Lean Auditing: Driving Added Value and Efficiency in Internal Audit
James C. Paterson
"How can you argue with the core principles of Lean, that you focus on what provides value to your customer and eliminate work that is not necessary (muda)? Internal auditors need to understand not only who their primary customers are, but what is valuable to them - which in most cases is assurance that the risks that matter to the achievement of objectives are properly managed. We need to communicate what they need to know and not what we want to say. This incessant focus on the customer and the efficient production of a valued product should extend to every internal audit team. How else can we ensure that we optimize the use of our limited resources to address the dynamic business and risk environment within which our organizations operate?"
Norman Marks, GRC Thought Leader
Using lean techniques to enhance value add and reduce waste in internal auditing
Lean Auditing is a practical guide to maximising value and efficiency in internal audit through the application of lean techniques. It is an ideal book for anyone interested in understanding what progressive, value adding audit can be like. It is also ideal for anyone wondering whether audit activities can be streamlined or better co-ordinated with other activities.
The book contains practical advise from the author's experience as CAE of AstraZeneca PLC; from his work as a consultant specializing in this field; as well as insights from leading CAEs in the UK, US and elsewhere. In addition, there are important insights from thought leaders such as Richard Chambers (IIA US) and Norman Marks (GRC thought leader) and Chris Baker (Technical Manager of the IIA UK).
Increasing pressure on resources is driving a need for greater efficiency in all areas of business, and Internal Audit is no exception. Lean techniques can help streamline the workflow, but having only recently been applied to IA, lack the guidance available for other techniques. Lean Auditing fills this need by combining expert instruction and actionable advice that helps Internal Auditors:
- Benchmark their efficiency against lean ways of working
- Understand warning signs of waste and lower added value
- Understanding practical ways of working that improve added value and reduce waste
- Gain confidence about progressive ways of working in internal audit
- Understand how improved ways of working in audit can positively impact the culture of the wider organization
One of the keys to the lean audit is finding out exactly what the stakeholder wants, and eliminating everything else. Scaling back certain operations can delineate audit from advisory, and in the process, dramatically improve crucial outcomes. To this end, Lean Auditing is the key to IA efficiency.
36 Lean Auditing for middle managers, where we were asked to look at processes, make recommendations on how things could be re‐engineered.” Sarah’s comments capture an important challenge for audit: the board and senior management are doubtless key customers and stakeholders, but audit is often asked to serve the needs of other managers. My experience is that each audit function can have a different perspective concerning their key customers and stakeholders, and this can be influenced by a
PricewaterhouseCoopers (2008) An opportunity for transformation: How internal audit helps contribute to shareholder value. https://www.pwc.com/ en_US/us/internal‐audit/assets/internal_audit_shareholder_value.pdf 10 Factoring in Risk Assurance in the Audit Plan Having oriented the audit plan clearly towards adding value, a fundamental question is how to ensure that the audit plan takes into account the assurance activity that is already, or should be, taking place in order to avoid waste
to be Expected and will Add Value if done in the Right Way Lean principles encourage a strong focus on value adding advice and assurance in relation to key value issues. However, this does not mean that assurance over “core” financial controls and compliance should not be a part of the internal audit plan. Typically lean progressive auditing Considering the Allocation of Resources to Optimize Value Add 117 focuses core assurance work to look at the areas that matter the most and ensures other
recommend strengthening the assurances that are being obtained from management and compliance functions in relation to certain areas, as well as stepping up audit coverage of key risk areas. Once a better assurance framework is in place, internal audit can then more confidently engage in additional value adding assignments. Nancy Haig (CAE, global consulting firm) explains her approach: “If we have come up with a good plan where people are comfortable with the amount of assurance work we’re
Auditing Lean Enterprise Institute (2009) Principles of Lean. http://www.lean.org/WhatsLean/Principles.cfm Lean Systems Society (2014) http://leansystemssociety.org/ Morgan, J. & Brenig‐Jones, M. (2009) Lean Six Sigma for Dummies. John Wiley & Sons, Chichester. Womack, J. & Jones, D. (2003) Lean Thinking (Revised & Updated). Womak, J., Jones, D. T. & Roos, D. (2007) The Machine That Changed the World. Simon & Schuster Ltd 3 Key Lean Tools & Techniques This chapter outlines the lean tools and