How can internal auditors drive company culture?

A lot has changed in the internal audit function over the last decade. Interpersonal skills have become an increasingly crucial part of the job description, and many professionals are now expected to take on a more strategic, forward-thinking role.

 

One area where these new responsibilities are beginning to emerge is company culture. The working environment is a key focus for many businesses, as more employees are beginning to prioritise an organisation’s values, practices and treatment of staff before accepting jobs.

 

Millennials are the primary driving force behind this shift, with a PwC report emphasising that those born between the early 1980s and early 2000s want flexible, team-oriented environments that offer a good work-life balance.

 

Culture isn’t just important to staff; a study from Walking the Talk last year showed 76 per cent of professional investors considered a business’s working environment very or quite important when evaluating a company.

 

“An investment in culture capability now may pay dividends, quite literally, for your shareholders,” said Carolyn Taylor, CEO of Walking the Talk.

 

But where does internal audit fit into the equation? Let’s look at whether businesses are being proactive in meeting company culture needs and see how auditing professionals can provide support.

Adding culture to the audit plan

A recent report from the Chartered Institute of Internal Auditors (IIA) showed 31 per cent of boards in public and private organisations are yet to formulate a company culture plan. Meanwhile, only 36 per cent are measuring whether desirable corporate values are present across the entire workforce.

 

However, more businesses recognise the importance of including culture metrics within future audit work, and 20 per cent of respondents said they would be doing so over the next 12 months. Nevertheless, over one-quarter admitted they weren’t placing this issue on the agenda.

 

“Managing culture is a vital issue for boards, to ensure not only that they are setting the right tone at the top, but that all employees are acting in accordance with the organisation’s ethics and values,” said Dr Ian Peters, Chief Executive of the IIA.

 

“Auditing culture is not an exact science. Many organisations struggle to define their culture, let alone incorporate it effectively into their risk evaluation and assurance processes. But it is essential that they do so.”

 

According to Dr Peters, the financial services sector is approaching company culture auditing particularly well, and other industries should try to follow in the same footsteps.

The challenges of culture auditing

Internal auditors have unique insight and access to many areas of businesses, which makes them invaluable for offering assurance to senior executives on any potential cultural risks.

 

Auditing company culture indicators is difficult however, and a recent IIA report stated professionals should only begin the process once they are confident they understand how best to assess these types of risks.

 

Currently, the most popular culture auditing methods are interviews and behavioural observation, such as whistleblowing activity, staff surveys and complaints-handling procedures. Some 85 per cent of auditors said professional judgement is a key factor when providing assurance on culture, while 71 per cent pointed to experience.

 

Boards can also do their part in helping auditors, with the IIA offering several pieces of advice for the C-suite to boost company culture performance:

• Ensure a ‘just’ culture that sets benchmarks for behaviour, while also encouraging honest feedback
• Discuss with heads of audit how technology and data can be leveraged for culture-based auditing
• Be clear about expectations and follow up on whether staff across the business are meeting them

In addition, the IIA report noted that big data solutions could offer auditors a way of better analysing cultural indicators. The institute noted the aviation sector and the NHS are already using analytics to shape insights into company culture using the information they hold within their organisations.

Addressing skills shortages

The skills needed to drive cultural change at businesses are broader ranging than are traditionally expected from internal auditors. The IIA said people in these departments typically prefer to work from hard facts, which makes some of the ‘gut feeling’ elements required in culture auditing a challenge.

 

Finding people with the right mix of qualitative and quantitative auditing skills is important, but companies also value excellent communication because diplomacy is often necessary when delivering unpalatable news about staff.

 

Auditors who possess these skills are likely to remain highly sought after as more businesses begin integrating internal audit into the wider strategic objectives of the company.

 

Whether or not organisations are able to attract and retain top talent will depend on multiple factors, including remuneration, career development opportunities and – funnily enough – the company culture.

 

Our Market Reports combine our review of the prevailing conditions in the internal audit recruitment market together with the results of our latest employer survey.

 

Image: cacaroot via iStock