The internal audit process is a complex system that can be managed in a variety of ways. Many organizations prefer to exercise a hierarchical structure, whereby managers at the top level are the only persons authorized to make decisions on behalf of the organization. Since the business arena has transformed itself within a complex global environment, hierarchical organizations are no longer able to accommodate the demands of business needs and competitive pressures. As a result, firms must evaluate and often reorganize their management structures to satisfy customer and market needs. The following will provide a discussion of the consultant's role in identifying potential opportunities for internal audit departments in order to meet ever-changing environmental, economic, and market needs.
The roles that internal auditors play in complex organizations have changed in recent years in light of economic turmoil and technological advancements. In addition, the organizational environment and management orientation have been altered accordingly. As a result, internal auditors are gaining additional responsibilities in their managerial roles: "The field of management is undergoing revolution. The traditional paradigm assumes the purpose of management is to control and limit people, seek stability and efficiency, use rules and regulations, design top down hierarchy to direct people, and achieve bottom line (profit) results. The newly emerging paradigm assumes the purpose of management is to harness peoples' enthusiasm and creativity; find shared vision, norms and values; share information and power; encourage teamwork, collaboration, and participation; and develop people to adapt to extraordinary environmental changes and achieve top line (total sales) effectiveness" (Syed 2). In light of such events, internal auditors must facilitate organizational change in a dramatic fashion through their strategic focus and practices. Changes that have been implemented include encouraging teamwork activities, continuous learning, and face-to-face communications (Syed 2). Furthermore, today's society brings new challenges to employees at all levels of the organization from the bottom up, creating a wealth of intellectual knowledge and capacity throughout. If employees are not developed and are permitted to gain continuous knowledge, the organization will not be able to compete in an unpredictable environment. According to Syed (2), "Managers thus must become facilitators, partners, and risk takers who help employees find and use their creativity, enterprise, expertise, power, and energy." Under these circumstances, managers are unable to control employees in the same capacity as is found in hierarchical organizations. They must face the challenges of recognizing creativity, power and enterprise through empowerment (Syed 2). Radical shifts in power and strategy must be recognized and developed to accommodate the needs of the dynamic organization in order to sustain a competitive advantage.
Internal audit departments are transforming themselves from traditional compliance roles into consultancy roles in order to add value to organizations (Syed 3). As internal audit functions are recognized by managers as adding value to organizations, they are gaining respect and admiration. According to the Institute of Internal Auditors (Syed 3), "Internal Auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization's operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes."
Since resources are becoming increasingly limited, their use must be maximized to include such areas as efficiency, economy, effectiveness, excellence, ethics, environment, and equity (Syed 4). Internal auditors are responsible for shifting their priorities from a finger-pointing approach to a problem-solving methodology. Internal auditors often face challenges in adapting to organizational needs, as they must maintain positive relationships with other employees on an emotional and intellectual level (Syed 4). Furthermore, auditors must possess some knowledge of management and behavioral sciences in order to successfully manage others (Syed 4). Each of these attributes is required for internal auditors to adjust to changing organizational needs and maintain a sense of personal self-worth and commitment to their careers.
The Institute of Management Consultants in London defines consultancy in the following manner (Syed 5): "The service provided by an independent and qualified person or persons in identifying and investigating problems concerned with policy, organization, procedures and methods, recommending appropriate action, and helping to implement those recommendations." Two types of consulting arrangements exist: external consultancy and internal consultancy. Internal auditors can be characterized as internal consultants as they already possess knowledge of the internal aspects of the organization, they are available at all times, and they can exercise control over operations by performing an oversight function. Successful internal auditors that act in a consulting capacity are required to be helpful in all situations, which contributes to short- and long-term organizational objectives (Syed 7).
A consultancy model that is worth mentioning is the concept of process consultation. This theory focuses on the idea that the consultation process itself can help a client to define the appropriate interventions that lead to the correct problem-solving steps; therefore, the client eventually leans how to solve future problems independently (Syed 9). According to Syed (9), "The consultant operating by the process consultation model has very different assumptions about the nature of the client system and the goals of the consultation process. The central premise of process consultation is that the client owns the problem and continues to own it throughout the consultation process. The consultant can help the client to deal with the problem, but the consultant never takes over the problem." However, if a client is not forthright will all intentions, the process consultation model will not be successful. In these instances, one of two additional models may be the more appropriate option.
The expert model is effective when the following conditions exist (Syed 9): The client's problem has been correctly diagnosed, the client has identified the consultant's capabilities to provide expertise, the client has communicated the nature of the problem and the information that will be acquired, and the client has considered the consequences gained by purchasing the consultant's services. The doctor-patient model is effective if the following conditions exist (Syed 9): The diagnostic process that is identified by the consultant will be helpful, the client has correctly evaluated the client's problem or sickness, all relevant data will be revealed to make the appropriate diagnosis, the client will understand the diagnosis and will heed the advice of the consultant, and the client possesses the ability to remain healthy after the consultant's work is done. Depending upon the situation, the most effective model will be applied to garner maximum results.
A number of interventions exist that are utilized by internal auditors acting as consultants within organizations. The following tactical alternatives provide many opportunities for internal audit consultants to identify problems (Syed 3-4):
Exploratory interventions: Allow a client to narrate a story without interruption in order to gather as much information as possible
Diagnostic interventions: The client must begin to think about the true problems at hand so that the necessary steps can be taken to correct them Action alternative interventions: The consultant is responsible for conveying new behaviors that the client may want to consider to begin to solve problems without the aid of a consultant
Confrontative interventions: The focus is on the client's areas of resistance and the consultant combines diagnostic insights focusing on client behaviors. If the client does not respond to other interventions, the confrontative style would best fit the situation. If the client reacts poorly to this type of intervention, the consultant must take another form of action to identify and resolve the problem. In this type of action, the consultant must also be concerned with the client's psychological state to an extent so as not to shatter a protective front that the client may possess. The client must be provided with suggestions for improvement with care and ease.
Each of these interventions is a potential opportunity to sustain growth and identify problems that are bothering the organization and affecting its overall growth and competitive advantage. The internal audit consultant that possesses internal knowledge regarding the organization's problem areas, should provide a number of insights into the possible roots of problems in order to work closely with the firm's leaders to develop feasible solutions for improvement.
Auditor's Role and Business Excellence Model (BEM)
Successful internal auditors utilize a number of techniques in implementing solutions to problems. One such model that has proven itself time and time again is the Business Excellence Model (BEM). According to The De Grandison Company Limited, the BEM is a model for the self-assessment of a Total Quality Management System which is designed to promote the principles of Continuous Improvement and business excellence. The following components comprise the term business excellence:
Leaders must drive and inspire their subordinates
Customer satisfaction will lead to extraordinary results and improved business processes
Management must make their decisions based on the facts and not on opinions or other perceptions
All staff members from the bottom of the organization up must consistently be involved, empowered, and recognized for their contributions to the overall health and improvement of the organization