“The part we play will play the part we desire, only if we know the part

INSTITUTE OF INTERNAL AUDITORS (BOTSWANA)
Annual Awards & Gala Night, Friday October 10, 2008
GUEST SPEAKER’S ADDRESS BY
Eric N. Yankah. Vice-President, Institute of Internal Auditors Ghana

“THE ROLE OF INTERNAL AUDIT IN CORPORATE GOVERNANCE”
“The part we play will play the part we desire, only if we know the part”

Your Excellency Mr Festus Mogae, Honourable Ministers & members of the Botswana Parliament, Madam President & Members of the Governing Board of IIA Botswana, Our Colleagues from our sister national Institutes of Malawi & South Africa, Distinguished members of the Internal Audit profession, Chief Executives, Senior Officials and friends of our dear profession, members of the media, Distinguished Ladies and Gentlemen

It has been only about eight weeks ago that a number of elected members from African Internal Audit Institutes gathered in Johannesburg for the African Leadership Forum which was kindly co-sponsored, as a key side activity of their annual conference, by the South African Institute. I guess my punishment for the friendships that we mutually nurtured in that short time was to be placed under this very august limelight with such a distinguished audience tonight to be subjected to the perils of internal audit. I do not know who the conspirators are but I know that with all the smiles I am seeing right now, you will soon forgive me on account of the effects of jetlag and the excellent hospitality I have experienced since my arrival in Gaborone yesterday.

It is indeed a very great pleasure and I feel really honoured that the Institute of Internal Auditors (Botswana) invited me to be a part of this year’s IIA Botswana celebrations as your Guest Speaker. Thank you, Madam President
Whilst, the surprise of my nomination put to me a lot of challenges which I believe tonight you will help me to explore, I am also happy to note that this visit to Botswana creates an opportunity for me to relive the memories of a very good time that I had when I first visited your beautiful country in 2002 as Chairman of SchoolNetAfrica when we held an Africa-wide education conference.

Distinguished Ladies & Gentlemen, the Internal audit profession is increasingly becoming more than the eyes and ears of institutions, both public and private. The profession is indeed becoming the very heartthrob of the survival of many of these institutions. Everybody has and continues to wonder what the role of internal audit was whenever an institution either collapses or is scandalised through its people or through its business dealings.

The problem is that the linkage that people create is usually an after-the-fact linkage, because if you go deep down into many of the reported cases of scandal, corruption, malfeasance or even system failures, either at the corporate level or at the individual level affecting either insider staff or service providers, the first thing that you will find when you undertake a serious forensic audit of the involvement of the audit department is to see a glaring result of an underfunded internal audit function or an ignored internal audit function or worse a non-existent internal audit function.. Therefore, when people ask “what is it that internal audit can do to complement, promote, enhance, assure and indeed develop corporate governance?”, many institutions cannot exactly define what it is because these institutions – public or private – generally do not strategically include the internal audit function in their strategic orientation.

Across the world, people tolerate the internal audit department or the function either because they are mandated to do so by law or the charisma of the leadership of the internal audit function in those institutions is such as to at least gain some element of usage within those institutions. If you are one of such persons, then I hope that tonight, we will begin the journey to recognising that internal audit is more than an after-effect-blame-recipient but rather an on-going companion to good corporate institutional and political governance.

Ladies & Gentlemen, corporate governance is basically the process of supervision and control intended to ensure that management acts in any institution are in accordance with the interest of its shareholders & stakeholders, who in turn expect nothing but value, not only in return for their investment but also value in terms of quality service and the exercise of responsibility and judgement.

Tonight, our reflections must include everything that endears our very working lives to creating value. Creating value in all spheres of our working environment is what internal audit is about. Indeed, there is a significant correlation between the effectiveness of an internal audit function and the effectiveness of corporate governance principles.

As Internal Auditors, we must carry a three-pronged message of professionalism to our management through the things we say, through the things we do and by our dedication as well as the substance and depth of our efforts in the field. I know that I am already speaking to a flock of the converted.

I will be happier tonight to see so many of you here ready to re-dedicate yourselves, even, if you will, in a spiritual manner, to enhancing the value of internal audit to ensure that those of the people that we serve will see us a part, indeed a necessary part, not a necessary evil but a necessary good for our respective institutions.

As far as I am concerned “The part we play will play the part we desire only if we know the part”. It is for this reason that I will venture into the subject at hand and try to work with you to understand the role of internal audit in good corporate governance. To my mind, we must begin by looking at the philosophy of good governance and then try to gain some clarity on the challenges that we might have to face and perhaps through that come to some meaningful conclusions. Many people believe that this is a well-worn subject that they are very conversant with, but like the air we breathe, it is not everything that we take for granted that we truly understand how it all works.

