It’s been well established that internal audit must seek to add value if it is to prove its worth in the organization. The current emphasis for internal audit is all about creating value. That is not enough. The Internal Audit Value Chain (IAVC) provides a simple, flexible, and agile framework internal audit teams can use to support management across various business functions, industries, and sectors to accomplish the following:
- Create value – this is the starting point providing an overarching objective for the organization.
- Capture value – what problems is the organization solving, and how is that reflected in the strategy?
- Sustain value – what factors can impact the organization’s ability to create and capture value in a sustainable manner?
In the first article in this series, “Many Internal Audit Failures Stem from Misalignment with the Company Strategy,” we defined the IAVC and its key components. The IAVC includes “the enterprise-wide initiatives impacting business functions, involving a combination of people, processes, technology, and corporate culture to drive the achievement of strategic goals and sustain profitability.”
Internal audit’s role in the value chain requires an understanding of the organization’s:
- Strategic direction and alignment – strategic misalignments complicates the process of achieving enterprise objectives.
- Risk management and monitoring – a roadmap to navigate the volatile and complex risk environment.
- Operational efficiencies – assist management to “capture and sustain value” by pursuing efficiencies.
- Quality and compliance – is quality and compliance baked into the culture of your organization?
- Financial management and governance – reorganize to be in a perpetual state of change management.
- Responsiveness – create, capture, and sustain value while adapting to the changing business environment.
Note: Identifying, prioritizing, and mitigating risks (including emerging risks and threats, and the pace of rapidly evolving risks) belongs to the risk owner—management. In the process of adding value by helping management solve problems, they recognize as vital; internal audit can provide support without compromising its independence.
Most organizations implemented changes to respond to the unprecedented COVID-19 challenges. The future remains uncertain. COVID-19, without a doubt, has tested the very premises on how every organization, including internal audit, creates value. The IAVC provides a valuable and agile framework you can adapt to help your management teams efficiently achieve goals and objectives. The IAVC methodology can also be modified to manage your Change Integration Process (CIP) that can be integrated with other Continuous Process Improvement (CPI) methods to develop a culture of problem solvers.
Ultimately, the priorities vary between organizations. The six components of the IAVC should be continuously evaluated and updated to create value, capture value, and sustain value in the context of your organization’s strategic goals.
This series includes updated versions of articles originally published in the Institute of Internal Auditors (IIA) Magazine, The Journal of Government Financial Management (AGA), and Internal Audit 360°, an independent knowledge source for internal auditors of all levels. Content will be updated and added here as they become available.
For more information on the Internal Audit Value Chain (IAVC), contact:
Jonathan Ngah, CISA, CIA, CFE, CGFM.
Jonathan is a principal at Synergy Integration Advisors, a professional services firm providing internal audit outsourcing and internal audit co-sourcing services to government institutions, private-sector, and not-for-profit organizations in the US and the Asia Pacific (APAC) regions.