How can internal audit foster a risk-aware culture and mindset within the organization?

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Internal audit is not only a function that provides assurance and compliance, but also a strategic partner that can help the organization manage risks and achieve its objectives. However, to do so, internal audit needs to foster a risk-aware culture and mindset within the organization, where risks are identified, assessed, communicated, and mitigated effectively. In this article, we will explore how internal audit can promote and support a risk-aware culture and mindset, and what benefits it can bring to the organization.

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Ankita Krishnan, MBA, CIA?

Senior Internal Auditor at Crowe Australasia
Ahmad Nakib
José Tapia

Jefe de turno | Profesional senior en materia QHSE | Gestión de producción & operaciones | Liderazgo para la innovación…

1 The role of internal audit in risk management

Internal audit plays a crucial role in risk management, as it provides independent and objective assurance and advice on the effectiveness of the organization's risk management processes, systems, and controls. Internal audit also helps the organization align its risk appetite and strategy, identify and prioritize emerging and evolving risks, and monitor and report on risk performance and incidents. By doing so, internal audit can help the organization enhance its risk awareness, resilience, and governance.

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Ahmad Nakib
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The main role of internal audit in risk management is assessing and monitoring risks that a company faces and providing recommendations for appropriate risk mitigation controls.

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José Tapia

Jefe de turno | Profesional senior en materia QHSE | Gestión de producción & operaciones | Liderazgo para la innovación | Mejora continua | 1x??LinkedIn Top Voice |
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Evaluación de Riesgos: Los auditores internos pueden ayudar a identificar y evaluar los riesgos potenciales que podrían afectar a la organización. Esto incluye riesgos financieros, operativos, tecnológicos, regulatorios, entre otros. Educación y Concienciación: Los auditores internos pueden desempe?ar un papel educativo, proporcionando formación y sensibilización sobre la gestión de riesgos a todos los niveles de la organización. Desarrollo de Políticas y Procedimientos: Los auditores internos pueden ayudar a desarrollar políticas y procedimientos que refuercen la gestión de riesgos. Esto puede incluir la implementación de controles internos para mitigar los riesgos identificados.

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Ankita Krishnan, MBA, CIA?

Senior Internal Auditor at Crowe Australasia
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It is important to educate people about the 3LD model i.e. three lines of defense model: - First line: Operational management who is responsible for identifying, assessing and managing their risks on a day-to-day basis. - Second line: Risk management, compliance, health & safety etc. which have oversight and monitoring roles over the risk management and compliance frameworks. - Third line: Internal Audit which is responsible for providing independent assurance on governance, risk management and internal control processes.

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2 The challenges of fostering a risk-aware culture and mindset

Fostering a risk-aware culture and mindset is not easy, as it requires a shift in attitudes, behaviors, and practices across the organization. Internal audit may face challenges such as resistance or complacency from management and staff, lack of awareness or understanding of risks and their impacts, inadequate or inconsistent risk management policies, frameworks, and tools, and insufficient or ineffective risk communication and reporting. All of these may not reflect the organization's risk appetite, strategy, and objectives, nor provide timely, relevant, and actionable information to decision-makers and stakeholders.

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Ankita Krishnan, MBA, CIA?

Senior Internal Auditor at Crowe Australasia
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In my perspective, it all boils down to the control environment i.e., the attitudes and actions of top management regarding internal controls within an organization. If the control environment is poor, then it becomes even more difficult to foster a risk-aware culture and mindset. For example, - An organization telling its operational level employees to invest in continuous growth and upskill when its leaders are lagging far behind. - Lack of clearly defined HR policies and practices / there is lack of transparency, keeping the employees in darkness. - Leaders not 'walking the talk'. - Board / other committees that are seldom scheduled, spend less time with second and third lines of defenses and are ultimately ineffective.

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3 The opportunities of fostering a risk-aware culture and mindset

Fostering a risk-aware culture and mindset can bring many opportunities and benefits to the organization, such as improving performance, enhancing reputation and trust, increasing agility and innovation, and strengthening collaboration. This enables the organization to seize opportunities, optimize resources, mitigate threats, demonstrate commitment, accountability, and transparency in managing risks, embrace change, learn from failures, experiment with new ideas, foster a shared vision, use a common language, and create mutual support among management, staff, and stakeholders.

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4 The strategies of fostering a risk-aware culture and mindset

Internal audit needs to adopt and implement strategies to foster a risk-aware culture and mindset within the organization. This includes aligning internal audit activities with the organization's risk appetite, strategy, and objectives, as well as providing assurance and advice on the alignment of risk management processes, systems, and controls. Internal audit should also educate and influence management and staff on the importance, benefits, and best practices of risk management, as well as provide training, coaching, and guidance on risk management policies, frameworks, and tools. Additionally, internal audit should engage with management and staff on the identification, assessment, communication, and mitigation of risks. Finally, they should communicate and report on risk management issues to the board, audit committee, and other relevant stakeholders while providing assurance and advice on risk management governance and oversight.

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5 The best practices of fostering a risk-aware culture and mindset

To foster a risk-aware culture and mindset effectively and sustainably, internal audit should adopt a risk-based approach to planning and execution, leveraging data analytics, technology, and innovation to enhance their capabilities. It is also important to build trust and rapport with the management and staff, as well as align the internal audit culture with the organization's risk culture. Additionally, demonstrating leadership, role modeling, and continuous improvement in risk management is essential. Lastly, professional standards, ethics, and quality assurance should be applied to internal audit activities.

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Ankita Krishnan, MBA, CIA?

Senior Internal Auditor at Crowe Australasia
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It is important to build trust in stakeholders that internal audit is NOT to point fingers, but to help improve an organization's risk management, internal control and governance processes and thereby, drive growth.

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6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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Guillaume Egasse ??

Finance Manager | Chief Financial Officer | CHRO | Master degree of Management and Financial Strategies | International Finance | Wellness Theories
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Internal audit can foster a risk-aware culture effectively: 1?? Align Activities: Align audit activities with the organization's risk appetite, strategy, and objectives. 2?? Educate and Influence: Educate and influence management and staff on the importance and benefits of risk management. 3?? Provide Training: Offer training, and guidance on risk management policies, and tools. 4?? Engage with Staff: Engage with management and staff in identifying and mitigating risks. 5?? Communication and Reporting: Communicate and report on risk management issues to the board and audit committee. Adopting a risk-based approach, leveraging technology, building trust, and applying professional standards are essential for a sustained impact. ????

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How can internal audit foster a risk-aware culture and mindset within the organization?

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1 The role of internal audit in risk management

2 The challenges of fostering a risk-aware culture and mindset

3 The opportunities of fostering a risk-aware culture and mindset

4 The strategies of fostering a risk-aware culture and mindset

5 The best practices of fostering a risk-aware culture and mindset

6 Here’s what else to consider

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