Auditing Governance Functions. Page 2 Agenda ► Defining Corporate Governance ► Internal Audit’s Role in Corporate Governance ► Areas of Audit Focus ►

Auditing Governance Functions

Auditing Governance FunctionsPage 2

Agenda

► Defining Corporate Governance

► Internal Audit’s Role in Corporate Governance

► Areas of Audit Focus

► Regulatory Considerations


Governance Functions

► Regulatory and rating agency landscape has changed, with an increased scrutiny on Governance functions, such as:► Board / Governance Reporting► Enterprise and Operational Risk Management► Technology► Emerging Risks► Continuous Monitoring


Corporate Governance

► Governance is the combination of processes and structures implemented by the board to inform, direct, manage, and monitor the activities of the organization toward the achievement of its objectives.► Board of Directors► Audit and Risk Committees► Corporate Committee Structure► Management► Enterprise Risk Program► Compliance and Regulatory Program► Technology Program► Social Responsibility Program


Internal Audit’s Role in Governance

► Internal Audit’s role in governance is as follows:► Independent testing and verification

of efficacy of corporate standards and business line compliance

► Validate the overall risk framework► Provide assurance that the risk

management process is functioning as designed and identifies improvement opportunities

Through its dual consulting and assurance roles, internal audit can provide tremendous value to a dynamic organization by focusing on areas of greatest exposure, complex operations and key business initiatives, to validate that the organization is well controlled and operating effectively and efficiently to meet the strategic goals of the firm.


Governance Functions

► Internal audit must assess and make appropriate recommendations for improving Governance in its accomplishment of the following objectives:

► Promoting appropriate ethics and values within the organization► Ensuring effective organizational performance management and

accountability► Communicating risk and control information to appropriate areas

of the organization► Coordinating the activities of and communicating information

among the board, auditors, and management.


► Enterprise Risk Management Considerations► Commensurate with size, risk profile, complexity, and growth of

the enterprise► Provide increased business awareness► Incorporate risk considerations in decision making across

enterprises

Enterprise Risk Management


ERM Framework

Step 1: Establish ERM Framework • Identify Project Champion• Identify Project Owner• Establish Steering Committee

Step 2: Identify Key Objectives• List Key Objectives• Prioritize Key Objectives• Select objectives for

assessments

Step 3: Identify Key Risks• Assess Risk • Assign Risk Rating

Step 4: Manage Risk • Identify Control Controls and Mitigation

Requirements • Develop Mitigation Plans for key risks• Perform periodic status reviews • Repeat steps 2 – 4 for additional control objectives


Enterprise Risk Management

► No formal framework to identify, prioritize and communicate risks

► No ongoing risk monitoring and/or risk management enhancement activities

► Risk appetite not articulated or defined► Lack of aware awareness of Enterprise Risk Appetite► Failure to communicate with executive management, audit

committee, and business units on a consistent and formal basis to discuss expectations, business strategies, objectives and initiative

► Policies and procedures do not exist, are not documented, are inadequate or are not followed


Enterprise Risk Management (continued)

► Performance goals and objectives drive behavior inconsistent with overall Enterprise ethics or standards


Corporate Social Responsibility (CSR)

► CSR: The way firms integrate social, environmental, and economic concerns into their values, culture, decision-making strategy and operations in a transparent and accountable manner and thereby establish better practices within the firm and contribute towards society improvements.

► Responsibility :► Board of Directors► CSR Executive► Management


CSR Risks

► Reputational Risk► Compliance Risk ► Operational Risk ► Liability Risk ► External Business Relationships Risk


CSR Risks (continued)

► Reputational Risk► Violations of law or principles

► Errors or omissions in disclosed CSR information

► Under-performance compared with objectives/targets

► Appearance of indifference to social issues

► Compliance Risk► Failure to comply due to the extent, complexity, and volume of

regulations relating to the environment, health and safety, employment, governance, political contributions, conflict of interest, and fraud.

► Contractual obligations with third parties, such as customers, unions, or employees, and from voluntary adoption of standards.


CSR Risks (continued)

► Operational Risk► CSR “pressure points” for the organization’s manufacturing

processes, products, services and impact on the environment.

► Under-performance of other targets due to inappropriate CSR strategies, or over-emphasis on CSR strategies.

