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Ethical Boardroom | Summer 2015
It would be a smart move if internal audit can decide on its brand, says Tom McLeod
am not very good at chess.
Never have been; I am more of a
checkers type of guy. Having said
that, I have a disproportionate
fascination with the history of
things that have stood the test
of time and one of those that I
find intriguing is the history of chess.
In their wonderful new book The Second
Machine Age, Erik Brynjolfsson and Andrew
McAfee recall the story of the history of chess.
It was invented in India in the 6th century by, as
the story goes, a very clever man who presented
his brainchild to the emperor.
The ruler was so impressed by this difficult
and beautiful game that he invited the inventor
to name his reward. The inventor praised the
emperor’s generosity and said: “All I desire is
some rice to feed my family.”
Since the emperor’s reward was spurred by
the invention of chess, the inventor suggested
that they use the chessboard to determine the
amount of rice that would be given: “Place one
single grain of rice on the first square of the
board, two on the second, four on the third, and
so on, so that each square receives twice as many
grains as the previous.”
“Make it so,” the emperor declared, impressed
by the inventor’s apparent modesty. But what the
emperor did not realise is that if he did follow
through on the request he would have had to give
the inventor 18 quintillion grains of rice – a pile
that would dwarf Mount Everest; more rice than
has been produced in the history of the world.
After 32 squares, the emperor had given the
inventor four billion grains of rice – about one
large field’s worth. It was only then did the
emperor get concerned because he was starting
to appreciate the total value that was at play in
the inventor’s magical reward scheme.
At 32 squares – he was only at the first half of
the chess board. He only knew what he had seen
before and had no way to comprehend the size
of the second half of the chess board. For the
inventor, it was the second half of the chess board
where he knew – but the emperor did not – that
the greatest reward lay.
In some versions of the story, once the emperor
realises that he’s been tricked, he has the inventor
beheaded! Putting that unfortunate personal
outcome aside, the moral of the story and my
challenge to you reading this is, what is the
second half of internal audit’s chess board? What
is it that we are doing that restricts us to only
The second half
of the chessboard
I
Board Governance | Internal Audits
seeing the first squares on the board and neglect
the plentiful rewards that sit within our reach
but out of our sight?
Recognising value
My proposition is that we have been appallingly
bad at recognising our value, promoting our
brand and getting others to demand our services.
We no longer have to worry about cavorting over
the riches of the second half of the chess board.
We have to be worried about never again being
asked to the chess table.
We have already been asked to step away from
the table in a number of domains that should
have been rightly ours. And, in doing so, the
exponential largess – the second half of the chess
board – that otherwise awaited us has been
distributed as dividends to others.
Thishonest,yetconfronting,assessmentcomes
from a person who is passionate about the value
that internal audit can and does bring to an
organisation. I have devoted nearly a quarter of
a century to the practice of a beautiful and
meaningful art and I am a proud internal auditor.
Yet my licence to continue to ply my craft
demands not the formal certification of an
institute but a detailed self-assessment of our
brand.I wanttoexaminetheinternalauditbrand
through the prism of what is a successful brand.
To remain as objective as possible I propose
to look at the internal audit brand through the
prism of a brand strength framework developed
by the international branding consultancy
Interbrand. The Interbrand framework highlights
anumberofkeyattributes–clarity,commitment,
relevance, differentiation and presence.
to our customers, clients or auditees
from their interaction with us.
Ourvalues–beingbroadpreferencesconcerning
appropriate courses of actions or outcomes – are
centred around, supported by and constricted by
our reliance on the foundation stone of
independence.Ifvaluestendtoinfluenceattitudes
and behaviours, then it is the value preference for
independence that most strongly drives the
behaviour of our profession and brethren.
The Australian National Audit Office provides
a good assessment of what is independence.
It notes:
A distinguishing feature of internal audit is
itsindependence.Internalauditisindependent
inthesensethatitisnotsubjecttotheauthority
of the areas of the entity it audits. This
independence, best described as ‘operational
independence’,assistsinensuringthatinternal
audit acts in an objective, impartial manner
freefromanyconflictofinterest,inherentbias
or undue external influence.
However, internal audit is not independent
of the organisation in the same way as the
externalauditfunctionis.Itprovidesaservice
Tom McLeod
Managing Consultant,
McLeod Governance
Interbrand proposes that clarity is about what the
brand stands for in terms of its values. Equally, there
has to be clarity about its target audiences
Interbrand proposes that clarity is about what
thebrandstandsforintermsofitsvalues.Equally,
there has to be clarity about its target audiences.
