Digitization of Internal Audits! An ineluctable scenario or a mere brouhaha?

November 16, 2021
Santhosh Nellayappan

There was a time when most of us did not believe that smartphones will become the most important electronic gadget in our lives. That was 10 years ago. Flashback to early 2000s mobile phones became a rage all across the world. Then came Mobile Internet. And then in 2007 with launch of first iPhone the world changed forever. In came the revolutionary Smartphone!

Now, the whole world is witnessing a "Digital Revolution".

While this was the story of the digital revolution in consumer space, from 2009 onwards enterprise digitization also took an upswing path. While industry experts were still predicting the future of digital, in 2020 the pandemic urgently pushed us 10 years ahead. All predictions fell flat. Digitization became an urgent need. Now digital adoption is not an option.

Why will it be any different for the Internal Audit function?

To whatever industry or sector your organization may belong, you are going through the digital shift. It is but obvious, that Internal Audit also needs to take the digital plunge. 5 years ago when I had written a similar article I had said "internal audit needs to take the digital plunge sooner or later". But today I say internal audit functions need to take digital plunge "right now".

This change is imminent and is in interest of the organization and the stakeholders.

Change is inevitable

Look around you. All business processes are in a frenzy to go digital. The speed at which enterprise tasks & transactions are done is 10X faster if not 100X.

Look at it from risk perspective. Digital processes and transactions are creating a new risk landscape. If left unidentified or unattended, manifestation of these risks can cause losses. Rather things can get disastrous. Irregularities of financial, reputational, regulatory or of any other nature, will harm the organization.

This mandates digitization of Internal Audit. Otherwise the time taken to identify risks, unearth the details and consider remediation will be too slow compared to the manifestation of risks.

Changing Milieu of Auditors

Many believe that internal auditors live in a world aloof from other enterprise departments. But that is not true. Internal Auditors are social beings. They work closely with their milieu - the enterprise users and end customers.

In the post pandemic world, enterprise user and customers are quickly moving toward digital adoption. Usage of "smartphone" as an enterprise device is universal now - be it to conduct transactions or to complete enterprise tasks. When such is the case, it is but obvious that a digital auditor must carry out a part, if not the whole, of their audit work using a smartphone.

The millennial Internal Auditors would see nothing wrong in it. Rather they might be more attracted to work environments that make it possible for them to utilize digital technology.

Need for Speed

The rate at which risks will arise in the new digital world will be different. Everything will be fast paced.

Given this, Internal Audit reports, which provide critical insights into the business, need to keep up with the speed of risk. Gone are the times when reports could be handwritten/typewritten. These methods are obsolete now. Even reports that are prepared manually using tools like MS Office, are slowly going the same route, as they too are "slow" considering the need of the hour. A digital internal audit management solution, that can enable real-time reporting is the need of the hour.

During pandemic we have seen the need of quick detection of positive cases. Patient treatment, when delayed by few days was leading to fatal consequences! We all have witnessed this sad reality unfold.

Same will the case with digital risks in coming days.

Is the road to digitization smooth?

Any change has different impacts, short, medium and long term. So is the case of digitization. Digitization has short-term challenges, but the benefits simply outweigh them.

Let's list down the major challenges,

Cost Investment vs Cost Benefit

The major challenge in digitization is the Cost. Cost has to be evaluated against multiple factors.

Operational efficiency, often the only immediate outcome, is seen as the sole benefit and the cost is always compared as a pay off towards this saving.

But there is more to digitization. Faster reporting, early identification of issues, early resolution of issues, complete visibility on all that is happening around Internal Audit can all lead to significant saves. The cost needs to be pegged against these benefits as well. Once done, the paradigm changes drastically and decision-making becomes that much more easy.

Change Management

Yes! change management does indeed pose a considerable challenge when we approach anything new. But, isn't that true with any change? Do we not do that day in and day out ? Putting off digitization looking at the change management challenges is like accepting a health condition and refusing to take medicine.

The impact in both cases is similar. It is good to think about the change management and plan for it and strategize the approach, but giving up on the digital ambition is not advisable. If need be, the software supplier can themselves be given the responsibility to drive this (Audit360 does that happily, at a cost that is worth it!)

Training or Capacity building

This too, most often than not, is given undue importance as challenge than it deserves. Training builds your capacity and prepares your work force for better efficiency.

The benefits?

The benefits of digitization are too many. Higher efficiency, effectiveness, better control, better visibility, real-time reporting, availability of digital data powering future analytics ambitions are all the tangible benefits. The intangible and long-term benefits are much more. A better Audit process, more empowered Audit team, availability of all audit information at one place and above all the peace of mind for the Chief Audit Executive, Audit Committee and all stakeholders. Are these exciting reasons to digitize Internal Audit?


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