Can We Be Friends?

A Knowledgeable Critical Friend vs an Internal Audit? We can work with you to discover if your Internal Audit programme is delivering added value and, if not, how your costs can be reduced by as much as 60%.

When we are working with our clients, we continue to be concerned by their approach to Internal Audit programmes. We usually find that their programmes have become very expensive, often may not need to be as extensive as they are and usually leave key staff feeling de-motivated. Nevertheless, they stick with their historic approach.

Maybe the time has arrived for a new approach! 

The Financial Conduct Authority, I think almost accidently, came up with a useful expression when suggesting how smaller firms could assess the quality of compliance and governance. They said a “knowledgeable critical friend” was a possible proportionate way forward.

Firstly though, let’s consider why the current norm exists. There are two main reasons – Regulator rule requirements and Corporate Governance assurance at Board level.

In Financial Services the Prudential Regulation Authority is the lead regulator for financial institutions such as insurance companies, building societies, banks, credit unions and Friendly Societies. Within their Rules they will specify if a particular type of financial institution must have an Internal Audit programme applied in their business. Some must have it, for others its optional. In all cases it can be proportionate to the size, scope and risk profile of the business.

Corporate Governance in the UK operates on a “Three Lines of Defence Model”.  The First Line consists of the directors/senior managers responsible for running all the external facing business functions. The Second Line consists of the directors/senior managers running the internal facing functions such as Risk, Compliance and HR. In the Third Line of Defence will be an Internal Audit Function which is independent of the business’s management and provides assurance to the Board, that the activities of the business are being run to a satisfactory standard.  

The above two reasons for Internal audit are entirely reasonable – so what’s the problem?

Fear! For almost 20 years now the financial services sector itself, plus Government and Regulators, have lived in dread of a repeat of, or more new, financial crises.  Change is in the air though now as everyone recognises that economic growth must outgrow business stagnation. Less fear of regulation and a less risk averse approach are an essential element of such a turnaround.

How can we help? We can work with you to discover if your Internal Audit programme is delivering added value and, if not, how your costs can be reduced by as much as 60%, whilst creating an even more effective Internal Audit programme. Our recent trials of a new approach have proved this is possible and, in times of cost reduction programmes in many businesses, could be important to you.

Our approach revolves around low-cost triage exercises to help you identify what requires serious treatment and thereby enables you to develop a lower cost, but fully proportionate, Internal Audit approach. It more than pays for itself very quickly.

So let us be that “knowledgeable critical friend” and just see how expensive and complicated Internal Audit assessments can be removed, without worsening management’s visibility of risk.

It’s a win win!  

Please dont hesitate to get in touch for a free initial consultation and let us become your new friend!