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Protiviti Releases Internal Audit Rebalancing survey

(Nov 06, 2007)-- For the first time since the U.S. Sarbanes-Oxley Act went into effect in 2002, a growing number of internal audit departments are returning to business as usual, according to a new survey by Protiviti Inc. Having been consumed with Sarbanes-Oxley compliance projects for the past four years, 24 percent of companies report their internal audit departments have achieved "rebalancing" -- a renewed focus on their traditional responsibilities that is balanced with compliance activities. This number is more than double the response (10 percent) from a similar survey conducted in 2005 by Protiviti, a leading global provider of internal audit and risk consulting services.

The results of Protiviti''s second Internal Audit Rebalancing study are detailed in its report, "Moving Internal Audit Back Into Balance." The survey was conducted from October 2006 through January 2007, when the first wave of companies reached Year Three of Sarbanes-Oxley compliance.

"This process of rebalancing is tied closely to the development of a more efficient and sustainable approach to compliance, which is why it takes time to achieve," said Bob Hirth, managing director for Protiviti and head of the company''s global internal audit practice. "However, as the results of our second rebalancing survey indicate, significant progress has been made. Companies clearly are seeing the long-term benefits of rebalancing, which include ensuring they do not focus solely on financial reporting at the expense of other critical business operations and functions.

"At the same time," Hirth noted "as a result of Sarbanes-Oxley, there is definitely more financial reporting control-related auditing being conducted, and there is a heightened focus on IT auditing, both of which are positive outcomes of the legislation."

Among the key findings of Protiviti''s Internal Audit Rebalancing survey: -- Internal auditors see new benefits in rebalancing. Nearly half of internal auditors polled -- 47 percent -- cited "being able to perform more traditional audits" as the top benefit derived from rebalancing. This was greater than the combined response for the next three benefits, including "more appropriate coverage of risk," which was the top-ranked benefit in the previous survey. Hirth noted, "This is a strong indicator that after more than three years of Sarbanes-Oxley compliance, internal auditors are ready for -- and recognize a need for -- the internal audit function to get back to basics." Examples of more traditional auditing, according to Hirth, include assisting management and the audit committee in identifying key enterprise-wide business risks, reviewing potential indicators of fraud, and completing focused audits in high-risk areas. Some of these high-risk areas include: IT security; business continuity; revenue processes; remote locations; capital construction and other significant compliance areas, exclusive of Sarbanes-Oxley. -- Year Three is a turning point for many internal audit departments. A large majority of organizations that have achieved rebalancing -- 80 percent -- are in Year Three of Sarbanes-Oxley compliance. "Perspective is everything," Hirth notes. "By the third year, organizations have a better understanding of what does and does not work with their Sarbanes-Oxley compliance efforts, and internal auditors have adapted to increased workloads and responsibilities. They have a deeper understanding of the regulations and view compliance as a long-term process instead of a short-term project." -- Rebalancing gains momentum quickly. Once they initiated efforts, 45 percent of companies took about one year to achieve rebalancing, while 28 percent required less than one year. -- Rebalancing strategies continue to evolve. The three rebalancing strategies most widely employed among internal audit departments are: reducing the total population of controls (45 percent), reducing the number of key controls (37 percent), and increasing reliance on internal audit by external auditors (34 percent). However, when assessing strategies that are planned for rebalancing, the survey results suggest "greater reliance on internal auditing by external auditors" will be the most popular approach in the coming years. -- Internal audit departments are demonstrating resilience and creativity in their approach to rebalancing. Most often, internal audit departments are rescoping their workload (59 percent), increasing ownership by process owners (55 percent) and reallocating resources (52 percent). Compared to the previous survey, noticeably fewer are rebalancing without adding resources. -- Internal auditors have kept it in-house. A majority of organizations made limited use of external assistance in their rebalancing efforts (43 percent), while some used none at all (27 percent). In most cases, outside consultants were relied upon by some organizations until additional internal audit professionals were hired. Others leveraged external assistance to lead the initial process design, and only during Year One.

Protiviti conducted its Internal Audit Rebalancing Survey at The Institute of Internal Auditors'' "All Star Conference" in fall 2006, where attendees were provided the opportunity to complete the 23-question poll. The company also invited members of KnowledgeLeader, its subscription-based internal audit and risk management portal, to participate in the study. Lastly, Protiviti surveyed numerous financial and audit executives nationwide who expressed interest in providing their perspectives on the topic of rebalancing internal audit priorities. More than 90 percent of respondents hold managerial positions, many at the level of chief audit executive, internal audit director or general auditor.

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