In conducting their day-to-day business operations, banks in the GCC region increasingly adhere to far more stringent regulatory requirements and supervision from relevant authorities and watchdogs, including the Central Bank, than they would have around a decade ago. This increase in guidelines has helped safeguard both customers and banks from concerns such as overleveraged debt or risk.
However, adapting to change to ensure compliance or even improve business performance isn’t always a straightforward process. To successfully execute transformation within a bank — the board and management are required to identify business strategies or functions that they wish to redefine. This is where the internal audit function plays a vital role.
A cornerstone for good corporate governance
Essentially, an internal auditor focuses on enhancing corporate governance and internal control environment, thereby directly contributing to organisational growth and reputation. The process begins with the auditor reviewing the bank’s end-to-end operations and offering strategic feedback in line with latest trends to anticipate challenges, opportunities and risks in the immediate or near future. The internal audit function is not mandated to make decisions, but rather to examine the bank’s performance and make informed recommendations such as best practices the bank can integrate.
Internal audit has primarily two key roles: the first is to add value by providing insights and assurance to all stakeholders including the CEOs, board of directors and shareholders. This is delivered through conducting periodic reviews to ensure the organisation is well managed within acceptable risks and with adequate controls.
The second role is to provide consulting. Internal auditors have a 360-degree view of the organisation and therefore have the capacity to look at the big picture rather than review just one department. This places internal auditors in a better position in the organisation to provide an advisory role to the senior leadership team to drive performance.
Key to successful auditing
Personally, I would compare internal audit to the brakes of a car: the thought that the brakes are in good condition and will come handy if required helps the business leaders to drive the organisation as fast and smoothly as possible. The moment there is imminent danger ahead the brakes help you slow things down in a controlled manner. However, in order to perform effectively and offer astute remedial solutions that are not influenced by members of management or other departments, internal auditing needs to work as an independent function.
For example, in the UAE banking sector, there is a clear demarcation which outlines that the internal audit department of banks report only to an ‘independent audit committee’ appointed by the bank’s board. This allows the internal audit department to remain objective with regard to all operations and report issue to the board of directors and recommend optimum solutions.
Another important element that ensures successful auditing is trust. Earlier, the auditing function was compared to a strict supervisor — someone who always examined your work over your shoulder or judged your every move. Over time this perception has dramatically changed with more and more banks acknowledging the benefits of collaboration and maintaining transparency with internal auditors to ensure challenges are tackled head-on. At Noor Bank, for instance, we often work in tandem with each business to understand how we can help them, and accordingly make recommendations to the management for assisting them in improving their performance.
Besides working with businesses and authorities such as the UAE Central Bank, internal auditors around the globe also follow the standards set by the Institute of Internal Auditors (IIA) — a guiding body for internal auditors that supports the strategic and operational decision making of organisations. With members enjoying benefits such as information on new standards and guidance, as well as national and global professional networking opportunities and other resources, IIA helps the internal auditors to be suitably equipped to navigate challenges.
The future of audit
Today, monitoring emerging technologies and the risks associated with them have become increasingly important. Unlike earlier, technology audits have become an integral part of all audits, be it business, operational or financial audits. Stringent monitoring of the IT departments and the technology platforms within banks has become mandatory in order to avert possibilities of fraud, hacking, data leaks, power outages and other threats that can potentially deem online platforms inactive and make it difficult for customers to access any products or online banking capabilities. The repercussions of an organisation’s growing reliance on technology and the challenges that can ensue due to a breakdown make efficient IT operations even more imperative. IT auditing therefore must be factored in as a crucial layer into any internal auditing process.
The future of internal auditing also lies in utilising big data efficiently through data analytics. Today, most auditing departments ensure they include analytics as part of their arsenal. For example, auditors can now analyse the bank’s customer and transactional databases and make recommendations accordingly to the relevant product teams — enabling them to tailor products better suited to their audience through increasing attractive benefits, improving ease-of-use, and fine-tuning other aspects. This is a trend that is picking up in the banking industry with many large institutions now comprising dedicated analytics teams within their functions as an integral value-add to the business.
— Biju Nair, Head of Internal Audit, Noor Bank. Views expressed in the column are the writer’s own and do not reflect those of the newspaper or the bank.