Monitoring your department's key performance indicators
Developing appropriate KPI's for an internal audit function is not easy. Identifying KPI's which focus on both the quantitative aspects of our work, such as the timely delivery of audit reports, and qualitative factors, such as the quality of our report, are challenging. I both cases, the KPI's can be largely impacted by those external to the internal audit team. Nevertheless, audit committees and executives within the business typically like to see some KPI. Here, we will focus on the quantitative KPI's associated with the timely delivery of audit reports.
Why do we need KPI's?
KPI's are one way which the performance of both internal auditors and the internal audit team can be measured and monitored. Furthermore, the International Standards for the Professional Practice of Internal Auditing (Standards) also require the establishment of KPI's or a monitoring process.
Below is an extract from the Standards:
1311 – Internal Assessments
Internal assessments must include:
Ongoing monitoring of the performance of the internal audit activity.
Periodic self-assessments or assessments by other persons within the organization with sufficient knowledge of internal audit practices.
As per the interpretation within the Standards...
periodic assessments are conducted to evaluate conformance with the Code of Ethics and the Standards. Sufficient knowledge of internal audit practices requires at least an understanding of all elements of the International Professional Practices Framework.
Monitoring the timeliness of an audit will only address one component of the Standard requirement.
Why measure the timeliness of an audit?
Audits can 'drag on', particularly where there is a large number of stakeholders, complex topic, or a significant number of issues. However, it can also be a good measure for team member performance.
Where audit department's have strict timelines for audit processes, measuring the time taken to complete planning and issue key deliverables such as the audit scope, close out meeting and reports, can help identify pinch points in the process. For instance, where there are delays in issuing the audit scope, is this because of the audit team being unable to complete planning processes in time, or audit seniors / managers taking too long to review and approve the documents. Such instances can provoke discussions for team members to understand the root cause of the delay and what can be done better next time.
Additionally, where delays occur in the reporting process, such as the delay to receive management comments, we are able to develop new strategies on how to prevent these delays or, at worst, point delays in the audit delivery to reasons outside of our control.
Embedding this into BAU process
Audit teams should be having weekly or fortnightly team meetings. During these meetings, time should be taken to ensure the KPI tracker is updated and discussed. It is important that time is taken to discuss the KPI's. Failure to talk about audits that are facing delays could result in small delays becoming even larger, or team members with an inability to deliver on time, not being encouraged to improve.
A copy of our template is included below:
To download a free copy of this template, please click here.
To purchase an editable version of the template, please click here.
The Chartered Institute of Internal Auditors has a great document regarding Internal audit performance measurement. This document can provide a lot of assistance when considering your own KPI's and performance measures. You can read their document here.