Measurement of the Internal Audit Function
The chief audit executive of an organization in Brisbane Australia was seeking ways to measure the work of his internal audit function. He knew that internal audit was doing a good job, but he did not have the evidence to prove it. In thinking how to address this problem, he designed KPIs against which his internal audit function could demonstrate its performance to the audit committee and the organization (Table 2). After all, internal audit assesses the performance of other areas of the organization, so why should it be exempt from having its own performance examined?
|Key performance indicator||Measure||Target||Frequency|
|1. Completion of Internal Audit Plan|
|1.1||Complete planned internal audits as per the approved Internal Audit Plan (subject to approved plan amendments)||% of planned internal audits completed within the financial year||95%||Annually|
|1.2||Complete special and ad hoc management-initiated internal audits and investigations in addition to scheduled internal audits (an allowance for this is contained in the Internal Audit Plan)||% of allowance utilized for unplanned ad hoc and management-initiated internal audits and investigations||95%||Annually|
|1.3||Approved Internal Audit Plan to be completed within the approved internal audit budget||% variance from approved budget for the financial year||5%||Annually|
|2. Implementation of internal audit recommendations|
|2.1||Internal audit recommendations accepted by management||% of recommendations accepted by management (subject to internal audit independence being maintained)||95%||Annually|
|2.2||Monitor the implementation status of internal audit recommendations by management and report outcomes to the audit committee||Updated status obtained from responsible managers and reported to the audit committee||Quarterly status reports delivered||Quarterly|
|3. Formal survey feedback|
|3.1||Results of customer feedback surveys following each internal audit||% of survey responses of good or better (averaged)||90%||Annually|
|3.2||Result of annual feedback survey of members of the audit committee||% of survey responses of good or better (averaged)||90%||Annually|
|4. Independent quality review of internal audit|
|4.1||Result of external quality assessment of internal audit in accordance with The International Standards for Professional Practice of Internal Auditing||Report issued detailing results of review||Consistent with better practice||Five-Yearly|
Source: National Australia Bank, with amendment.
The chief audit executive considered these to be the KPIs the audit committee would be interested in to provide an overall assessment of the work of internal audit, and when he asked the audit committee, they agreed. He discounted KPIs such as the number of internal audit recommendations, or the number of internal audit hours delivered, since these can be manipulated and would therefore have little credibility with the committee.