Your Excellency, Distinguished Ladies & Gentlemen, the fundamental philosophy of good governance commences with what stakeholders expect of their institutional or even political managers. Oh, and by the way, it’s the same with home governance. We must move on then to the ethical responsibility of managers as they understand it when accepting their positions or appointments and their understanding of the same positions in the subsequent aftermath as they dig their heels deep into the ground or cement or glue their backsides to their office chairs. The next rung on the ladder relates to the values that the managers espouse as and when they execute their given roles – sometimes, we either don’t know or even share the same values with our managers so our perception of the philosophy may not even be mutually coincident. Finally, the collaborative paradigm of our professional relationship with peers, superiors and subordinates completes the sphere of corporate governance philosophy.

But that is not all, good governance refers to a situation where management and all the players accept the challenge of being held accountable for the performance of their duties, the impact and effect of their decisions or even indecision and finally for the exercise of a responsible authority over the given resources of the institution – human, financial, physical assets, goodwill, proprietary and intellectual property etc.

Ladies and Gentlemen, it is said that talk is cheap. When we walk the talk however, we surely will complete the cycle of delivery of a strategic objective. That is why I am always thankful whenever I hear a CEO or a politician or a union leader talking about having an effective internal audit function. At least I know that the process of instilling the principles of good governance in our institutions is being nurtured.

Many a time, it is our responsibility as Internal Auditors to tag on to such talk and make things happen through our skills of facilitating change or the execution of great ideas. This is indeed a challenge that lies with us, as internal auditors, to prove our mettle and our relevance in our institutions. Ladies and gentlemen, this is no quadratic equation or a non-parametric statistical theorem. It is simply a matter of exercising good judgment in good time. What more can we ask for?

For this to happen, we as Internal Auditors have to show to management that we are lateral as well as deep thinkers, which means that we have to demonstrate familiarity will all facets of our institutions operations as well as show the depth and innovativeness of our thinking when we apply our professional knowledge as internal auditors.

Ladies & Gentlemen, can we say that Internal Auditors always have the capability to achieve this? The answer is probably no! Because many institutions like to recruit the best internal auditors on the market who may already have the deep thinking & professional experience (audit knowledge & skills) but these same institutions may not be able to or may have unwittingly declined to provide the lateral knowledge required to bring these same internal auditors to the required level of institutional competence.. .. so you end up with a good auditor who is actually an illiterate as far as his/her institution is really concerned. My Friends, it is not always true that one can learn a system simply by documenting the processes and activities there. As many of you know, some of the problems we encounter, especially in corporate scandals, consist of actions by institutions or individuals taking advantage of existing systems and using their inert smartness to harm the very institutions that give them their monthly salary.

So CEOs and the corporate world, if you want to see change and obtain the assurances of an effective internal audit function that is helping to improve good governance profile then your best bet is to hire the best internal auditors and give them more and regular continuing professional education and on the other hand, give the internal auditors as much training and exposure as you give your engineers, marketing, finance, HR and other staff. When this happens, we can expect that Internal Auditors will become even more effective in their roles.

I think it won’t be out of place, at this juncture to call on IIA Botswana to also begin looking at specialist exposure programmes on common thematic areas in management and institutional performance in collaboration with sister professional bodies such as Accountancy, Pharmacists, Health Professionals, Surveyors etc. Certainly, the idea is not to turn our internal auditors into doctors or architects and the like but to just give them better exposure and understanding. In fact, this cross-pollination of mind and experience will translate into usable knowledge and auditor-effectiveness and much more beyond our imagination.

Let me ask a simple question here. Are we prepared to meet the challenges of the times? The catch phrase is that we must expand the horizons of our knowledge base if we are to be accepted as worthy contributors to corporate governance.
We cannot however stop there!! Internal Auditors must also be ready to speak their mind. Indeed not only via audit reports but we must also ensure that, at appropriate forums within our institutions, we should always speak to the substantive concerns that we identify in the course of our work as internal auditors. Any attempts at inaction, indecision or even professional and intellectual dishonesty will provide cannon fodder for those sceptics who wish that their internal auditors were not there or better still were not competent to catch them at their game.

Ladies & Gentlemen, how effective an internal auditor can be is sometimes also dependent on where on the ladder of corporate responsibility the internal auditor has been placed. Oh yes, I do recognise that if the head of the institution is good and uses the internal auditor very well, this won’t be a problem. The sad part however is that in many countries, the place of the internal auditor is by itself a matter of friction that impacts on auditor morale and job satisfaction. The last thing an institution should have on its hand is a disgruntled internal auditor. Therefore tonight, I want to reiterate the point that if we want to see some real movements, we must be ready to also talk about the things that nag many internal auditors. My key questions here are – where do we place the auditors? Should they be in line or staff positions? Should auditors be seen as part of management or as technical experts that are called to provide information when management needs such? Should the issue of who hires the internal auditor be an issue at all? Who should the internal auditor report to? The head of the institution or the governing board of the institution?

