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When Michele Variale joined the Natuzzi Group as chief internal auditor in 2017, he knew that his team had to streamline operations and sharpen its focus if it was to offer senior managers what they needed to help the high-end furniture company succeed in a rapidly changing industry and continue to expand globally.
Variale’s internal audit experience in highly regulated industries, such as financial services, meant that he understood what mature internal audit functions could accomplish. He knew that Natuzzi’s internal auditors could become true trusted advisers to management, but he needed to raise the status of the function and increase stakeholder expectations to get there.
“When you join a new company as chief internal auditor, you have a checklist of what you expect to see. I saw that we could improve internal audit’s relevance throughout the organization, enhance internal audit processes, and achieve greater efficiencies by working smarter,” Variale says. “I knew that we could offer more.”
Natuzzi, based in Santeramo in Colle, Italy, is proud of its reputation for craftsmanship, cutting-edge R&D, and sustainable practices. The NYSE-listed furniture manufacturer and retailer with operations in the United States, Europe, China, Brazil, Australia, and several other countries, is among the world’s top makers of leather-upholstered furniture with $465 million in global revenues in 2018. It boasts a leading market share in North America and Europe and operates more than 430 galleries worldwide.
Still, the business isn’t without its challenges. Natuzzi must meet all the regulatory requirements of the many countries in which it operates. The retail sector worldwide is also facing significant upheaval and endless technological developments, requiring constant transformation. Keeping up with these challenges demands an equally agile internal audit function.
Improving Consistency and Quality
Variale was determined to enhance internal audit’s independence and boost the influence of their reporting. As he assessed internal audit’s capabilities, he realized that to do this he needed to improve the quality and consistency of data and audit processes first.
“Consistency in our audit templates was important because I want to ensure that we are upholding our high standards of quality in the audit work we perform in every corner of the globe.”
—Michele Variale, Chief Internal Auditor, Natuzzi Group
Variale also wanted better tracking and monitoring of internal audit activities, as well as to standardize some functions to ensure consistent quality. “Verifying that all the necessary controls testing had been done to the required standards was time-consuming since I did not have an automated snapshot of which tests had been completed, and how, at any point in time,” he says.
Quality audit templates could also improve the efficiency and reliability of audits. “Consistency in our audit templates was important because I want to ensure that we are upholding our high standards of quality in the audit work we perform in every corner of the globe,” says Variale.
He knew that the best way to achieve these goals was to implement a world-class internal audit management system. Variale told management: “Today, to be a chief internal auditor of a global organization requires safe, consistent, and transparent internal audit software.” With senior management’s blessing, he set out to put just such a system in place.
Enter TeamMate+
With prior experience using Wolters Kluwer TeamMate software to great success, Variale surmised that TeamMate+ could provide all the tools he needed, while offering scope to add more capabilities as his needs and those of the organization evolved. A rigorous vetting process confirmed his convictions.
“I knew TeamMate+ could manage the complexity we have, but the game changer for me was that it was simple, flexible, and easy tool to use,” he explains.
After deciding on TeamMate+ in October 2018, things moved rapidly. Variale selected a group of “super users” who would receive the initial training and then support others through the implementation. Internal audit also secured additional support from the IT team and the technical work began in January 2019. A month later, they conducted a two-day “deep dive” with a TeamMate+ consultant who delivered the “super user” training. The consultant ensured that all super users fully understood how to configure the software themselves—another vital element for Variale.
“Our conversation with the board and the audit committee went smoothly because we’d already started demonstrating to them what we could achieve with the new system. Once you build trust and raise expectations, you can move ahead more easily.”
—Michele Variale, Natuzzi Group
“One of the big successes for us was that the software allowed us to configure it to the exact specifications we required—it wasn’t a generic, off-the-shelf product,” Variale says. “The biggest investment was the time we spent learning how to configure it, but this was time well spent. It means we can adapt it as our users become more confident or new needs arise.”
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Last April, the team completed its first audit from beginning to end using TeamMate+ and began migrating all open audits and action plans onto the system, well ahead of the official launch date in July 2019. “It’s like building a new car,” Variale says. “This was the first time we could be sure that our car could hold all of us and take us where we needed to go.”
Tips for Success
Variale says several key factors contributed to the success in Natuzzi’s internal audit transformation and system implementation. First, the company had defined a solid methodology before they chose the new software. “This was very helpful,” he explains. “TeamMate+ is based on a system logic following the path from risk assessment, audit plan, and engagement planning, through risk identification, control design assessment, and testing control effectiveness and ending with issues and action plans.” The internal audit team ensured that its own processes aligned with the system.
Second, Variale’s team focused on the key outputs it required. “We worked backward from the deliverables to identify what processes we needed, what the inputs to these processes should be, and where these would be supplied from. We also looked at what information we needed to store. Rather than trying to use everything that TeamMate+ could do for us at once, we focused just on what we needed for these outputs,” he says.
Third, Variale says support from the internal audit team and its wider stakeholders was crucial. “Our conversation with the board and the audit committee went smoothly because we’d already started demonstrating to them what we could achieve with the new system. Once you build trust and raise expectations, you can move ahead more easily,” says Variale.
Achieving Efficiencies
Having explained to the board and audit committee how the software could make audit findings more meaningful and actionable, Variale now hopes to automate much of the routine reporting through dashboards that highlight significant issues for particular recipients as frequently as they require them. The fact that users can drill down into these issues to see the source of information and other data should also reduce the amount of time he currently spends answering questions from senior management.
The system has made life more efficient for the audit team, too, by providing each member with a clear list of priorities for each project and reducing the time they spend documenting audit work. “We’ve already increased efficiency by 10 percent,” Variale says.
New Frontiers
To continue advancement, Variale is now working on implementing TeamMate+ Analytics to expand the team’s data analytics capabilities and provide new insights into the business. “Intelligent use of data analytics and big data is the future of our profession,” he says. “Data analytics can now provide assurance on the vast majority of transactional-level controls. In the future, we need to look beyond this to integrated assurance to ensure we deal with risk consistently across the organization.”
“If internal audit does not evolve, the function will cease to be relevant,” Variale warns. “We are now looking at continuous auditing and risk monitoring and examining how TeamMate+ can support that evolution.”
Working this way is not only desirable, but essential, if internal audit functions are to add value in the future. “Traditionally, internal audit has defined value as protection—keeping the organization safe,” he says. “But in the next decade I believe boards will have a different perspective on value. They will take it for granted that internal audit will protect the business. A valuable internal audit function will be one that also acts as a strategic adviser to identify risks and inform decision making.”