As business processes become more complex, information more widely dispersed, and the risk environment more complicated, the need for internal auditors to adapt to this new environment becomes imperative. To manage these changing dynamics, internal auditors must continuously educate themselves and enhance their skills on new technologies and competencies that are required now and in the future. This is the only way to add value to the organisation – develop a broad set of skills by giving internal auditors hands-on experience, give them an opportunity to work on diverse assignments, and place them in different roles within the organisation.
Having a highly competent staff is imperative to the internal audit function. Standard 1210 states that “Internal auditors must possess the knowledge, skills, and other competencies needed to perform their individual responsibilities. The internal audit activity collectively must possess or obtain the knowledge, skills, and other competencies needed to perform its responsibilities.”
Since modern organisations are constantly changing, and the role of the internal auditors evolves, new skills and competencies are required that exceed the traditional accounting-focused expertise of the past. Internal auditors need the knowledge that allows them to comfortably examine business programs, processes, objectives and risks. This requires familiarity with technology, operational change, employee innovation and resilience, collaboration with vendors, business model optimisation, quality control principles, and supply chain expansion, among others. Rotation programs can be very helpful to accelerate the learning process and provide greater opportunities to perform high-quality risk-based audits, while enhancing the career opportunities of internal auditors.
Rotation programs are a career development initiative used to rotate employees' assigned jobs around the organisation. Employers practice this technique for many reasons, including the promotion of flexibility to keep employees interested into staying with the organisation employing them.
There are different types of rotation programs involving internal audit. Some allow non-auditors to rotate in and spend time in the internal audit department working alongside audit professionals, then return to their regularly assigned, or another job, at the completion of their rotation. Another lesser-used approach is where internal auditors rotate out to another job assignment for a period of time before returning to their audit role. A third approach is one-of exchanges, whereby a non-auditor works with an audit team for one assignment.
Benefits and Challenges
These programs present many benefits. They encourage learning and make employees more versatile by gaining a broader understanding of the organisation and its business. This allows internal auditors to be better prepared to be promoted to management or to be transferred throughout the company.
Rotation programs also enhance motivation because they reduce boredom and allow those involved to acquire and develop broader horizontal and vertical job skills. Horizontal development enhances, or enlarges, the skills to do the present job and increases job diversity. An example is where internal auditors get opportunities to perform more tasks identified in the audit program.
Vertical development, on the other hand, pertains to how to function at increasing levels of authority and increases the depth of the work. As the rate of change increases, and internal auditors recognise the importance of communication and leadership skills, vertical development helps professionals learn and practice challenging traditional operating assumptions and practicing new ones. Internal auditors increase the depth of the work and learn to do more of the audit process with more autonomy and responsibility.
Horizontal development is still the most common approach, and rightfully so, because internal auditors need to gain growing competency to do what the immediate job requires. The enhanced horizontal development can also result in candidates who want to join the internal audit department permanently later. However, professionals, individually, and organisations, collectively, have an increasing need to quickly develop leaders who can adapt to new and changing conditions. Vertical development provides this education.
One of the key selling points of vertical development and skill attainment through rotation programs is that the work in internal audit exposes them to the concepts, methodologies and practices of risk management, corporate governance, compliance, and the administrative requirements for effective management.
There are some challenges, however. Having non-auditors perform audits requires having an efficient and effective onboarding and training program that is sometimes supplemented by coaching and extensive feedback. Although those rotating within internal audit may not have internal audit skills per se, they often bring extensive business knowledge, are highly motivated, and have high potential, so they serve as subject matter experts in other ways while bringing in new perspectives to the audit process.
Some individuals express concern that a rotation program will compromise internal audit independence and objectivity. While this could occur, it can be prevented by following the Standards:
“Internal auditors must refrain from assessing specific operations for which they were previously responsible. Objectivity is presumed to be impaired if an internal auditor provides assurance services for an activity for which the internal auditor had responsibility within the previous year.” Standard 1130.A1
“The internal audit activity may provide assurance services where it had previously performed consulting services, provided the nature of the consulting did not impair objectivity and provided individual objectivity is managed when assigning resources to the engagement. Standard 1130.A3
“Internal auditors may provide consulting services relating to operations for which they had previous responsibilities.” Standard 1130.C1
“If internal auditors have potential impairments to independence or objectivity relating to proposed consulting services, disclosure must be made to the engagement client prior to accepting the engagement.” Standard 1130.C2
Rotate vs. Transfer
Rotation programs differ from full-blown transfers, as the individual is not considered a permanent member of the department but is expected instead to be only there temporarily. In general, typical rotation programs have assignment durations from six months to three years.
In some internal audit departments, rotation programs are so ingrained in their staffing structure that there is an expectation of 100 percent turnover within five to eight years. In other organisations, the rotation “out and into the business” is for all auditors except for a core group of managers who are professional or career auditors that are retained to ensure consistency, continuity, competence, and retain institutional knowledge.
So as long as the rotating individual observes the one-year cooling off period, discloses any conflicts of interest in fact or appearance, and only serves in a resource and subject matter expert (SME) capacity where conflicts may jeopardise the quality of the engagement, the rotation program should work with minimal downsides. Rotation programs provide a mechanism to transfer knowledge into and out of internal audit and SMEs bring their skills into internal audit, while auditors take their governance, risk and compliance expertise into the business.
Regardless of the methodology used, rotation programs can increase the knowledge of internal auditors while providing opportunities for career advancement. They can also help diversify the staffing mix to introduce new ideas, approaches and points of view that can enhance the identification of new ways to add value to the organisation. As we look at the future of internal auditing, rotation programs should be considered an integral part of internal auditors’ training and development activities.