“Laws continue to be enacted, and the regulatory environment
has become more complex due to unacceptable conduct remediation. Consequently,
entities continue to be compelled to demonstrate compliance with legal mandates
through documented assurance assessments.” ― Robert E. Davis, Assuring IT Legal Compliance
Organizations today operate within an incredibly dynamic business environment. The volume of changing regulations, risks, procedures, technologies, and a revolving door of employees make managing and mitigating risk through the implementation of internal controls a crucial concern for leadership teams. The role of internal audit to provide continuous assurance is critical, but how to automate assurance is a difficult task.
Leadership teams rely on internal audits for assurance and feedback on the integrity of their operations, processes, and transactions to ensure that controls are implemented and operationally effective. Audits play a critical role in providing assurance that risk is managed, and compliance requirements are met. By clearly understanding the role internal audits play in delivering continuous assurance and not just point-in-time assurance ensure the integrity of the organization.
An important first step is to define the three lines (what was formerly referred to as the ‘three lines of defense’):
- First Line. The first line is those who own and/or take the risk and manage/approve controls. These are the individuals and teams who are responsible for the execution of the controls and their outcomes. These are the people who conduct the processes and generate the reports. And ultimately execution falls on this first line of defense to find and correct potential risks in all the small ways they might present themselves.
- Second Line. The second line is one that manages and monitors those risks and controls. These are the leaders and managers who, with an understanding of the larger risks, ensure the proper controls and processes are in place to adequately meet those demands and navigate future uncertainties. This line is responsible for identifying the efficacy of the current controls, finding points of weakness, and correcting systemic shortcomings, and finding ways to improve the integrity and efficiency of those operations. They are the subject matter experts of controls and business processes in the context of risks.
- Third Line. The third line is where auditors provide assurance to leadership and stakeholders on the integrity and effectiveness of their controls and business processes. Establishing objective evaluations on the metrics and solutions already in place and providing a platform to help leaders identify and develop risk management strategies going forward. The third line is also an important liaison between regulators and external auditors, providing a clear picture of operational integrity across several critical metrics.
The ‘third line’ provides comprehensive assurance to the senior management and governing bodies, a key necessity in our current dynamic business environment. The challenge is that assurance can be a complex and labor-intensive process, requiring careful examination, compiling, and documentation of data which rely on point-in-time audits. Leaders and executives in the organization need continuous assurance provided by their third line of internal audit through automated continuous assurance of controls within business processes and operations. Technology delivers on continuous assurance, enabling internal audit to provide assurance in the context of a dynamic organization. Continuous assurance technologies provide several key capabilities:
- It allows assurance teams to standardize and consolidate their documentation of processes and internal controls. Providing a significant level of accessibility and organization within a data heavy function.
Delivers a unified structure that enables teams to better identify and continuously monitor and enforce controls in complex business processes that span various systems. Lending the third line a much better level of responsiveness within the risk and control environment.
Provides a comprehensive platform to generate clear evidence of internal controls and assurance of those controls to stakeholders, providing teams confidence in their information and a unified structure of information from which to provide assurance.
Centralization allows teams to analyze information from across different business systems and units for a clearer and more objective picture of the situation that effectively streamlines audit reports while providing greater insight across business processes and systems.
The third line of internal audits provides a crucial part in any risk and control management strategy through the ongoing, and with technology continuous, assurance of internal controls in business processes. By enabling this team to generate high integrity data, enforce controls, and provide confidant assurance, this team can be an enormous factor in the success in an organization’s risk management efforts.