CoActive Audit: The Enhancement Audit Model

Internal auditors are struggling to maintain their identity and purpose as the organizations they audit undergo drastic changes. Total quality management, business process reengineering, globalization, and self‐directed teams are dismantling hierarchical command and control structures. Advances in information technology continuously render control procedures obsolete. The ‘value’ of traditional internal audit is seriously questioned from the board room to the show room. CoActive audit is an internal audit model designed for team/technology based organization cultures, where the focus is on process enhancement rather than assessment and reporting. It provides synergistic solutions to real problems, rather than a quasi‐independent appraisal offering recommendations of potentially marginal value. Auditing has its origins in antiquity, apparently when rulers with wealth had the objective of maintaining their wealth by detecting fraud on the part of their servants. While external auditing was originally formulated with the same objective, through the years it changed its primary objective to emphasize the ‘professional review of financial statements by an independent expert, so that a professional opinion indicating that financial condition and results of operation have been fairly presented can be given.’ While internal auditing formulated its objective to ‘assist members of the organization in the effective discharge of their responsibilities,’ it continued the basic doctrine that auditing is an expert, independent, appraisal function. While many internal auditors today keep auditing as they have in the past, the organizations they are auditing are undergoing drastic changes. Total Quality Management, Self Directed Teams, and Business Process Reengineering are dismantling the old hierarchical command and control systems that depended on auditors to verify compliance. Advances in Information Technology have rendered manual control procedures obsolete. While most internal auditors have successfully made the transition from a reactive audit process that basically reported on history to a proactive approach based on risk assessment and focused on the present, the changes occurring within our organizations demand even more fundamental changes. Contemporary internal auditors openly acknowledge that they feel change must occur within the internal auditing community, and these leaders are venturing forward trying new philosophies and approaches. CoActive Audit is a combination of these new philosophies and methodologies, with its roots in the teachings of the primary management visionaries of the times. It is a vehicle to help internal audit grow, to re‐energize, to expand both its reach and grasp. It is about change, about recognizing the world has drastically changed, about realizing that some of our most basic assumptions are no longer valid, about understanding that some of our codified standards may hinder rather than help, and about replacing the old that is no longer appropriate with a new that is. It is time to focus on enhancing internal control, not merely reporting on it. It is time to build control into business processes, not simply assessing compliance with policies and procedures. It is time to recognize that the traditional internal audit methodology may be counterproductive to the goal of ensuring a reliable internal control system. It is time for CoActive Audit: the next critical step for internal audit. CoActive Audit enhances management control processes using today's management philosophies and methodologies. It represents a fundamental transformation of traditional internal audit philosophy, a 180 shift in mental models and paradigms. The essential components are an audit approach that is: Concurrent — rather than historical; Collaborative — rather than autonomous; Consultative — rather than judgmental; Client‐based — rather than standards‐based; A Catalyst — rather than an inhibitor.