What Business Officers Wish Their Internal Auditors Knew (and Vice Versa)

November 12, 2020


The higher education landscape is complex and leaders must navigate through an ever-expanding climate of risk and uncertainty. A recent report[1] published by the American Council on Education, Huron Consulting Group, and the Georgia Institute of Technology highlights some of the significant challenges faced by campus leaders and discloses that few institutional leaders are confident their institutions are fully prepared to adapt to the uncertainties ahead. Major challenges include new forms of competition, changing demographics, declining government support, as well as political and regulatory change.

Within this greater risk context, a robust and productive relationship between business officers and internal audit provides an opportunity to address these issues collaboratively. To better understand and improve the relationship between internal audit and higher education leaders, members from ACUA and the National Association of College and University Business Officers (NACUBO) worked together to survey chief financial officers (CFO), controllers, and business officers, along with internal audit leaders from higher education institutions across the country. The focus of the survey was to ‘pulse check’ the perceptions of the business officers-internal audit relationship, and to identify best practices to foster, improve, and maximize this connection.

Some key findings from the survey results are below:

Pulse Check

Two questions that were used to measure the current status of the business officer and internal audit relationship were, “Is internal audit perceived as a trusted advisor at your university?” and “On a scale of 1 to 7, how would you rate the relationship between your business officers and internal audit?” (1 being ‘not effective’ and 7 being ‘highly effective.’) While 80% of internal auditors believed that they were viewed as a trusted advisor, only 64% of business officer respondents agreed. Interestingly, despite this disparity in perception, more business officers (64%) rated their relationship with internal audit highly, with a score of 6 or 7, than internal auditors (54%).
While 80% of internal auditors believed that they were viewed as a trusted advisor, only 64% of business officer respondents agreed.

There is No “I” in Team

For the business officer respondents who rated their relationship with internal audit as a 6 or 7, the top five words used to describe the relationship were: collaborative, respectful, partnership, professional, and consultative.

Conversely, for the business officer respondents who rated their relationship with internal audit as a 5 or less, the top words to describe the relationship were: distant, confrontational, sporadic, ineffective, and cautious. Consider these for a moment. Could these responses be from your CFO or business teams?

Not surprisingly, the overwhelming majority of responses focused on communication, coupled with being respectful and trustworthy, as major components of building a strong relationship between internal audit and business officers.
Word Cloud

We are on the Same Team

Sometimes in team sports, players from the same team are fighting for a rebound on the basketball court or running into each other to catch a fly ball in the field. Responses for the question, “What hurdles/barriers do you perceive toward a fully-optimized relationship with your internal audit/business officers,” fit into the example of teammates fighting over the same ball. Both sets of survey respondents noted that each group may not completely understand or appreciate the work of the other group. Internal audit respondents believed business officers did not always understand audit's role in the organization or how audit can benefit operations. They noted that some business areas still think in terms of audit stereotypes (e.g., witch hunts, IRS, ‘got-cha’) that need to be overcome.
My predecessor set a fantastic tone that I fully subscribe to: Internal audit cares about institutional outcomes first!


Business officers commented that they wished auditors would realize that they are working towards the same goal and that auditors should focus on assisting and advising rather than policing. They also emphasized that internal audit should be more proactive and focus on higher-level organizational risks rather than deploying a transaction-focused audit plan.

Both sides agreed that lack of resources limits opportunities for communication and relationship building. Examples included lack of time to meet so that audit staff can develop a full understanding of the functions and related risks of audit clients (e.g., departments), lack of resources to provide adequate audit coverage, and lack of resources in the business units to provide audit support and follow-up on identified issues.

Who Steps onto the Field First?

In order to try to understand the interaction between internal audit and business officers, we asked whether internal audit had scheduled update meetings regularly with their business officers to determine whether meeting frequency directly correlates to a perception of audit as a trusted advisor.