Asaprofession,weoftenseemtoconfuseourvalue
with our values. While linked, they are different.
Internal audit is, as we know, an independent
objective assurance and consulting activity. Our
value is the additional benefits that are delivered
tomanagement,reportstotheAuditCommittee
and is ultimately accountable to the Chief
Executive or the Board for the achievement of
its objectives and the use of its resources.
Whiletherearemanyappropriateworkaround
solutions to address this second issue of the
absence of independence from the organisations

Summer 2015 | Ethical Boardroom
Internal Audits | Board Governance
game of
strategy
Building
an internal
audit brand
that we seek to audit, it is hard to escape the
conclusion that we are still debating what it
means to be independent.
Our definition of internal audit doesn’t use the
caveat of operational independence. We say
independence. Period.
So if we have the situation where one of the
most esteemed audit functions in Australia – if
not in the world – is making a distinction on
independence can we truly say that we have
achievedthehighplainofclarityaboutourvalues?
Who are our target audience?
Let’snowlookatclarityoftargetaudiences.Could
you imagine attending the annual conference of
the Royal College of Physicians and, year after
year, the learned medical attendees continue to
debate whether or not the patient was their core
and most important constituent? What would
we – as consumers of the service that the Royal
College of Physicians ‘produce’ – think?
We don’t want a physician sitting opposite us
internally negotiating which stakeholder is the
most important when we disclose our innermost
medical challenges to them.
The drug company, the medical insurance
fund, even the medical training colleges are
undoubtedly all stakeholders but they are not
the target audience. We – the sickly patient
sitting nervously before them – are.
For internal audit, who or what is our patient
equivalent? Is it the shareholder or is it the audit
committee? Is it senior management or is it a
combination of all of these or someone else? This
is another interchange which we as profession
have been caught in its vortex for way too long.
Importance of the brand
It’s time now to move on to the internal
commitment to the brand and a belief internally
intheimportanceofthebrand.Firstandforemost
weneedtobroadenour‘customer’baseawayfrom
not only practitioners of audit but to all
stakeholdersorconsumersofourserviceoffering.
We need to broaden our demographics so
that we have a broad-based understanding
of the importance of our brand. It is important
to address the design, scale and geographical
spread of the profession. Internal audit is not an
American construct.
Yet, if one were to look at the way our
profession has sought to administratively
organise ourselves, one would be forgiven for
thinking that the profession is best served when
the interests of the US auditor is best served.
Why is it that every second international
conference – the gathering that should define

Ethical Boardroom | Summer 2015
Board Governance | Internal Audits
What are we going to do to ensure that the great
wonderment that is internal audit not only lives out its
potential but is a brand that will stand the test of time
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may be reproduced in any form without the written permission of Ethical Boardroom.
differentiation issue is data. We can, should and
must be the clay that makes the bricks that
makes the buildings. By virtue of nearly every
mandate for any internal audit function we have
the right and privilege to access all areas, all
functions, and all data without management
interference. Yet we only ever invoke that clause
in our social contract in aggressive situations to
overcome management obstinacy.
We need to look at our use of data in a
fundamentally different way and by doing so use
it in such a manner that can and will differentiate
us from our competitors. We need to provide
back to the business the insights that access to
all areas, all functions and all data brings.
We, as a profession, were never the leading
voice in the modern development of corporate
governance but we should have been. We, as a
profession, are being currently overlooked to
develop integrated assurance mapping and we
can’t be. We, as a profession, need to embrace
the messiness of data, the potential of that most
overused phrase big data, and show that we are
the rightful heir to this area of assurance.
When John F Kennedy sent man to the moon
he said that he did it not because it was easy
but because it was hard. Well, this will be hard.
But let’s set ourselves the goal against which we
will measure our success or otherwise as being
seen as the best, leading and most experienced
data interrogators.
TheareathatIwanttolookatisbrandpresence
and I have left the easiest brand element to the
last.Whoamongusthinksthattheinternalaudit
brand is omnipresent with our corporate
stakeholders? Who among us regularly see it
talked about positively by customers and opinion
formers?Whoamongusseeinternalauditowning
any significant social media real estate?
