Participants at the third annual National Forum for Government Chief Internal Auditors in Quebec City last October decided to strike an Advisory Committee on Performance Measures for Internal Auditing.

The decision flowed from a discussion on the topic led by Bob Shahi, Director of the Audit Bureau of the Northwest Territories. Bob described the value of performance measures and tabled some suggested measures for consideration by the group, made up of the heads of internal audit of Canada's two senior levels of government. The group is known as the Government Internal Auditors Council of Canada (GIACC).

GIACC subsequently agreed that Bob would chair an Advisory Committee on Performance Measures, with support from Dan Ho, Executive Director, Internal Audit and Advisory Services, Office of the Comptroller General of British Columbia; Pamela Muir, Director, Corporate Internal Audit, Nova Scotia Department of Finance; Stephen Thompson, Director, Audit and Consulting Services, Office of the Comptroller of New Brunswick; Paul Wallis, Director, Audit Centre for Excellence, Government of Ontario; a representative from the Treasury Board of Canada; and a representative from the CCAF.

CCAF Executive Director Michael Eastman talked to Bob Shahi about performance measures.

Bob Shahi is Director of the Audit Bureau of the Government of the Northwest Territories. A graduate of the University of Alberta (B.Comm), he worked for Scotiabank from 1979 to 1987 in Alberta and the Northwest Territories. He joined the Audit Bureau in 1987 as an internal auditor, and served in various positions before his appointment as Director in 2003. Bob has received the FICB, CGA, CIA, CFE and CISA designations.

PERFORMANCE MEASURES FOR INTERNAL AUDITING: SHAHI LEADS INITIATIVE FOR INTERNAL AUDIT HEADS

Michael Eastman: Why do you consider this subject to be of importance to the internal audit community?

Bob Shahi: I think performance measures are important in any field of endeavour. But they are particularly important for auditors, whose role in part is to look at how others are performing. We should make sure we have our own act together. And as the old saying goes, what gets measured gets done. Performance measurement would be a good way for internal audit groups to identify what is important to their success and then determine if they are acting effectively in those areas.

Michael Eastman: What are the benefits of tackling the issue of performance measurement through GIACC?

Bob Shahi: In most of our jurisdictions, including mine in the Northwest Territories, the resources available for internal audit are pretty modest. Through GIACC we can bring a number of minds to the table, each with a unique perspective, and help each other ensure we look at the issue from all sides.

Michael Eastman: What is your Advisory Committee hoping to accomplish?

Bob Shahi: We would like to bring forward some suggested performance measures for the internal audit function in the public sector in Canada. These would likely need to be refined by each jurisdiction to suit our particular circumstances, but I think that together we could develop something that would serve as a jumping off point for our individual practices. Our goal is to have some draft measures ready for consideration at the National Forum in Halifax next October.

Michael Eastman: What is your starting point for developing these measures?

Bob Shahi: We're very fortunate that the Institute of Internal Auditors has done some valuable work in this area.

Standard 1311 of the IIA's International Standards for the Professional Practice of Internal Auditing calls for ongoing performance reviews of internal audit activity. The IIA has issued a Practice Advisory - 1311-2 for anyone who wants to look it up - on Establishing Measures to Support Reviews of Internal Audit Activity Performance. It is essentially a blueprint for setting up measures that can be followed by any internal audit organization.

The advisory says audit groups should identify critical performance categories for measurement, and it suggests three:

• Stakeholder expectations
• Internal audit processes
• Innovation and capabilities.

The idea is to break each of these into several items for measurement. For example, under stakeholder expectations, we might identify the audit committee, executive management, and external auditors as key stakeholders. Under internal audit processes, we might want to measure our performance regarding risk assessment, audit planning, reporting, and so on. And under innovation and capabilities, we could look at training, our use of technology, and our level of sector knowledge.

The next step would be to develop some actual performance measures for each of these, and a process for collecting and reporting the information. According to the IIA, the measures could be both qualitative and quantitative.

Michael Eastman: Could you give some examples of performance measures in a public sector internal audit context?

Bob Shahi: To meet stakeholder expectations, we might state that our objective is to spend at least 1,000 hours over a three-year cycle on each of a number of activities: compliance audits, IT audits, risk management, etc. We might aim to conclude fraud investigations within 60 days of an employee being suspended.

Under internal audit processes, we could plan to conduct an in-depth risk assessment every three years, to update our risk assessment profile annually, to achieve a 75 percent implementation rate by management of our recommendations after two years, and so on.

And under innovation and capabilities, our objective could be for all staff at Associate level and higher to have at least one auditing designation; for ten percent of staff time to be devoted to professional development; for all staff to be able to use certain data analysis tools, etc.

These are just examples, but they are all measurable, and they would all push us towards better performance.

Michael Eastman: What are your next steps?

Bob Shahi: Our Advisory Committee will be putting some ideas down in writing and trying to refine them before the next National Forum for Government Chief Internal Auditors in Halifax in October. We'll present our ideas at the Halifax meeting, and then we'll see if there is support for taking the work further after that.

Michael Eastman: From CCAF's perspective, this is an initiative worth supporting. We see the internal audit function as an important contributor to the accountability process, and anything that strengthens the function is likely to strengthen accountability. So thank you for taking on this task, and good luck in your work.

Bob Shahi: See you in Halifax.

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