► Failure to integrate CSR objectives into processes, or to educate staff appropriately.

► Failure to develop well-controlled systems for CSR initiatives.

► Inaccurate or incomplete reporting information.

► Challenge to apply same standards across multiple countries.


CSR Risks – contd.

► Liability Risk► During contracting for CSR terms and conditions and ensuring

third-party compliance.

► Activists or specific classes/special interest groups may take legal

action for alleged harm done by the organization.

► External Business Relationships► Customers, suppliers, or partners could violate CSR terms

and conditions, principles, or laws, yet the organization could

be included as a wrongdoer by association.


► Understanding the as-is governance structure enables the organization to make only the necessary changes

► Building principles based on organization-specific drivers is the basis for a working governance model

► The governance principles will act as the foundation of the governance framework and set the scene for the later model

► After running through the lifecycle once, organizations are able to iterate the governance lifecycle without external support

IT governance should not be a one-time exercise

TechnologyIT governance follows a lifecycle


IT governance decision areas

IT principles

IT architectures

IT infrastructure

Applications

IT investments

► How is IT used within the business► Providing direction for IT delivery

► Organisation and structure of IT assets► Approach to integration of IT assets

► Enabling applications and architecture► Managing IT assets

► How to support business processes► Software platforms

► Determine the total IT spend► Prioritising conflicting investment needs

► Governance decisions are either taken centralised or decentralised

► By business, IT or both of them

► Mechanisms have to be aligned to organizational and operations model as well as IT strategy


Aligning business and IT on different levels

IT Executive Steering Committee

IT Governance Council

IT Governing Bodies:Architecture and technology boards

IT Governing Bodies:Service delivery boards

Service delivery through business and IT

IT client managerarchitecture owner

CIO, CTO, senior IT management

Service manager

IT management

Joint IT governance boardsBusiness level

Business process owner

Board, CEO, COO

Key user

Business management

Business processframeworks

Approve

Decide

Facilitate

Design

IT service management frameworks e.g. ITIL

IT level


Planning

► Developing IT strategy including sourcing philosophy

► Build corporate IT organization► Setting corporate IT goals► Agreeing on IT performance

targets with IT customers

Leadership

► Setting the overall direction for IT within the corporation

► Maintaining cultural values, corporate image and voice

► Representing corporation’s key IT stakeholders

Coordination and compliance

► Ensuring compliance with IT standards and obligations

► Coordinating IT activities between IT demand and supply

► Coordinating IT deployment

Monitoring and control

► Qualitative benchmarking► Managing service levels ► Managing a penalty system ► Identifying areas for service

improvement

Capital allocation

► Determining capital available► Determining IT investment criteria► Reviewing bids for capital► Allocating resources

Policy

► Setting the fundamental IT operating procedures

► Establishing standards, rules and guidelines

► Defining technical and application architectures

IT governance

IT governance domains


Technology Governance Considerations

IT objectives and strategies

Inherent key IT risks

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IT processes

► IT process duplication and inefficiencies

► Emerging technologies

► Technology direction

► System disruptions

► Contracts/3rd party vendors – outsourcing

► Records retention

► Regulatory compliance

► People management

► Global sourcing

► Business continuity

► Asset and portfolio management

► IT infrastructure capacity

► IT security/privacy

► Financial reporting

Guidance and oversight

Strategic planning

Superior service support and delivery

Continuity of services

Protection of information

Optimize operating efficiency

Effectively manage security risk

Information security and protection

IT operations

IT governance and strategy

IT development and design

Infrastructure and asset

management

Change management

Service level management

Production support

Security and data

management

Customer support

Deliver superior Systems and applications

Technology enablement to achieve business objectives

Project/program management

Problem and incident

management


Regulatory Expectations

► Failure to establish and maintain an internal control environment which aligns stakeholders and regulatory expectations

► Failure to identify relevant laws and regulations► Lack of procedures to comply with applicable laws and

regulations► Insufficient or inadequate training of staff on regulatory

requirements► Failure to establish adequate working relationship with

regulators or authorities


Thank you!

► Questions?

Documents

Auditing Governance Functions. Page 2 Agenda ► Defining Corporate Governance ► Internal Audit’s Role in Corporate Governance ► Areas of Audit Focus ►