High performance internal audit teams - Empowering leadership
ESGCompliance 21 August, 2023

High performance internal audit teams: Empowering leadership

In this series on high performance internal audit teams, we identified four characteristics that in combination lead to the highest levels of performance, namely:

  1. Ensure their activity is truly aligned with their organization and the value it is looking to create.
  2. Operate internal audit stakeholder relationship management – all of internal audit working together to the benefit of the entire range of internal audit stakeholders.
  3. Adopt an empowering leadership approach such that employees have the direction, support, and freedom to deliver at the highest standards.
  4. Operate in an accountable and efficient manner – clearly transparent in their performance and the work they are doing to continually improve.

We also explored in greater detail the first two characteristics – business alignment and internal audit stakeholder relationship management. In this next installment, we examine and discuss characteristic #3 – empowering leadership – and the individual components that include servant leadership, investing in personal growth, and embracing diversity and inclusion:

  1. Servant leadership
  2. Investing in personal growth
  3. Diversity and inclusion

Servant leadership

Highly effective internal audit functions have operating models that look to reduce the distance between the top of the function – the Chief Audit Officer (CAO) – and the auditors working on the ground, every day, with the auditees. They reduce the layers of ‘management’ between the CAO and the ‘customer’ of the audit function. A rule of thumb often applied here in larger functions is no more than 5/6 layers of reporting hierarchy in the organization with the CEO being layer 1, CAO layer 2, Head of Audit layer 3 etc. However, I would challenge all internal audit functions to operate with no more than 4 layers to reduce the layers of reporting and the inevitable distance this creates between the CAO and the day-to-day work of the function.

Operating with less layers of management and control requires management to take on a greater number of direct reports. To succeed, they must embrace a servant leadership approach. Many businesses operate a rule of thumb that suggests the average number of reports each manager in the hierarchy should have is at least 8 (sometimes referred to as the span of control). This is a useful guide, but it should not be applied in a prescriptive manner as teams will clearly differ. Are you able to achieve this on an average basis?

This servant leadership approach flips the traditional hierarchical structure on its head. A servant leader focuses primarily on the growth and well-being of people and the teams to which they belong. While traditional leadership generally involves the accumulation and exercise of power by one at the top of the pyramid, servant leadership is different. The servant leader shares power, places the needs of others first, and helps them develop and perform at their highest levels.

When operating a servant leadership approach, functions look to flatten their organizations and empower their employees to make decisions to keep up with a fast-moving business environment. Leaders are there to lend support, remove barriers, provide supplies, and, when necessary, even run errands. They also help when things go wrong, facilitating an open and educational approach to mistake management. All of this allows leaders to manage a greater number of direct reports. The principle here is simple — a reduction in management empowers employees to do the work that is needed at the front line. For nearly every manager, this requires unlearning previous approaches to managing their teams.

Empowering Leadership Internal Audit Manager Skills Graphic

Investing in personal growth

High performance internal audit functions are continually investing in their skills and competencies. This is mandatory, and not a choice. The businesses we are auditing are moving fast and if we are not up to date, we are no longer relevant. Key skills that I am currently seeing organizations focus on are:

  • Technology savviness – Exploring the full range of technology available to increase the impact of the internal audit work. This includes collaboration tools, data visualization capabilities, artificial intelligence, and, of course your core audit software, such as TeamMate+.
  • Data analytics - The ability to collect, analyze, and interpret large amounts of data is now an expectation of all internal auditors. 
  • Communication and stakeholder engagement - Skills and techniques that deliver on the seamless stakeholder experience, discussed in more detail throughout the second article of this series.
  • Agile - The ability to move quickly, adapt to new approaches in the moment, and engage stakeholders successfully in real time throughout the audit process.
  • Business skills and knowledge – Building the knowledge of your business, its products, operations, and the markets it operates in to truly be able to explore the key risks and necessary controls.

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Diversity and inclusion

High performance internal audit functions embrace diversity and inclusion in all their activities. Not just paying lip service, but proactively making it happen. Why? They understand the business case — increased diversity and inclusion leads to significantly higher performance. Why is this?

  • Employees who feel valued and included in the workplace are more likely to be engaged, motivated, and committed to their jobs. A strong correlation exists between this engagement and internal audit performance.
  • Teams that are diverse and inclusive are more likely to consider a wider range of perspectives and make better, more informed decisions.
  • Audit functions that are diverse and inclusive are better positioned to connect with, and understand, a wider range of stakeholders. 
  • Internal audit functions and their organizations that are known for their commitment to diversity and inclusion often enjoy a better reputation, which can help attract top talent.

Embracing diversity and inclusion delivers results. It’s also the right thing to do. But how can you go about doing this? Here are four activities that high performance internal audit teams do in this space:

  1. Inclusive recruitment - Adopt inclusive practices during the hiring process. This includes ensuring you have diverse interview panels, implement blind resume screening to eliminate unconscious biases in the process, and ensure your job advertising uses inclusive language to attract a diverse range of candidates. For example, one internal audit function that was looking to improve its gender diversity insisted that all shortlists (final four) included at least one female candidate. When this was not achieved, they began the recruitment process again.
  2. Working environment - Promote diversity and inclusion by fostering an inclusive work environment where everyone feels valued and respected. One internal audit team developed a range of affinity groups, each sponsored by a senior leader. These groups also encouraged allyship that aimed to create an environment where people could bring their whole self to work.
  3. Diversity initiatives - This includes implementing mentorship programs for underrepresented groups, creating schemes for attracting underrepresented talent at entry level (internship and work experience programs, targeted graduate and apprenticeship schemes), and establishing diversity-focused employee development.
  4. Incorporate diversity in decision-making – Analyzing diversity data and ensuring that diverse perspectives are present in key discussions, such as tollgate meetings. 

In this third article, we have explored a variety of empowering leadership characteristics as a key factor for high performance internal audit teams. In the next article, we conclude our series by looking closely at the need for accountability and efficiency, a requirement that is needed to be considered truly high performing.

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Jonathan Chapman
Consultant specialising in risk and internal audit transformation
Jonathan Chapman is an expert on internal audit functional strategy and change management.
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