By Kent Burns, CPA
The use of guest auditor and rotation programs continues to increase. Deloitte’s 2016 Global Chief Audit Executive Survey predicts in the next 3-5 years, the use of guest auditor programs will increase by almost 50%, while the use of rotational programs will double. Here are some perspectives on what’s happening.
The Objectives Vary
The objectives of guest auditor and rotation programs vary rather widely, and drive models in place. In their simplest form, they are used to augment capacity and manage peaks in workload. The continuum moves through more committed arrangements that create better collaboration, enhance relationships and cross-pollinate information and culture. In their most refined forms, these programs are institutional building blocks of leadership training that shape perspectives and provide broad business exposure.
In her prior role as CAE at Navistar, Kim Fugiel ran the Finance and Accounting rotation program that provided participants three years in different roles, including one year in internal audit. Now in her first 18 months at US Foods, she recently re-launched the Guest Auditor Program previously in place. Finance people are nominated by their manager to participate in one-to-two week projects, primarily in the areas of SOX and process improvement. Guests have a mentor who guides them through the experience and gathers formal feedback at the completion of the project. She says past results from the program were encouraging and expects the same with the re-launch. Finance people get a glimpse into their world while offering valuable insights to internal auditors, especially in the area of reports and access to relevant information; in other words…what to really look for as auditors. Fugiel’s longer-term vision is to implement a finance rotation program at US Foods with internal audit being one of the mandatory rotations, and she believes it will be up and running in the next 12 – 18 months.
Chuck Windeknecht, VP of Internal Audit at Atlas Air Worldwide, believes that internal audit organizations must evolve. He commented, “In internal audit, you’re selling credibility and relevance every day.” Moving people into and out of internal audit forces the function to evolve. Windeknecht left internal audit for a period of time before returning, and says the experience was invaluable. To enhance credibility and relevance he says, “You have to get out of the library.”
Time and Attention
Time is a critical variable to the success of guest auditor and rotation program. Tom Kleyle, CAE at CNO Financial says, “There’s a time commitment to be good at audit. It’s important to remember these will be lower productivity people initially. You have to be willing to accept that and factor that into your expectations.”
Guest auditors and rotational auditors will require more training and coaching time. If you apply the Pareto Principle, 80% of your coaching and training time will be with 20% of your internal auditors, and guess what…your non-core internal auditors will be in the 20%. The question then becomes, what kind of ROI am I getting on that investment? And how much of that ROI is short-term vs. long-term?
How Much Time?
The prevailing answer here amongst CAEs was that six months was the minimum amount of time to experience a meaningful benefit. Longer is better. Two to three years was seen as a duration that can create lasting benefits for both internal audit and the company as a whole. However, it was noted that getting two to three year internal audit commitments from Millennials is much easier said than done. Millennials don’t want to commit two to three years to anything, so it seems. Kleyle believes that one of the reasons that people are hesitant to join internal audit is that they either don’t have, or don’t understand an exit strategy. More on that to follow.
Managing Headcount and Capacity
When the guest audit or rotational audit duration is long enough to be meaningful, it’s important to consider the impact on other managers and their functional areas of the business. If another department’s capacity is being reduced for an extended period of time, what’s the payback to the “giver”, other than being recognized as a good corporate citizen? Often times there isn’t an HR transfer processed, so the functional manager doesn’t even get budget relief while being down a person. That leads us to internal audit’s value proposition.
Leaders Must Sell the Internal Audit Value Proposition
Getting buy-in from executives, managers, internal auditors and those who might consider spending time in internal audit depends on how internal audit is “sold” inside the organization. As someone who has recruited on literally hundreds of internal audit positions, I can assure you there are tremendous opportunities to improve the story that’s being told about the benefits of internal audit experience. And as I mentioned earlier, a key component of that story is addressing the exit strategy career options that can be created by a savvy internal auditor. Selling the internal audit value proposition is a big topic and one that merits its own discussion. I’ll be addressing that in my next article.
Positive Impact On Recruiting
Neil Frieser, SVP of Internal Audit at Frontier Communications, includes his internal audit function in the company’s 36-month finance rotational program that he helped initiate. New hires into the program complete nine-month rotations in four functional areas within finance, including internal audit. When the initiative commenced, he was eager to see what would happen. In retrospect, he describes it as a great decision that has changed his views on hiring strategies. “The level of interest in the program is far greater than what we would typically see for traditional internal audit roles and as a result the people that we have been able to attract and hire for this program are diverse and very high caliber.”
Fugiel agrees. Speaking from her Navistar experience, she says, “That was a great pipeline for filing audit roles, not just finance roles.”
The Bottom Line
Begin with the end in mind. What are you trying to achieve? The bigger the vision, the more critical it is to have strong buy-in at the top, and with functional managers who understand what’s in it for them. As for the prospective internal auditors, the value proposition must be clear in terms of what they will learn, the exposure they will receive and the advantages and opportunities that will provide them.