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E D I T E D BY M I C H A E L D. M A R I N A C C 1 0 A N D EELCO R. VAN W I | K

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When Rotation Doesn't Work


AUL HAS RECENTLY BEEN APPOINTED chief audit executive (CAE) of a global consumer products company based in the United States. The company's annual sales revenues exceed US $5 billion, and its product lines include many recognizable brand names. Paul covers his firm's audit universe with a department of 15 professionals who possess varying backgrounds and experience. Paul has observed two organizational practices that are negatively impacting the audit function's performance. First, several internal auditors have been lured away to better positions in other areas within the company. These individuals were among the organization's highest performing auditors, leaving Paul's group short on skilled resources. And to make matters worse, several lessskilled, less-qualified employees were transferred to the internal audit function from other departments. The staffing changes were made largely due to a corporate leadership rotation program conceived and sponsored by the current chief financial officer (CFO), to whom Paul has an administrative reporting relationship. The program was established to groom promising talent witbin global and corporate accounting and finance for future leadership positions. However, it was implemented without clear guidelines or a written policy and does not appear to be well-managed. Overall, the program seems to benefit those executives who make the strongest play to the CFO either to acquire high-performance employees from internal auditing or to dispose of their lesstalented performers. In the past, movement in and out of the department occurred with minimal input from the CAE. Paul suspects the CFO may have forced the previous CAE to take on several unwanted resources from other departments under the guise of the rotational program while giving up his rising stars. Paul believes the rotational program has adversely affected his department. He feels the departure of high-performance audit employees is having a lasting negative impact, both in terms of productivity and his group's credibility across tbe company. How can Paul correct this situation? What are some of the challenges associated with implementing a rotational program?
JEFFREY GIBBS. CPA Vice President, Internat Audit Biogen Idee Inc.

A talent drain In the audit department prompts the CAE to examine corporate rotational practices.

To view additional "Ask the Experts" content, including online-exclusive commentary, visit www.lnternalAuditotOnline.org.

Regardless of past intent and reasoning, Paul's belief that the rotational program has shortchanged internal auditing appears accurate because tbe net result has been a dilution of staff capabilities and diminished credibility for his department. To remedy the situation, Paul should first establish and document his department's staffmg and capabilities objectives, as well as its resource requirements. He should compare these objectives to the department's current status and prepare a gap analysis. This report, in conjunction with an assessment of any related risks, can then be used to support a case for change. Finally, Paul needs to develop a plan to correct tbe situation. When presenting his case to the CFO, he should be sure to focus on the current situation and path forward rather than dwelling on past decisions or motives. As he develops the desired objectives and plans for change, Paul should consider both departmental and company perspectives, using the former as the primary driver. To aid this effort, he should leverage The IIA's Internationa/
Standards for the Professional Practice of

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IntemalAuditing {Standards)y particularly Standard 1210: Proficiency. In addition, Paul needs to determine whether his staff levels may be out of balance. He should establish a target number of resources for each level, develop a proposed organizational structure, and ensure job descriptions are up-to-date and aligned with the desired objectives as well as the Standards. External benchmarking information, such as research from The IlA's Global Audit Information Network (GAJN), can facilitate this effort. Departure of high-performing talent constitutes one of the primary challenges associated with rotational programs. Preventing high performers from accepting internal opportunities will only cause them to leave the organization, and it eould make attracting top talent more difficult for the audit department. Rotational programs can also increase training needs, which may have a short-term negative impact on departmental capability and performance. The ideal staffing approach would be to implement a hybrid model a combination of rotational and career auditors.

This model would help attract new talent with fresh ideas while maintaining a level of institutional knowledge that keeps the department functioning optimally. In addition, growth opportunities must exist for those who wish to remain in internal auditing, thereby helping to maintain employee motivation. Clear experience and performance guidelines for hiring internal candidates must also be in place and enforced to ensure internal auditing does not become a "dumping ground" for other departments' marginal performers.
RONALD S. SMITH. CIA. CFE
Director, internal Audit & Security Northeast Utilities

Paul first needs to evaluate his department to identify any gaps or skill limitations impacting its ability to perform effectively. He should review internal auditing's organizational structure and collective skill sets, as well as company management's perceptions of the department. If Paul subsequently believes changes are required to achieve the department's mission, he should meet with the CFO, CEO, and audit

committee to discuss recommendations. During these discussions, he should start by focusing on the group's mission and explain what is required to accomplish that mission. Paul should also determine why top performers are being lured away from his department for other positions within the company. If they are leaving for higher level positions with greater responsibilities, this trend may demonstrate the value of internal auditing as a feeder group to the larger organization. Paul also needs to review internal auditing's hiring practices to determine whether new employees expect to move quickly into operational positions or management after joining the audit department. If employees are leaving strictly to pursue higher pay or because they don't view the department as a desirable place to work, Paul needs to address the root cause of these issues. If the perceptions reflect legitimate shortcomings, Paul may need to restructure his department, positions, and work assignments. Lastly, Paul needs to define his department's involvement in the corporate rotation program. Creating a formal approach

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OCTOBER 3009 INTERNAL AUDITOR

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will help him control the movement of staff both out of and into the department. Paul should not underestimate the value of an effective rotation program to establishing a high-performing audit function. However, he should ensure the advantages gained from an effective program are balanced with the need to provide high-quality audit work products. He needs to enlist the support of the CFO and other senior officers to modify the program so that it benefits both internal auditing and the broader organization. The program must enable him to manage the drain of key talent and ensure he has time to replenish critical skills. Paul should also implement a formal staff development program that allows staff members to understand opportunities within and outside the department.
MARK TROJANOWSKI
Associate Director, Global Internal Audit Praxair Inc.

Paul needs to establish a vision for what the department should look like in terms of talent, skills, and development opportunities, and with regard to the rotation

program. Developing an effective relationship with human resources (HR) is essential to this process. In fact, the current GAIN Annual Benchmarking Study indicates that about 22 percent of internal audit candidates come from within the organization, further highlighting the importance of lIR's assistance. Retaining the best talent always presents a challenge. In Exnst Sc Young's 2008 Global Internal Audit Survey, nearly one in five respondents indicated a turnover rate in excess of 20 percent, with just over one-third reporting turnover of more than 15 percent. Because Paul's company most likely requires global travel, turnover may be particularly difficult for him to address, as excessive travel can lead to staff burnout. Many departments that have relied extensively on rotation programs appear to be re-examining that approach, and they are now looking at the benefits of long-term audit employment. After all, internal auditing is a profession, and it can pro\ide a satisfying career option for those who see it as more than an interim post. Moreover, there is a price associated with

both internal and external rotation, and Paul needs to consider this when crafting his vision for the department. He may even want to enlist HR'S help to create a cost-benefit analysis. Once Paul completes his research, he can then better address the department's staffing challenges and also leverage a significant opportunity obtaining greater ownership in the leadership rotation program. His improved grasp of the rotation program's strengths and weaknesses should enable him to help enhance the program and ensure it serves the audit group more effectively. Paul should discuss this possibility with the CFO and point out that his involvement could not only strengthen audit performance but also add value to the organization overall.

TO COMMENT on this article, e-mail the editor at michael.marlnaccio@theiia.org. IF YOU HAVE A CASE that you'd like a panel of experts to review in the magazine, send it to michael.marinaccio@biogenidec.com.

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2009