Every news feed, newspaper, magazine, and even social media feed is inundated with the latest trends purporting to simply demonstrate the ways in which businesses should implement artificial intelligence. There is a wealth of insights within these articles.
There is also, however, a failure to grasp that one of the core principles when it comes to implementing, or even considering implementing, something as transformational as AI within an internal audit function is that a clearly communicated strategic alignment, created and overseen by senior audit executives, is required for a successful implementation.
This need for strategic alignment requires more than just creating a strategic roadmap. It includes marrying a strategic vision based on a robust and thorough understanding of technological advancements and communicating this vision, with clear roles and responsibilities supported by executives within the internal audit function.
Fundamentally, any AI or Gen AI implementation needs to be aligned with the wider companies’ objectives; the importance and potential benefits require a cohesive, equitable strategy between a digitalization agenda and core business goals.
The Internal Audit Technology Gap
“If a leader at any level does not understand how to use the digital world and its accompanying instrumentation, and if they do not understand the power that it has on their relationships with their stakeholders… then they will be seriously left behind” (Bennis, 2013).
Although the above statement is over a decade old, the point is as applicable as ever: internal audit leaders are struggling to keep up with the near-constant evolution of digitization tools that are either already in the market or the much-publicized potential advancements coming down the tracks. A recent study by Gartner shows that although there is a bullish attitude towards AI and the potential benefits in relation to productivity and efficiency gains, there is still a general unease around the technology underpinning it, Particularly within internal audit, compliance, and risk management functions.
It is even more fraught for internal audit, as audit executives are in a position of trying to assess the potential risks of AI to the business, whilst optimizing internal audit functions to benefit from the potential enhancements. This gap in technical understanding, however, has arguably only widened, with the skills and backgrounds of audit executives being of a financial or auditing persuasion rather than arising from careers in IT.
This is not to alleviate the responsibilities of internal audit executives. With the potential for improved performance of team members, more in-depth audits being executed, and the potential for unseen risks to be uncovered, the onus sits with these executives to upskill and keep abreast of technological advancements.
Intrinsic Internal Audit Knowledge
The internal audit function benefits from executives who have gained a level of technological understanding, including the ability to assimilate this knowledge into their respective audit areas. It is vitally important for those involved in assimilating knowledge to understand the business function, processes, procedures, and overall operationalization of the unit, as well as the technical know-how in understanding the technologies at play, even more so to be in a position to lead the implementation of emerging technologies.
The knowledge required for successful implementation can be either tacit or explicit or, more generally, both. But at its core, a detailed understanding and knowledge of the internal audit unit, its remit, the people, legacy systems and financial footing are required to amass enough knowledge to develop and implement a thorough and complete digitization agenda.
These requirements are underpinned by the need for business units to reskill or recruit employees with the ability to work transformatively, given the unprecedented change in technologies becoming available to internal auditors. The strategic implementation requires enough time built into the implementation plan to allow for variable approaches to adaptation, appreciating the variability of technological skills within an established team. A Deloitte study has summed up this requirement by stating that “transformation is more about modifying a long-established culture than it is about acquiring new skills or buying new software.”
Surveying the AI Landscape
Fundamentally, for an AI strategy to be successful, digital structures and AI initiatives must be aligned with the aim of improving the audit functions’ performance. Internal audit executives in a highly dynamic environment need to be entrepreneurial in their approach, whilst continually assessing the market for best practices, as well as assessing the use of AI by peers in both similar and diverse industries. Although there is not a “silver bullet” when it comes to AI tools which will dramatically improve performance, leadership need to be cognizant of the shifting environment and assess cross-market trends to ensure they remain to the fore of technological advancements.
This industry-agnostic approach will be the differential when it comes to the early-stage adaption, with key leaders looking outside of their industry and implementing and helping develop cutting-edge digitization tools within the audit space, with “the integration of technology and AI tools in Internal Audit has the potential to revolutionize the profession.”
Early Adopter or Technology Laggard?
For internal audit executives, the ability to source, develop, and implement digitization tools on pre-identified processes has to be balanced with the considerations of financial and internal system constraints. This blend of knowledge is key in sourcing and progressing on the correct technical path.
