Earlier this week I watched a webinar put on by the Audit Director Roundtable, a great resource for internal auditors, titled Enterprise Risk Audit Planning.

If you follow me on Twitter, you might have seen this:

@neilmcintyre: IT problems for Audit Director Roundtable delay the start of the Enterprise Risk Audit Planning webinar

The problem was that the large group attempting to log in to the presentation were jamming the conferencing phone system. It was sorted out within 10 minutes of the scheduled start time. Good problem to have, really.

I was introduced to ADR when I joined the world of internal audit in May 2008 and have been taking advantage of the site’s features ever since, such as case studies, internal control questionnaire (ICQ) templates, audit department benchmarking tools and example audit work plans.

Today’s webinar was valuable to me because it focused on how five companies’ internal audit groups are dealing with the challenge of providing assurance over strategic risk. This is a topic that I have championed in my capacity as an internal auditor, and the companies in the webinar were actually walking the walk.

Some of the highlights:

• One group enabled management to better identify and assess complete risk information by developing a tool that required them to drill down from higher level risks to their lower level components. What I liked in particular about the tool was that it discouraged the tendency to choose medium likelihood and medium impact (what they called “midpointing” although I’d never heard the term) by making those assessments lead to a “signficant” rating.
• Another group credited management for its efforts in identifying processes which were well-controlled versus those that were less well-controlled, by tailoring the assurance strategy to the former. Simply the act of identifying a poorly-controlled process would spur management to implement the necessary controls, at which point the process would migrate to the well-controlled side.
• Yet another group maps the principal risks identified at a high level to each applicable business process to ensure adequate coverage. Internal audit focuses on the processes involved in executing on the strategic priorities, to provide assurance that those risks are well-controlled.

I enjoyed the webinar because it took what can be a challenging theoretical problem and showed examples where leading internal audit groups are concretely addressing the concerns of management over the key risks driving the performance of the business.

How are you implementing practices like these to provide assurance over the risks that primarily drive enterprise value?

That’s the recommendation from the Institute of Chartered Accountants of India (ICAI), as reported by The India Express:

“In the high-powered committee report on Satyam scam, we have proposed that internal audit should be outsourced and not be in house so that there is more independence. If the auditor is from the organisation, it is as good as being an employee of the organisation and the chances of remaining unbiased decline. Market regulator Sebi through clause 49 and the corporate affairs ministry through the Companies Law should make it mandatory that the internal auditor should be from outside the organisation,” ICAI president Amarjit Chopra told The Indian Express.

I can’t really argue with the logic, but the feasibility of the idea is fair game. The logistics of putting this into place is giving me a headache, and it does seem like an overreaction to a single instance of fraud.

The voice of reason comes from the director of KPMG in India:

“More important [than outsourcing] is the communication between head the of internal audit and CEO or chairman of audit committee. The success depends more on how freely and directly the internal auditor can discuss the shortcomings in a firm with the CEO of audit committee.”

Boards should be ensuring that the lines of communication between the Chief Audit Executive and the Audit Committee are direct and communications frequent and frank. That applies even if IA is outsourced as well.

I blogged a while ago about the Satyam scandal.

In Q4 last year, Microsoft announced through its Interoperability @ Microsoft blog that it was planning to open up its proprietary PST email format used by Outlook.

The data in .pst files has been accessible through the Messaging API (MAPI) and Outlook Object Model (two things of which my understanding is minimal at best), but only if the user has Outlook installed:

In order to facilitate interoperability and enable customers and vendors to access the data in .pst files on a variety of platforms, we will be releasing documentation for the .pst file format. This will allow developers to read, create, and interoperate with the data in .pst files in server and client scenarios using the programming language and platform of their choice. The technical documentation will detail how the data is stored, along with guidance for accessing that data from other software applications. It also will highlight the structure of the .pst file, provide details like how to navigate the folder hierarchy, and explain how to access the individual data objects and properties.

The documentation will be released under Microsoft’s Open Specification Promise, which means that it is protected against patent claims. Other Microsoft Office formats, such as the XML-based .docx and .xlsx, and the older binary formats .doc and .xls, are covered under this promise.

