How to turn around an

Internal Audit Department

Thijs Smit
Madrid, October 2011

Summary

Based on 33 years in Internal Audit

Turned around Internal Audit in 5 companies
There is no standard approach
Every situation is unique
Set of ground rules
Success is based on tailor made design

Please join me on this interesting journey

Organizations
TNT

19 years

Corus

3 years

Ahold

6 years

SNS

5 years

SHV

0,7 years

Evaluate 4 companies
Company profile
Status Internal Audit
Action plan
Follow up

Company profile 1990

Former Dutch Post

60.000 employees
Bureaucratic government agency
Big changes
Private company, listed in Amsterdam and New York
New governance developed
Internal Audit part of the new approach

Status Internal Audit

Internal Audit decentralized
14 entities (districts and regions)
Staff not professional
New governance demanded centralization

Action plan

One centralized Internal Audit

More than 300 employees
Fired most of the leadership
10 key people with in depth knowledge business
Focus on quality improvement
Training and education
ISO certificate
Execution took 2 years

Follow up

1993
split between Post offices and logistics
100 people stayed in logistics

1995
focus on cost cutting
reduction of staff from 100 till 60

Company profile 1997

Multy metal company
28.000 employees
Steel and aluminium
Listed company
Long track record

Status Internal Audit

Internal Audit used to be state of the art
New Chief Auditor messed up
Staff 25 people
Framework was there
Board wanted previous performance back

Action plan
Entire management team stayed
Clear leadership was needed
Showed authority
Improved performance immediately
Relations with business units key point
Performance on right level again within one year

Follow up 1999
Merger Hoogovens and British Steel
Corus new company with 80.000 employees
Internal Audit staff of 80 people
Focus on synergies
Reduction of 25%

Company profile 2000

Retail company with excellent supermarkets
More than 500.000 employees
Extremely rapid growth
Expansion in food service
Very decentralized company
Operations in 30 countries

Status Internal Audit

Excellent infrastructure
On average good audit teams
Decentralized structure
Red flags too late reported

Action plan
Some changes in leadership
New structure developed
Centralized approach in decentralized structure
Reporting redesigned
Plan executed in half a year

Follow up
2003
Fully centralized Internal Audit
Reduction of staff because of divestments

Company profile 2006

Savings bank, more than 100 years old
Insurance company, merger of several entities
In total 8000 employees
Weak governance
Ambitious Board
IPO planned

Status of Internal Audit

Internal Audit consisted of 30 people
Unprofessional approach
Red flag of Dutch authorities
Board did not support Internal Audit
Customers dissatisfied

Action plan
Replaced entire management team
Support of HR to bring in new people
Develop infrastructure
After 2 years 70% staff turnover
Comply with IIA standard in two years time
Redesign took 2 years

Follow up
2009 financial crisis
Centralization of all monitoring functions
Head count of 95
Reduced to 60 FTE

Main lessons for successful

turnaround of Internal Audit (1)

Assess your own position

Have sponsors in the company
Evaluate leadership of Internal Audit
Look for valuable knowledge in Internal Audit
Staff should be above average

Main lessons for successful

turnaround of Internal Audit (2)

Use momentum/flow of the company

Fulfill expectations of key players
Set clear targets with due dates
Create sense of urgency
Report on milestones

Closing remarks
Keep on changing
CAE is overdue in 5 till 7 years
There are a lot of things to look after
There are some basis rules
However turn around is more art than science