Lean Auditing LEAN AUDITING Driving Added Value and Efficiency in Internal Audit James C. Paterson This edition first published 2015 © 2015 James C. Paterson / Risk & Assurance Insights Ltd. First edition published by John Wiley & Sons, Ltd. Registered office John Wiley & Sons Ltd, The Atrium, Southern Gate, Chichester, West Sussex, PO19 8SQ, United Kingdom For details of our global editorial offices, for customer services and for information about how to apply for permission to reuse the copyright material in this book please visit our website at www.wiley.com. The right of the author to be identified as the author of this work has been asserted in accordance with the Copyright, Designs and Patents Act 1988. All rights reserved. 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The publisher is not associated with any product or vendor mentioned in this book. Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. It is sold on the understanding that the publisher is not engaged in rendering professional services and neither the publisher nor the author shall be liable for damages arising herefrom. If professional advice or other expert assistance is required, the services of a competent professional should be sought. Library of Congress Cataloging-in-Publication Data Paterson, James C., 1963- Lean auditing : driving added value and efficiency in internal audit / James C. Paterson. – First edition. pages cm Includes bibliographical references and index. ISBN 978-1-118-89688-4 (hardback) 1. Auditing, Internal. I. Title. HF5668.25.P367 2015 657’.458–dc23 2014031378 A catalogue record for this book is available from the British Library. ISBN 978-1-118-89688-4 (hbk) ISBN 978-1-118-89690-7 (ebk) ISBN 978-1-118-89689-1 (ebk) ISBN 978-1-119-01706-6 (ebk) Cover Design: Wiley Cover Image: ©iStockphoto.com/Rogotanie Set in 11/13 Times LT Std by Aptara, New Delhi, India Printed in Great Britain by TJ International Ltd, Padstow, Cornwall, UK DEDICATIONS This book is dedicated to: Isabelle, my wife and companion – I love you: And my children: Tim, Will, Nick and Felicity. I’m so proud of you all! CAEs and others in governance, risk, compliance audit and assurance, who are working to bring about positive change against, sometimes, quite considerable opposition. I hope that this book serves in some small way to acknowledge many of the challenges and dilemmas you face. I also hope it gives some comfort that you are not alone in facing these challenges. WITH SINCERE THANKS To Lynda McGill – thank you for “reading every word” and for such patient, constructive and insightful input and for being so much more than just a conventional editor. To all the Chief Audit Executives (CAEs), auditors and others, named and unnamed, who agreed to be interviewed: THANK YOU for your wisdom, practical good sense and for demonstrating just how useful the lean mindset can be. To past colleagues in internal audit at AstraZeneca between 2002 and 2009 – we did work that was ahead of its time. Your efforts and achievements gave me the inspiration to go into consulting and training, and to write this book. Thank you. To my clients and all who have participated in workshops with me across the globe. Thank you for your contributions, insights and enthusiasm – for learning and for sharing your war stories and practical insights. Your ongoing interest has kept me going over the nine months it took to research and write this book. Table of Contents Foreword ix Introduction xi Part 1 Lean and Lean auditing in Overview 1 1 Lean Auditing at AstraZeneca 3 2 A Brief History of Lean, Notable Principles and the Approach Taken by this Book 5 3 Key Lean Tools & Techniques 11 4 The Development of Lean Auditing and Its Benefits 19 5 The Wider Benefits of a Lean Audit Approach – and How to Use This Book 23 Part 2 LOOking at internaL audit PLanning and assignment deLivery 31 6 Who Are the Customers of Internal Audit? 33 7 What Really Adds Value – And What Doesn’t 45 8 The Importance of Role Clarity in Assurance and the Insights Lean Can Offer 59 9 The Audit Plan: Taking a Value Approach 77 10 Factoring in Risk Assurance in the Audit Plan 95 11 Considering the Allocation of Resources to Optimize Value Add 107 12 Assignments – Types, Scheduling and Resourcing 121 13 Using Assignment Scoping and Planning to Drive Added Value 133 viii Table of Contents 14 Assignment Delivery – Managing What Really Goes On 149 15 Using Communication and Quality Standards to Maximize the Added Value from Assignments 175 16 Assignment Follow-Up and Follow On 205 Part 3 LOOking at key underPinning CaPabiLities, PrOCesses and ways Of wOrking 213 17 Measuring Performance and Driving Improvements in Audit Ways of Working 215 18 Using Lean Audit Principles to Underpin Cultural Change in the Wider Organization 227 19 Leading the Audit Function 241 20 The Audit Function: Selection, Training & Development and Ways of Working 257 Part 4 finaL refLeCtiOns 279 21 Further Thoughts about Where and How to Start the Journey Towards Lean Progressive Auditing 281 22 A Brief Look into the Future 285 Other Recommended Reading 289 Appendix – Illustrative Kano Analysis Regarding Internal Audit 291 Closing Dedication & Thanks 295 Index 297