This seems like a big win for users of Microsoft Outlook. Along with CodePlex, which hosts open source projects, it seems like Microsoft is slowly opening things up and making life easier for their customers. It certainly has the potential to make it easier for customers to leave the Outlook platform. From GigaOM:

In the past, if someone was moving from Outlook/Exchange to Gmail or any other platform, there was a pretty tedious process of exporting pieces of data from Outlook into various formats before moving over to the new platform. Basically, once you didn’t have Outlook, that .pst was a useless brick of data. Now in that case you’ll be able to take that .pst file with you and if other apps/platforms build readers, they will be able access that data. So migration to other platforms is a valid use case where there’s some benefit.

Some more ideas as to the reasons why Microsoft is making this change were floated on ZDnet a day after the announcement:

[Rob Helm, an analyst with Directions on Microsoft,] added that he believed Microsoft is trying to wean large customers from storing mail in .PST files or file systems “because doing that makes it hard for organizations to back up all their e-mail, enforce e-mail retention policies, and locate relevant e-mails during legal discovery.”

Not just retention, but perhaps helping organizations mine their email data for knowledge which can all too frequently be lost forever if an employee leaves the company? Here’s an idea: How about a tool that will gather information from emails dating back years and populate a wiki automatically for new employees?

[Rob Sanfilippo, another Directions on Microsoft analyst] added that .PSTs “are used most frequently for archiving purposes and Exchange Server 2010 includes a new server-based Personal Archive feature that gives users a separate mailbox to use for archiving on the server instead of using a PST.” He said this gives weight to the aforementioned idea that Microsoft is trying to help organizations get users off PSTs and onto server storage.”

Then, in February of this year, the promised documentation was released on the MSDN website. Finally, about a month ago, two open source tools that make use of the documentation were released on CodePlex:

• The PST Data Structure View Tool is a graphical tool allowing the developers to browse the internal data structures of a PST file. The primary goal of this tool is to assist people who are learning .pst format and help them to better understand the documentation.
• The PST File Format SDK is a cross platform C++ library for reading .pst files that can be incorporated into solutions that run on top of the .pst file format. The capability to write data to .pst files is part of the roadmap will be added to the SDK.

The project has seen some exciting progress, which is good news for organizations that use Outlook. And as you might know, data visualization used to enhance understanding is a favourite topic of mine!

What risk do these developments address within Outlook’d organizations? Knowledge/information management is critical to so many companies. The use, retention and (hopefully) reuse of knowledge developed by employees and stored in email conversations within Outlook will be enhanced through this openness.

Has your organization taken these developments into account in your audits of knowledge/information management and strategy?

BusinessDay, a South African business news website, published a recent article referencing an E&Y study involving “more than 100 industry analysts from more than 20 disciplines”:

Organisations need to break out of the compliance cocoon and evolve into a fully fledged leadership role that delivers real value to the business. In the current economic climate, the biggest risk for most companies is not a failure to meet compliance requirements, but a failure to meet strategic targets.

The study also assessed last year’s top 10 business risks. In it, the analysts ranked the aftershocks of the credit crunch and the deepening global recession as the most important business risks, displacing regulation and compliance from the top spot.

Still more evidence that the Internal Audit profession demands an expanding skill set and well-rounded people with experience in more varied aspects of business. Auditors are going to have to continue to push themselves outside of their comfort zone in order to provide the greater value that shareholders require of the function.

How does your IA department stack up?

A survey conducted at the recent Institute of Internal Auditors annual conference by Protiviti has revealed that ⅔ of IA professionals believe their department is under-resourced and therefore unable to adequately carry out their duties.

Protiviti’s take is that due to increased expectations of the assurance Internal Audit can provide on an ever-widening spectrum of enterprise risks, auditors feel under-resourced. Sukhdev Bal, Director of Protiviti says:

This survey is a clear indication that internal auditors themselves believe that prior to the recession, they were not fit for purpose in terms of focus, skills and capabilities. Audit committees, Internal Audit leaders and management need to work more closely and collectively to agree the role of audit, objectives, criteria for audit and the overall approach of the internal audit function required to meet current and future evolving needs. Importantly, having agreed these, they need to ensure that the function is staffed with the right skills, capabilities and experience to meet these objectives.

There is evidence that spending on governance, risk and compliance didn’t decrease in 2009 compared to 2008, so I think Protiviti is correct with its assessment. IA is being asked to expand their risk coverage beyond traditional areas of expertise. It’s only natural to feel a little overwhelmed by the expectations. The key to adapting in my opinion (and experience) will be support for training in non-traditional areas.

The survey is available on Protiviti’s website (if you give them some personal information first).