As you can see, these questions, by no means exhaustive, drive the issue of the role of audit committees of governing boards to a good grazing ground for discussion.. So I ask again, who is the internal auditor’s boss? I leave this to you to ponder as an after dinner assignment. One thing I can suggest, however, is that in certain cases, if the positioning of the internal auditor is not done right – issues of non-acceptability of their role and recommendations and mistrust could arise. In certain cases, our friend the internal auditor could even begin to demonstrate egoistic behaviour. Does this ring a bell, anyone?

Madam President, when it comes to good governance, internal audit is not only about risk management, fraud prevention and mitigation, correctness, completeness, comprehensiveness. No. It is also about having your CAKE and EATing it. I only mean that internal auditors must be more than ready to apply their Cumulative Audit Knowledge and Experience and also stand by to always utilise Effective Audit Techniques that are context, time and technologically relevant to the auditable subject under consideration. I know that we can stand the test when it comes to that. Once again I say “The part we play will play the part we desire only if we know the part”

Good Governance starts with the readiness of management to subject itself to scrutiny on all the agreed parameters just as our government in Ghana did under the African Peer Review Mechanism. In fact, Ghana initiated a Central Governance Project in 2002 under which it was emphasised that there will be the need for radical change in the approach to exercise power and authority. It was also noted that it will be, at once, a cultural change and a system change that would be required to take hold to ensure the sustainability of good governance. Clearly there are parallels in the public and private sector. For one thing, we must invest time and effort in ensuring that the right people are given the governing board responsibility to ensure the delivery of the mandate of the appointing authorities or the shareholders, as the case might be, for us to expect to achieve good governance.

As a result of this, and to the pleasure of many colleagues of mine, we have been lucky in that good governance is now leaving the table of desires for the platform of mandatory compliance with the enactment of a number of special laws - the Financial Administration Act, the Procurement Act and the Internal Audit Agency Act among others. I hope similar legislation is available here in Botswana. Whilst the principles espoused in these laws apply largely to the public sector, the ripple effects on the private sector and our communities are more than evident. Just for effect, it is an offence for an internal auditor not to report an audit finding as it is for management not to act on a reported problem. So if the auditors won’t play their role in good governance on their own as professionals, the law requires them to do so now. My choice would be to use my professional knowledge and experience to perform my duties as my contribution to good governance rather than do it because I have to do it under the law.

Today therefore, both public sector institutions and their private sector counterparts must go by certain rules of probity, accountability, transparency and impartiality whilst assuring competitiveness, service or product quality, positive impact, timeliness and effectiveness of programme implementation. All that internal auditors have to do is to ensure that these people do their work well and properly by offering the best advisory and system assurance services. What a simple role this can be!!!!

Ladies and Gentlemen, the remit of Internal Auditors is to provide assurance but this must be done in the context of good, sound comprehensive and contextually relevant review and advisory services to management in an unobtrusive manner. That is the only way we can be accepted.

A friend would accept your trust only if you demonstrate the same to him/her. I must admit that as internal auditors, we are also human and fallible. We make mistakes along the way. However, if our actions are perceived as genuine, then our mistakes will also be accepted as mistakes not professional pranks. Ladies & Gentlemen, in much the same way, Management would never accept Internal Audit if they sense any element of mistrust or lack of professionalism from that quarter. What is the use of an unused internal audit function in the organisation?

Certainly, management would do what it pleases with or without the internal auditor.. but we have a proverb in Ghana that is apt for tonight – it goes, “the one who is cutting the path in the forest cannot tell how crooked or straight the line is but the one following him can” So once again, this is one area where we the Internal Auditors come in. We must find innovative ways of reaching out to management. Keep our language simple and concise; make realisable, effective and cost-efficient recommendations; make audit cycle and feedback sessions an opportunity for client development; the list can go on forever but the message is that if we engage them, management will find little excuse to go without our help. If we make ourselves relevant, we will have a role to play in promoting and facilitating the sustenance of good governance.

Madam President, once again let me thank the Governing Board and the entire membership of your Institute for the honour done me in inviting me all the way from Ghana to be the Guest Speaker at this august event.

Distinguished Ladies & Gentlemen, I will end tonight by re-echoing that “The part we play will play the part we desire, only if we know the part”.

Thank you very much and may the Good Lord Bless us all.

Gaborone, Friday, October 10, 2008