INTERNAL AUDITWILL WE LEAD, OR

BECOME IRRELEVANT

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Before We Begin

• Recording of this Event

• IIA CPEs

• Q&A Session

• Polling Questions

QUESTION #1

Do you have a…

(a) CIA

(b) CPA

(c) CISA

(d) Other certification

(e) Not certified

QUESTION #2

How many people are sitting together watching

this webcast…

(a) 1

(b) 2

(c) 3

(d) 4

(e) More than 5

LARRY HARRINGTON, CIA

VICE PRESIDENT INTERNAL AUDIT

RAYTHEON

WILL WE LEAD OR BECOME IRRELEVANT?

Agenda

• The Case for Change

– Why we must think and act as business owners

– Complacency is our enemy

– Why we must rethink business models

– Why we must change personally

• How do we make the changes?

– For the Profession

– For your Department

– For you Personally

CHANGE COMES MORE QUICKLY WITH

INCREASINGLY DEVASTATING IMPACT

• Think about this decade alone

– 3 economic bubbles

– 3 market crashes

– A major terrorist attack in the US

– 2 major wars being fought

– Increasing cyber attacks

• IP and industrial espionage

• Privacy information

– Increasing regulations

– FCPA

• These events have impacted every company and

every person.

Our customers increasingly face:

Competitive and stakeholder pressure

Recession

Increasing regulatory oversight

Budget constraints

Leading to:

Greater need to understand GRC

Reducing cost and simplifying business

Questioning the effectiveness/cost of risk management

THESE ARE UNPRECEDENTED TIMES

Internal Audit must adapt.

Our failure to identify, align to, and support our organization’s

key initiatives will lead to diminished value and respect.

THE CHANGE MANDATE

• IBM: Enterprise of the Future - 3rd Biennial Study

– 1000 Global CEO’s/Public Sector leaders

– 80% say change is accelerating; change is the new norm; status

quo is our enemy.

– Unfortunately, they believe our need to change far exceeds our

ability to change.

– So what is some of their advice?

IBM STUDY (CONT’D)

• Leaders Must Hunger for Change

• It’s a white water world; change is coming from

everywhere.

• Lead and shape change rather than react to it.

• Market and industry shifts provide opportunity to move

out head.

• Reward innovators/successful change managers.

IBM STUDY (CONT’D)

• Innovate Beyond Customer Expectations

• Customer expectations are increasing daily; we must

surpass their expectations.

• Deep collaborative customer relationships allow you to

surprise customers with innovation that makes them and

you successful.

Look at Apple

IBM STUDY (CONT’D)

• Become Disruptive by Nature

– Challenge the value proposition; overturn the delivery

approach; and reinvent the company and the industry.

– Radically challenge the business model to disrupt competition.

• Be Genuine, not Just Generous

– Companies now go beyond philanthropy and compliance.

– Companies worry about society/environment in all actions.

INTERNAL AUDIT AND THE

CHANGE MANDATE

• Per a 2009 Booz & Company study, leading

organizations fund innovation despite the economic

slowdown.

• What does this have to do with Internal Audit?

– EVERYTHING

• Are we a leading organization?

– Reinventing ourselves? Our profession?

– Making our organizations successful?

– Fighting the status quo?

• The moment is here today

– Will you seize it?

Will you create your customer’s expectations, or

react to their expectations?

WHAT DOES THE FUTURE HOLD?

Change must be our mandate

Our value will be based on what we do today and the

vision we set for tomorrow.

Protiviti: Biggest Challenges:

• Risk-based vs. transaction-based

• Harness data analytics

• Ensure GRC is an integral part of the risk model

• Smarter use of technology

• Continuous auditing

• Integrate fraud and prevention into audit strategies

OTHER POTENTIAL CHALLENGES FOR

INTERNAL AUDIT

• Capital projects and key

initiatives (e.g., IFRS)

• External business

relationships

– Key suppliers

– Distributors/agents

• Working capital

• Reputation

• Return on investment

• Cost reduction program effectiveness

• PwC State of the Profession Study

What do you think your challenges will be,

and how do you plan to address?

OUR CHANGE MANDATE

STARTS WITH RISK

• Are you auditing the right things at the right time?

• Do your audits cover COSO rings besides Financial?

• Are you providing overall opinions to your Board?

• IIA Practice Guide: Formulating and Expressing Internal

Audit Opinions

• Are you leveraging all GRC groups within your

company to avoid duplication and improve your risk

assessment?

• Who is leading the effort to collaborate GRC?

• OCEG tools to assess effectiveness

The best audits in the world are of limited value if they are in the wrong area

In today’s environment, can you afford not to share?

WE MUST SHARE

• Think for a moment…

– What have been your most successful projects?

– Could others benefit?

– Have you shared the scope, approach, program?

• How can you contribute?

SHARING HOW RAYTHEON IS MOVING TO

THE RIGHT

• Continuous risk assessment process

• ERM, Enterprise Preparedness, Anti-Fraud, Record

Retention etc.

• Focus on business risks:

– Large programs/initiatives

– Acquisitions

• Business process improvement:

– Cost reduction

– Reducing controls

• Increased data analysis including embedding in the

business

The

Basics

Driving

Insight

Strategic

Value

Focused

Raytheon Internal Audit:

Creating Positive Change

With A Sense Of Urgency

SHARING HOW RAYTHEON IS MOVING TO

THE RIGHT (CONT’D)

• Leveraged IIA and others for best

practices/benchmarks

• Assessed resources; skill sets; added business

rotations, etc.

• Enhanced training, including Six Sigma and change

management

• Partnered with the business in areas like IT

• Enhanced our leadership skills and visibility

The

Basics

Driving

Insight

Strategic

Value

Focused

Raytheon Internal Audit:

Creating Positive Change

With A Sense Of Urgency

SHARING HOW RAYTHEON IS MOVING TO

THE RIGHT (CONT’D)

• Use Audit reports to create change

– Broad distribution of reports within 10 days of fieldwork

– Brief, focused on root cause

– Using the language of the customer

• Active participant in Raytheon strategic planning

sessions

• Networking to develop insight into strategy and

competitive issues

The

Basics

Driving

Insight

Strategic

Value

Focused

Raytheon Internal Audit:

Creating Positive Change

With A Sense Of Urgency

THE LEADER OF TOMORROW

The diversity of skills needed for the future:

Do You Have What It Takes?

Strategic Thinker

Excellent Grasp of

Business Risks

Influential

Motivator

Arbitrator

Team Builder

Ethics/Integrity

Networker

Risk Taker

Boardroom Presence

Breadth of Experience

Courageous

Visionary

Highly Certified

Strong Leader

Innovative

Creative

QUESTION #3

I read at least two business books in the last six

months…

(a) Yes

(b) No

QUESTION #4

I spent at least $____ personally on my continuous

learning activities in 2009…

(a) Zero

(b) $100

(c) $200

(d) $500

(e) More than $1,000

QUESTION #5

I spent at least _____ hours in training activities in

2009…

(a) 40 hours

(b) 80 hours

(c) 120 hours

(d) 160 hours

(e) More than 160 hours

SEIZE THE MOMENT BEFORE IT SEIZES

YOU

• Understand and set customer expectations

• Change is our mandate

• Today is tough, tomorrow will be even tougher

• We must move to the right

• Lead through sharing

• Change starts with you

"The greatest danger in times of turbulence is not the turbulence; it is to act with yesterday’s logic."

— Peter Drucker

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