INTERNAL AUDITORS AS CHANGE AGENTS: WHAT A DIFFERENCE A YEAR MAKES!

Abstract

It was evidenced in a multiple-case study that the pattern of interaction between Chief Audit Executives and Senior Management is a key determinant of Internal Audit effectiveness. There are notable differences among Internal Audit Functions. The effectiveness of Internal Audit is largely determined by “soft factors.” Therefore, where Senior Management, possibly pushed by the supervisory board or the owner himself, truly supports the Internal Audit Function and wants it to look at the right matters, its effectiveness will be fundamentally different from cases where the management and/or board is passive, and does not push the Internal Audit Function to become effective by unearthing matters they may not wish to be found. In the upper echelon of Management, interaction with the chief stakeholder/s typically happens frequently, in a timely manner, and the communication is geared toward problem-solving. The relationship is strongly based on shared goals, shared knowledge, and mutual respect. At the other end of this spectrum, interaction with the chief stakeholder/s happens in-frequently, is typically delayed, and the communication is rather geared toward finger-pointing. In this context, functional goals prevail, knowledge is preferably exclusive, and relations can be impaired by disrespect.

This article provides conceptual and practical insights into features within the more immediate control of the Chief Audit Executives, helping or hindering Internal Audit effectiveness. Self-perception and external perception can differ greatly. Positioning and communication are instrumental when identifying successful Internal Audit Functions; these make a fundamental difference as to whether the Internal Audit Function is positioned as police, servant, consultant, doctor or change agent. Practical insights then demonstrate what a difference a year makes. Guided by the change agent, the more effective Internal Audit Function can prove also with hard data that there are fewer overdue findings, that reports are delivered more swiftly, and quantum leaps of productivity can be achieved.

Acknowledgments

Rainer thanks his co-workers at Villeroy & Boch Group for their support. As token of appreciation, he invited his former team members as co-authors: Oliver Karmann and Jens Druckenmueller. Performing as agent of change is a team sport. #StrongerTogether

We thank David Jackson for proofreading our manuscript.

We thank Dan Swanson, the Managing Editor of EDPACS, for the invitation and the opportunity.

The authors thank David Hill, CEO at SWAP Internal Audit Services (https://www.swapaudit.co.uk/), for funding OPEN ACCESS.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1. Independent Audit Limited (http://www.independentaudit.com) gave their consent for using the diagram, ref. PhD-thesis (Lenz, 2013), “Looking good - I’ll sail through the self-assessment”

2. As of May 2014, Villeroy & Boch employed a workforce of around 7,300. The consolidated sales for 2014 reached €766 million. Villeroy & Boch is represented in 125 countries around the world and has 14 production facilities in Europe, Mexico, and Thailand (http://www.villeroyboch-group.com/en/the-company.html).

3. Accessed online on 20 April 2024: https://www.theiia.org/en/internal-audit-foundation/latest-research-and-products/ia-2035-project/ “The Internal Audit Foundation has embarked on a groundbreaking initiative called, Internal Audit: Vision 2035 – Creating Our Future Together. This project is designed to envision the future state of the Internal Audit profession and chart the steps necessary to make that future a reality.”

Additional information

Notes on contributors

Rainer Lenz

Dr. Rainer Lenz is a seasoned finance and corporate audit professional with 30+ years of international experience as Regional/Divisional CFO and Chief Audit Executive in global organizations. Since 2018, Chief Internal Auditor at SAF-HOLLAND Group. PhD in Economics and Management Science from the Louvain School of Management in Belgium. Teaching Governance and Internal Auditing at the Johannes Gutenberg University Mainz (Germany). Awardee (5×) as Global Internal Audit Thought Leader (by Richard Chambers). Winner of the Global IIA’s 2023 Bradford Cadmus Memorial Award. Author of a series of articles in peer reviewed journals (h-index of 12).

Oliver Karmann

Oliver Karmann, M.Sc., is a seasoned Senior Manager with a proven track-record in internal audit, and finance and Customer Service matters. Experienced in working with luxury and industrial brands in an international environment. Since 2016 with J. Wagner GmbH, first as Group Vice President Head of Internal Audit, and since 20202 as VP of Finance and Customer Service. His educational background includes a Master of Science degree in Business Administration and Law from the University of Saarland. While being a student, Karmann has also contributed to academia as a student research assistant at the University of Saarland’s Chair of Banking and Finance (Prof. Dr. Waschbusch).

Jens Druckenmueller

Jens Druckenmueller, LL.M., is an experienced finance and internal audit professional currently serving as Regional CFO at Villeroy & Boch Luxembourg and as a Board Member of a subsidiary within the Villeroy & Boch Group. His educational background includes degrees in Economics and Business Administration from the University of Konstanz and the University of Saarland, culminating with a Master of Laws in European and International Law from the Europa-Institute at the University of Saarland. Throughout his career, Druckenmueller has also contributed to academia as a research assistant at the University of Saarland’s Chair of Banking and Finance. He has authored several publications in the field of finance and speaks at conferences focusing on internal audit.