BusinessDay: Unlocking potential: how AI is redefining internal auditing

By Johan Steyn, 13 September 2024

Published by BusinessDay: https://www.businesslive.co.za/bd/opinion/2024-09-13-johan-steyn-unlocking-potential-how-ai-is-redefining-internal-auditing/

Internal auditing plays a crucial role in ensuring the success and sustainability of organisations across various industries.

By evaluating and improving the efficacy of risk management, control and governance procedures, internal auditors provide essential insights that help organisations achieve their objectives. This process involves a systematic and disciplined approach, aimed at enhancing the effectiveness of these systems, thereby ensuring that businesses operate efficiently, ethically and in compliance with relevant regulations.

At a conference hosted by the Institute of Internal Auditors of SA in Johannesburg, the conversation centred on the transformative potential of artificial intelligence (AI) within the internal auditing function. During this event I had the opportunity to explore and discuss the latest developments in this field, emphasising that AI is not merely an addition to the internal audit function but is becoming a critical requirement for redefining the scope and efficiency of internal audits. AI’s integration into this field marks a shift that promises to revolutionise how audits are conducted and how auditors contribute to organisational success.

The impact of AI on the efficiency of the audit function is profound. Traditional auditing methods often involve tedious and time-consuming tasks such as data collection and analysis, which can divert auditors’ attention from more strategic aspects of their work. However, AI platforms can automate these mundane and repetitive activities, allowing auditors to focus on tasks that require critical thinking and strategic decision-making. By reducing the time and effort spent on routine tasks AI enables auditors to delve deeper into areas such as risk management and decision support, thereby enhancing the overall value they provide to their organisations.

AI platforms have the potential to improve audit findings by minimising human errors. Despite their expertise human auditors are prone to make mistakes, particularly when dealing with large volumes of data. AI applies rules and algorithms systematically, ensuring a higher level of accuracy in the audit process. This systematic approach not only reduces the likelihood of errors but enhances the reliability and consistency of audit outcomes, providing organisations with more accurate insights into their operations and risk exposures.

One of the most promising aspects of AI in internal auditing is its ability to perform advanced risk assessments. Traditional risk assessment methods can be limited by the scope and speed at which human auditors can process data. AI excels at analysing vast data sets rapidly, identifying patterns and trends that might be overlooked by human auditors.

This capability enhances the predictive power of the audit process, allowing auditors to anticipate potential risks before they materialise. By leveraging AI’s predictive analytics they can transform their approach from one that is primarily reactive — responding to issues after they arise — to one that is proactive, focusing on preventing problems before they occur.

AI’s real-time monitoring capabilities further augment the effectiveness of the audit function. In the past audits were often conducted retrospectively, analysing data from previous periods to identify issues. With AI, auditors can monitor transactions and operations as they happen, allowing for immediate intervention when irregularities are detected. This shift from post-facto analysis to real-time monitoring not only enhances the timeliness of audits but also improves their relevance, enabling organisations to address issues as they emerge rather than after the fact.

In addition to improving the quality and scope of audits, AI plays a critical role in ensuring regulatory compliance. In today’s regulatory environment staying up to date with the latest guidelines and standards is a challenge. AI can alleviate this burden by automatically updating audit systems with the most recent regulations and continuously verifying compliance in real-time. This automation reduces the risk of noncompliance, ensuring that organisations remain in line with legal requirements and avoid costly penalties.

However, integration of AI into internal audits is not without its challenges. One of the primary hurdles is the need for high quality data. AI systems rely on accurate and comprehensive data to perform effectively. Without reliable data the benefits of AI in auditing can be diminished. Organisations must invest in data management practices that ensure the availability of high quality data for AI analysis.

The ethical implications of AI cannot be ignored. Issues such as algorithmic bias, accountability for AI-driven decisions and compliance with data protection laws must be addressed to ensure AI is used responsibly. Establishing strong frameworks for AI governance and ethical use is critical to mitigating these risks and ensuring AI’s integration into internal auditing is both beneficial and just.

Looking to the future, the potential of AI in internal auditing is immense. Customised AI solutions tailored to the specific needs of individual organisations are expected to become the norm, offering more efficient and effective auditing processes. As the automation of complex and nuanced tasks becomes commonplace, auditors will be able to focus more on strategic decision-making and risk management, further enhancing their role as contributors to organisational success.

As AI platforms become more sophisticated their strategic integration into the internal audit function will fundamentally change how audits are conducted. While this transformation presents challenges, it also offers opportunities for improving risk management, compliance and overall organisational efficiency.

As we continue to navigate the age of AI, the role of internal auditing will become even more vital, ensuring organisations can adapt to new technologies while maintaining their commitment to ethical and effective governance.