For Internal Audit to be truly effective, it has had to embed itself within the business.
Summary: Emerging markets present both opportunities for growth and dynamic risks. One multinational organization tackled the risks by creating a global internal audit function. It drew on resources from the business and embedded internal audit into every facet of the organization
Internal audit helps a multinational manage emerging market risks
Operating in over one hundred countries, a large multinational company sought to organize its internal audit function to maximize available talent to address various emerging market risks facing the business.
The company has operations in deserts, swamps and at both poles. The risks it faces defy any regulation-size internal audit function. The company had to adapt its approach to identifying and assessing risk on an ongoing basis.
Implementing a global internal audit function
200 internal audit staff spread all over the world work on a rotational model. More than half of the rotation’s intake from the business has no internal audit experience.
However, those on rotation do know:
- Contracting and procurement
- Health and safety
Combining their previous work experience with extensive internal audit training has paid off.
For the organization’s risk leaders, the benefits of this approach are clear: the business at any one time has a well-trained, nimble audit resource.
But with a turnover rate of “one in, one out” every week, the audit managers still worry about the function’s readiness.
Incentives offered to Internal Audit rotational positions
How do you persuade a talented business professional to do three or four years in an audit rotation? To ensure internal audit gets the talent it needs, the organization offers incentives to business resources who agree to work with internal audit.
This approach has reduced financial audits by 20%
The most telling statistic that this approach is working is the reduction of financial audits by around 20% in the last year.
Business units have increased their self-assurance as Internal Audit backs off to maintain vigilance over their risks. That, more than anything, shows that risk management and quality control has embedded itself into the business on a sustainable basis.
Managing the risks and opportunities in emerging markets
We suggest these practical steps for addressing emerging market risks:
1. Understand your risks – a selection of overarching emerging market risks, for internal audit consideration:
- Political situation
- Business partner relationships
- Management issues
- Investments and acquisitions
- Operating results
- Financial reporting rules and regulations
- Internal control regulations
- Tax laws
- Fraud, theft and corruption
- Compliance with local rules and regulations
2. Determine appropriate coverage plan
3. Allocate appropriate resources from available options:
- In-house – local
- In-house – regional or corporate
- Third party
- Political situation