have the confidence to routinely solicit feedback from stakeholders to foster continuous improvement. Such two-way communications help facilitate board and management education and understanding, and they also demonstrate the value internal audit is delivering for the organization. Further, they help build relationships that can lead to more-authentic conversations and open lines of communication.
Questions to consider:
What additional information does your internal audit function communicate to stakeholders beyond the audit plan and status reports?
Does the CAE establish relationships with stakeholders outside the boardroom? How proactive is the CAE in fostering those relationships?
Does the CAE proactively seek feedback from stakeholders?
Robert King, chief audit executive at FedEx Corp., says his audit committee has a lot of audit reports to read, so he makes it a point to assure the committee knows where to find the most significant findings. He also advocates continuous, two-way communication between the internal audit leader and the audit committee because risks are changing so constantly and so rapidly. “I’m reaching out to the audit committee and asking what do you need?” he said. “How can we help you do your job?”
Robert Herz, audit committee chair at Morgan Stanley, said audit committees are dependent on internal auditors to spot risks, especially at large global companies where they have responsibility even for remote locations. “Keep your eyes and ears open,” he said. “If you’re at a place and you sense there’s a lot of stress [and] high turnover, you need to surface that. You are the walking eyes and ears of the audit committee.”
Even beyond spotting and communicating compliance risks, internal auditors need to tune in to opportunities for operational improvement and relay those to the audit committee as well, said Herz. “You’re going to see things that maybe don’t make sense where things can be improved from an operational point of view,” he said. Internal auditors should call that out, he said. “I happen to believe that auditing well done in the broadest sense is a very powerful, rich exercise.”
Herz called on auditor leaders to assure they are not only executing the audit plan, but also providing audit committees with good information. “People tend to confuse activity with insight,” he said. “I want good insight.”
Katherine Findlay, vice president of internal audit at Southwest Airlines, said that’s the value proposition that internal audit has to offer audit committees. “Initially, my reports were about activity,” she said. “Now what I’ve tried to do is focus more on what are the risks you need to be aware of that are emerging. I try to stick to what it is that they need to know.”
Steger also cautioned internal auditors not to get caught up in industry jargon when talking to the audit committee, especially around technology risks. That’s a concern lately especially as audit committees wrestle with their newfound responsibility to oversee cyber-security. “Sometimes there’s a disconnect between the audit committee members and the IT knowledge,” he said. “Take into account the experience of audit committee members.”\
Jolly suggests internal audit leaders have pre-meetings with audit committee chairs to prepare for committee meetings. “Send the materials in advance,” she said. Dashboard are an effective way to bring the audit committee’s attention to the most important issues. “Include the executive session as an agenda item. You never want to have surprises at meetings.”
One of Steger’s pet peeves, he said, is encountering a delay in receiving critical materials before committee meetings. “Be respectful of every committee member’s time, giving them enough time that they can do a careful read,” he said. “Board members hate getting things late.”