Of these three issues I do want to discuss
momentarily the exploitation of social media by
the internal audit profession, or perhaps the lack
thereof. We need to use social media, in all its
formats, to engage, entertain and challenge. It
is not being asked of internal audit to invent
social media – it is being asked of internal audit
to use social media.
In summary, it concerns me that as a collective
of people passionate about internal audit we have
not advanced our profession over a decade to the
extent that we should have. We cannot expect a
strong brand if the product that it represents has
not moved on over a 10-year period.
My challenge is to think what are we going
to do to ensure that the great wonderment that
is internal audit not only lives out its potential
but that it is a brand that will stand the test of
time? What is it that is on the second half of
the chess board?
us to ourselves and to others – is held in
North America? Are these conferences really
only designed as a profit-making exercise and
is that our excuse for each alternate year
seeking to retrace Columbus’s steps? Where is
the real global engagement of the profession
and the Institute?
In the last 10 years – and this is most definitely
not a reflection of the high quality and integrity
of the people that have filled the roles – we have
chosen an American as our global leader on at
least four occasions.
How is that representative of a global
organisation? A global profession? We cannot
ever hope to be a global profession – a global
brand – if every other year we head back to the
safety of the North American shore.
If it is true that we are living now in the Asian
Century,Ilookforwardtoseeinghowtheinternal
audit profession will be truly understanding of
the largest growing population; the largest
expansion of economic wealth in the history of
all mankind from the warm climes of Florida.
Thetimehascomefortheprofessiontoembrace
itsglobalfootprint not just visitit.As wecontinue
on this path of brand self-flagellation it is time to
stop at the door of relevance and differentiation.
What is our fit with our customers – however so
defined – needs, desires and decision criteria?
What makes our service offering distinctively
different from our competition?
To answer the first question about relevancy
we have to assume that we know what it is
our customer needs and desires. Not only
are they two very different things
– needs and desires – it is nigh
on impossible to be relevant
to our customers if we don’t
understand them.
Understanding
needs and desires
Is it right to assume that everyone
wants to work in a well-controlled
workenvironmentwheresystemsare
efficient and processes are effective? It
shudders me to my very core to think of
aworkplacethatwouldnotmeetthathigh
standard.
But, not for the first time in my career,
I have to ask myself as to whether I am a good
representative sample. And the answer has
to be no. There will be people, with no
malicious intent at all, who believe that the
best work environments are ones with shades
of grey; where rules are guidelines to be
negotiated with, not followed.
Their need and my need for a properly
functioning internal audit effort are
fundamentally different. Is this a
problem that there is this divergence?
In short, yes, because the whole
philosophy of internal audit is
premised on the assumption that
there is one right way of doing
things and that any variation to that standard
warrants a corrective management action.
To remain truly relevant to the needs of our
customer we need to find a way to bring greater
flexibility to the practice of internal audit. What
that looks like and how we will seek to move
towardsthat deliciousand deliberateambiguityis
achallengethatshouldentertainourgreatestminds.
But will it? I suspect that it will just be easier
to slouch in the malaise of governance
inflexibility and argue when challenged that to
desire something other than a well-controlled
work environment is the corporate equivalent
of arguing against motherhood.
If we do we will have lost our brand relevancy
moment, possibly forever. While we continue
riding the relevancy train it is also important to
consider our differentiation from our competitor.
To do so, not surprisingly, we have to define who
our competitors are. 
Perhaps the easier answer and the core of the
challenge, is to ask the question: who isn’t our
competitors? Putting aside the issue of
independence and objectivity for just one
moment if you can, the giving of assurance is not
a skill that is the sole domain of the auditor.
Anyone can give assurance. There can be
managementassurance,regulatoryassuranceand
there can be spectacularly ill-informed and
uneducatedassurance.Sotodifferentiatefromthis
motley group of assurance providers we need to
beofferingsomethingthatis,well,different,and
thatthinghasalwaysbeenthe
petardofindependence.
Yet as we saw above, this
crutch is not without its
challenges for it is
not possible to say
that we are truly
independent. So
perhaps this is
at the very core
of the strength,
or otherwise,
of the internal
audit brand.
T h e e a s e ,
a s a lw ay s , i s i n t he
identification rather than the
resolution of the problem. But
find a resolution to this brand
issue we must. And the solution
is right before our eyes. In the
Sherlock Holmes book The
Adventures of Copper Beaches,
Holmes cried impatiently: “Data!
Data! Data! I can’t make
bricks without clay!”
The solution to our

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EB3_Tom McLeod

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