This is an abridged version of a longer article which is attached as a downloadable PDF file.

Are you measuring your internal audit department’s performance? What are the KPIs you should use? And why is it important to measure the performance of the internal audit function? 

To answer that, take a look around your organisation. Each department has to demonstrate its worth, and internal audit is no different. Here are five tips on how to measure the value of the internal audit department:

TIP 1: GO BEYOND TRACKING HOURS
If you come from the public accounting world, you’re probably used to tracking audit hours. However, reporting audit hours as a ratio of staff utilisation is far more insightful information. Utilisation is calculated as follows:

                                             Annual Audit hours
    __________________________________________________________________

             Total annual work hours (including vacation, training, admin, etc)

Indicating the percentage of audit field work hours applied to the total annual hours is far more valuable to your stakeholders than just reporting the number of audit hours.   

Try comparing the utilisation of auditors against each audit’s percentage of completion, as well as the overall percentage of audits completed. When analysed together, you should be able to identify if your team is “spinning” or if there has been a “scope creep” in one of your audits, requiring interception.

TIP 2: MEASURE QUALITY
You can’t measure what you don’t monitor. This is very true when it comes to such an esoteric metric like quality. How do you measure quality? Well, first we start by asking, how do we define the quality that internal audit provides to the organisation? The most obvious indicator of quality lies in the number of times management has requested internal audit’s services. What kinds of special requests do you receive from management? Fraud investigations, project management, IT advisory, policy procedures, or process improvement efforts? Begin with defining how internal audit provides value to the organisation. Once you’ve defined quality, then you can begin monitoring and measuring it.

TIP 3: EVALUATE YOUR SKILLS
Quantify your team’s audit skills by: tracking the average number of years of audit experience; the number of annual hours of training per auditor; the number of certifications held by your staff; the tenure each member has with the company/ industry; etc.   

Some departments have rotating programmes where auditors, after a certain period of time, roll into operations at the managerial level. Try tracking the number of staff who have been successful with the rotational programme, trained by internal audit, and rolled out into operations. This way you can demonstrate how your department produces some of the organisation’s best and brightest talent within the management.

TIP 4: SHOW THEM THE MONEY
Every CFO loves to see recommendations from the internal audit department for cost savings, expense reduction, and cost containment. However, if your department is more compliance-driven and can’t quantify the cost savings per audit, then demonstrate the number of major compliance findings. Map these findings to the number of recommendations accepted by management. According to the type of recommendation, you could also assign a “value driver” (e. risk management, fraud, process improvement, compliance).

An integrated audit infrastructure plays an important role by streamlining the entire audit lifecycle, and consolidating enterprise-wide audit findings in a centralised framework. It also transcends restrictive organisational silos, improving collaboration and team work on complex audit processes. 

Ensure that you have advanced dashboards to help you track the status of the audit, and compare it against predetermined milestones to measure progress and productivity.

Another way to measure productivity in terms of cost is to track the number of auditors against the recommended number of employees per industry standard.

TIP 5: IT ALL COMES DOWN TO THE FINISH (AN OLD CARPENTER’S RULE)
In the end, the audit report is the proof of your work, the most visible document of the audit engagement. So how knowledgeable is this report? 

Before you issue your report, look at the number of meetings that your auditors have had with auditees (clients and stakeholders). Examine the content of the meetings. Ask yourself if the client has understood the objectives of the audit, its scope, and of course, its findings. Make sure that those findings have been validated by the client. Otherwise, you could end up with errors in data, causing you to lose all credibility forever. 

Ensure that your audit report has a list of the recommendations implemented. Ask yourself – Will my report “hit my stakeholders between the eyes?” Will they immediately realise the point to the report? A good rule of thumb is to ensure that at the beginning of the report, you’ve addressed the following: 

• The importance of the audit (i.e. why does this audit matter?)
  
• The creation of a sense of urgency (i.e. the desire to address the audit findings)
  

By applying these tips, you should be able to quantifiably measure the value added by your internal audit department. Ultimately, you should run your department based on measureable data. Follow your own instincts on how to effectively use data and transform it into valuable information. Monitor your own KPIs. And as always, continue to add value to your clients’ businesses.

This is an abridged version of a longer article which is attached as a downloadable PDF file.