However, this goes beyond just the mere selection of software tools; it is intertwined with fundamental strategic choices in relation to technological ambition. An internal audit unit needs to be aligned in either wanting to develop and be at the forefront of technological development in IA or to continue utilizing existing tools to supplement their operations. This early-stage adaption potentially is the differentiator between missing out on the advantages that come with early adaption, such as lower costs and the ability to influence technologies, or the risks in unrequited costs.
This is often tied to the organization’s larger focus and whether or not there is a preference for developing technological tools in-house or using external capabilities. If it is the latter, it brings us to the next point of external resources.
Use of External Resources
Similar to the array of articles on this topic, there is also an array of firms that are willing to source, implement and refine digital technologies for internal audit functions. There are elements of external supports that can assist internal audit, and it has been rightly argued that for functions that are developing new digitization strategies external input can increase and support the decision-making process.
The use of external resources is not merely limited to off-the-shelf digital solutions to answer pressing problems; when used correctly, it can be seen as a way to gain “innovation input” (Duan et al., 2021, p.2). Duan and his co-authors posit that “closed-door” innovation, for example firms that only use internal sources, cannot cope with the current technological advancements in areas such as AI and Gen AI.
The use of external resources for innovation should not be limited to consultancy firms, be they small boutiques or larger firms, but rather collaboration with industry bodies, inter- and intra-industry firms, or academic collaboration.
The consensus within the digital transformation literature is that the broader the input sources contributing to creating a digitization strategy, the more successful the outcome. There is a direct correlation between the quantity and quality of outputs when a firm has utilized a broader range of ideas—ultimately arguing that the more people involved from various sources, the more successful the outcomes (Knight et al., 2020).
Including internal audit teams at the early-stage conceptual design of either the larger strategy or big-ticket digital projects delivers a multitude of benefits: fostering a sense of inclusion within the broader team and helping to initiate the positive organizational change management required to successfully implement a digitization strategy and solving pressing specific internal audit questions. This ‘bottom-up’ engagement is not only beneficial at the ideation stage of a digitization journey but also as the tools and technologies are implemented.
Getting ‘Buy-in” from Existing IA Staff
The internal audit executive is primarily responsible for setting the tone when it comes to the creation and implementation of a successful digitization agenda. Like any major change within the internal audit function, the executive needs to understand and mitigate employee resistance (more straightforward to manage if the internal audit executive understands the underlying technology), delivering on cultural changes within the organization as new technologies are implemented, and balancing employee concerns while providing insights into the opportunities that are available.
The cultural and technological buy-in from existing staff is of great importance to the success of the digitization program. If a change-management plan is not initiated and supported in a proactive manner, it can lead to the new technology being rejected by existing staff as it potentially creates a negative competition between internal audit team members and “AI.” The audit function needs to ensure that employees are kept fully updated to prepare for technological implementation by educating the internal audit team on the use, advantages, and potential limitations of digital tools.
The internal audit executives and implementation team also need to be cognizant of providing quick wins during the early stages of the digitization implementation; incremental efficiencies should be achieved in established processes while also extending the team’s scope to explore further opportunities by developing new processes—creating an overarching perspective of success,
What the Future Holds for AI in IA
There is no silver bullet when it comes to implementing AI or Gen AI tools within internal audit functions, and arguably, the internal audit industry is still at the data consolidation and data analytical stage rather than at the point of implementing truly Generative AI technologies.
Whatever the future holds for AI in IA, a well-developed strategic plan is of the utmost importance. Key factors include robust technical knowledge at the executive level, it can’t be claimed that ignorance is bliss. There will be a requirement to include a breadth of technical input—both from internal and external sources, especially internal audit teams—aiding the OCM at the implementation stage and, finally, the need for deliberate decisions regarding technological tools, aligned with the broader company’s strategic vision.
Kieran Essex is an Associate Director of Internal Audit in Eli Lilly and Co., based in Cork, Ireland. Outside of his work in Internal Audit, Kieran is currently completing his doctoral thesis on exploring the transformational impact of digitization in finance.