The results indicate that internal audit departments not meeting regularly with business officers were not seen as a trusted advisor at double the rate than those departments that did meet often. So, which comes first, the meeting or the perception? Given these results, it would seem that internal audit could benefit from reaching out to the business office and establish regular touch points.
Internal audit departments not meeting regularly with business officers were not seen as a trusted advisor at double the rate than those departments that did meet often.

Everyone Loves a ’Clutch Player’

In 2013, PricewaterhouseCoopers introduced the concept that internal audit departments considered as trusted advisors can provide a higher level of engagement and timely, proactive advice on both current and future problems. Auditors are brought in early to advise executives on initiatives in a timely manner, and to collaborate with the business throughout the course of projects. At organizations in which internal audit has achieved this status, executives regularly seek internal audit input when making critical decisions.

Fans and athletes feel much better about their team’s odds of victory if they know they have a ‘clutch player’ who is confident, experienced, and who can be relied on under pressure to come through for their team. Internal audit should seek to be that ‘clutch player’ by being seen as a trusted advisor at their institution.

The 80% of internal audit respondents who answered “yes” to the question, “Is Internal Audit viewed as a trusted advisor role at your university?” noted that they focused on the following strategies to achieve this status:
  • Demonstrating knowledge of the area and providing relevant business insight
  • Focusing on communication and collaboration during the audit process to help build and maintain effective relationships with management
  • Adding value through impactful and appropriate recommendations and going beyond policy compliance
  • Willing to help when management calls for assistance by performing advisory reviews and responding to management requests
  • Being transparent in the audit process and demonstrating objectivity and independence

Conclusion

Higher education continues to face ongoing enrollment, staffing, facilities, and regulatory challenges. A strong and collaborative relationship between internal audit and the business office is necessary to face these difficulties successfully. University leaders value a team of trusted advisors whose focus is on ensuring the institution is meeting its strategic goals and objectives.

Chief Audit Executives should guide the audit team to realize that today’s challenges pose opportunities to strengthen the foundation of internal audit’s function and take steps to climb to greater relevance and value for key stakeholders, including the audit committee. The results of the survey confirm that investing time and resources in building relationships between the audit department and business officers can be an entry point for audit teams to become trusted advisors to senior leadership.
 
[1] Huron, the American Council on Education and the Georgia Institute of Technology. The Transformation-Ready Higher Education Institution: How Leaders can Prepare for and Promote Change. 2019. https://www.huronconsultinggroup.com/insights/transformation-ready-higher-education-institution.

About the Authors

John McDaniel

John W. McDaniel CPA, CIA, CISA, CRMA, is the Internal Audit Director for the University of Alabama. After leaving Deloitte, he spent 13 years at Vanderbilt University and Medical Centers where he served as an Assistant Director of Internal Audit...
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John McDaniel

John W. McDaniel CPA, CIA, CISA, CRMA, is the Internal Audit Director for the University of Alabama. After leaving Deloitte, he spent 13 years at Vanderbilt University and Medical Centers where he served as an Assistant Director of Internal Audit and Associate Vice-Chancellor for Academic Affairs, Finance and Administration. He then served as Senior Institutional Audit Director at the University of Arkansas for Medical Sciences for five years prior to joining the University of Alabama System.

Articles
What Business Officers Wish Their Internal Auditors Knew (and Vice Versa)

Wendee Shinsato

Wendee Shinsato is the Director of Audit Analytics, Operations, and Quality Assurance for the California State University, Chancellor’s Office. Amongst her many roles, she specializes in data analytics, sponsored programs, and construction...
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Wendee Shinsato

Wendee Shinsato is the Director of Audit Analytics, Operations, and Quality Assurance for the California State University, Chancellor’s Office. Amongst her many roles, she specializes in data analytics, sponsored programs, and construction audits. She earned a Bachelor in Economics from Yale University and a Master in Business Administration from Hawaii Pacific University. Wendee is a certified public accountant (CPA) and certified internal auditor (CIA). She has over 15 years of internal audit experience and has been volunteering for ACUA over the past four years. Wendee can be reached at wshinsato@calstate.edu.

Articles
What Business Officers Wish Their Internal Auditors Knew (and Vice Versa)