"Turn risk on its head and explore the opportunities offered by signals of change in the marketplace," says Granville Smith, KPMG Partner in charge of the South African KPMG’s Internal Audit Business Division. We spoke to Granville about what makes a good internal auditor and he gave some great tips for CFOs and CAs of 2015. "Stay away from the tick-box approach!"
1. Can you describe a typical working week?
In order to respond to this question it is important that I provide you with an appropriate context. KPMG's Internal Audit Business Division exceeds 300 full-time dedicated professionals excluding our IT and Forensic specialists. Our client portfolio is large and diverse exceeding 100 local clients across an array of industries. In addition being an integral part of the KPMG global network we often form part of global project teams to provide services to clients that operate across the globe. We do this through our 12 office locations across South Africa.
My typical week will therefore include:
engaging and providing advice to all key clients - from a strategic perspective as well as assisting them in improving their operations.
deliberating and driving the division's strategic direction to ensure we are relevant, innovative and have the best skills
engaging with peers, colleagues, staff on an ongoing basis to understand market trends, client challenges and discuss operational matters
monitoring the progress of all strategic initiatives to ensure greater efficiencies and effectiveness of these projects
executing on all client requirements and always aiming to meet and exceed their expectations.
2. Which part of your work do you enjoy the most?
I am fortunate that I have the opportunity to engage with different clients across various industries with different business models and different strategic thinking. The opportunity to provide advice on the organisation's key risks and controls and more importantly having insightful debates on how they can improve their operations is the part of my work that I enjoy the most.
I am also excited about the opportunity to oversee the development of individuals working for KPMG. It is a real thrill to see how individuals develop and how our guidance assist them in becoming trusted advisors to our clients.
3. You had commerce and industry experience in the 90s - which lessons are you still benefiting from these days? And what has radically changed since then? How can CFOs leverage the knowledge of internal auditors better?
In my view a good internal auditor should not be afraid to enter the competitive fray of ideas. One of the early lessons that I have learned in my career is that you must have a view and more importantly that you must not be afraid to share your views. Our clients expect us to express our thoughts - you should not and must not play it safe, otherwise you will not create value.
Like in any argument, the person looking from the outside in, will always have a better feel or view of the problem and quite often can offer better advice than individuals involved in the argument. I have however also learned that you are only able to offer real insight if you make an effort to understand the environment and the issue. Your contribution will not be meaningful, unless you make sure you understand the problem statement, e.g. you cannot advise the client on a payroll issue if you do not understand the size of the payroll, legislative requirements, the client's policies and procedures or strategic direction.
A good internal auditor should not be afraid to enter the competitive fray of ideas.
Good internal auditors have a unique insight into the client's business and operations and often CFOs could better leverage this knowledge. Internal auditors might not always have the same level of management's business acumen or the deep understanding of the strategy of the organisation, but they are better placed to understand how operations, rules and policies impact on each other and as "a sum of the parts".
I think many businesses will be surprised by the wealth of knowledge and views that their team of internal auditors will bring to the table.
They also have the benefit that they see the organisation in its entirety and through a different and objective lens, therefore they possess an understanding of the business that should be valuable for any CFO or business leader. In my view, if I was the CFO of the organisation I would have weekly discussions with my internal audit team on how they view the business - I think many businesses will be surprised by the wealth of knowledge and views that their team of internal auditors will bring to the table. They can also provide a "pulse" on the business and its operations.
4. Risk is higher on CFO's agenda than ever - how can you and KPMG help them manage this? What are the biggest risk issues in 2015?
CFOs recognise the direct link between being able to manage risk, business performance and creating value. In a global business environment, KPMG's risk professionals are trained to challenge executive management in terms of understanding and unpacking key risks that face the organisation and ensuring their mitigation strategies and action plans will have a direct impact on bottom line performance.
Every organisation's circumstances are different, and therefore the key risks for one board may not be the same as the key risks for another. But there are some risks that I believe most boards and organizations need to address. In South Africa currently the electricity or power supply challenges is a risk that cannot be underestimated by any board. A common issue faced by every board and organisation is the impact of the slowdown in economic growth. This has an add-on risk on all industries from the public sector for tax revenue, to miners, retailers and manufacturers.
Turn risk on its head and explore the opportunities offered by signals of change in the marketplace.
Another issue faced by every board and organization is innovation and technology. Innovation is changing and disrupting business models in a dramatic way. This is something every board needs to monitor very carefully. Management complacency is the biggest risk of all. Beware of the boiling frog syndrome. At KPMG we believe we need to get back to basics, i.e. make sure your risk management, internal controls and assurance plans are aligned and focused on how to improve the bottom line - in the short-, medium- and long-term.
I also believe that one should not only focus on the negative side of risk - it is about risk to value. Turn risk on its head and explore the opportunities offered by signals of change in the marketplace, e.g. digitisation, innovative business models, new technologies. I will encourage all CFOs to ask the question "Are we taking enough risk to win?".
5. What are typical mistakes CFOs make relating to corporate governance? What can they do to spend less time on it?
Unfortunately there is no list of common mistakes that CFOs make when it comes to corporate governance, as industries, companies and executive teams are not the same. Many business leaders including CFOs take a "tick box" approach to corporate governance and fail to leverage the efficiencies of the convergence of strategy, risk, performance and governance.
The economic and industry cycle are also factors. For instance, in recession or low-growth periods such as we are facing at the moment, CFOs are often challenged by shareholders and the board to cut costs. It can be tempting to do this superficially or to cut too deeply.
CFOs have to give careful consideration to rationalising parts of the business or trimming expenses. We see the consequences of cutting costs in the medium term with the impact it can have on control frameworks e.g. reducing headcount can result in poor segregation of duties, over-burdened staff and key-man reliance, to name but a few consequences. This increases the risk of fraud or results in poor application of controls leading to losses.
Awareness of fraud risk becomes even more relevant during difficult times. Likewise, in our profession when CFOs are looking at reducing the internal audit budget, they do well to ask first whether they have optimised their combined assurance strategy (i.e. making sure that the right assurance providers are giving comfort and that there is no omission or duplication of effort) and are using data analytics to get the most optimal coverage and insights into risks.
Awareness of fraud risk becomes even more relevant during difficult times.
When it comes to organisations' out-sourcing internal audit functions, in order to reduce costs and headcount, we have found that our experience counts. KPMG has taken over Internal Audit departments in terms of Section 197 of the Labour Relations Act, and have yielded good results for the organisation, as well as improved outcomes for the employees.
And at the end of the day, good governance is about achieving results in an ethical and sustainable manner. Therefore it is not about doing less or more, but more importantly doing the right thing, religiously, if not fanatical.
6. What advice do you have for young CAs that want to become CFOs?
My advice to young CA's will be that although it is a fantastic achievement to be professionally qualified that they must never rest on their laurels. Make sure that you do supplement your professional qualification with a healthy dose of practical understanding and common sense. Quite often there is a belief that the theoretical knowledge will automatically result in a successful career.
There is an ongoing learning process, learning from "masters in the field" - seminars and master classes like those presented by CFO South Africa can contribute greatly in providing CFOs with a greater holistic insight to their business and the environment in which it operates.
I will also advise the youngsters to listen to their intuition, to think "out of the box", challenge norms, to be curious, to follow their passion. Don't play it safe and don't be a cynic. Lastly, never give up on your dreams.