Optimise before you digitise audit, advises Riaan Koppeschaar, Exxaro finance director

Digitisation offers massive benefits but requires strategic thinking and infrastructure investment, says Exxaro FD.

This Future of Audit Series interview is proudly brought to you by ACCA.

As business evolves, so too must audit methodology and the audit product itself, says Riaan Koppeschaar, finance director at Exxaro Resources. Whereas auditing has to date focused on providing assurance focused on financial information, Riaan believes the industry will need to begin to address other market needs, such as audits related to climate change or ESG investing. As one of the largest South African-based diversified resources groups, Exxaro needs to keep ahead of such developments to ensure the company’s long-term sustainability.

From an auditing perspective, Riaan says the company has worked hard to stay ahead of the curve and had already moved its financial systems to the cloud before Covid-19 struck. “I think that was obviously a big positive,” he says. “With the onset of Covid, when we had to audit in the cloud, it was possible for people to get access to the various systems remotely, to extract information, and for us to give access to the auditors.”

Nevertheless, given that Exxaro’s business takes place across several sites, including mines at various different locations, undertaking the entire audit virtually was no easy task. “Obviously, there were challenges like physical asset verification – things like stock counts,” he says.

However, between the Exxaro team and the auditors, resourceful solutions were employed. “Where there were locations where auditors could not get onsite, we had our people video calling with them on the phone and the auditors would direct them to what they needed to see, so they could show them the stock and verify serial numbers and things like that,” says Riaan. “And in our new Belfast mine, which we commissioned last year, it’s very much digitised, so we already had a drone system in place to manage stock counts.”

Drones do flights over the mine’s stock piles to survey them, and then the data is fed into auditing software that automatically calculates stock volumes and attaches values to them. In the long term, this not only cuts down on costs and improves efficiency, but also ensures that people don’t have to risk their safety by manually venturing into the stock piles.

“In some of our audit processes we’ve also implemented robotics to run the process,” says Riaan. “Auditors are now using more and more robotic tools to perform audit procedures, which means that whereas in the past they were only doing samples on a manual basis, they can now run through our whole database to provide 100 percent verification. I think that’s one of the changes that we will see more and more in future.”

Riaan believes that this will improve audit quality, and that cloud-based systems are more secure from a data management perspective. “You've got a central repository of all the information that you can retain – it’s not spread over different servers, all over the place. And then over the longer term, there are also cost benefits associated with the cloud and software-as-a-service. You don't need to buy servers anymore and you pay for what you use. It’s a much more scalable model that ensures you’re not paying for idle capacity.”

Investing in digital transformation
Of course, moving the audit online meant Exxaro, like many other organisations, had to beef up its IT infrastructure and its cybersecurity.

“I think the big thing that people underestimate is the need for a very strong ‘backbone’”, he says, referring to the connectivity required to ensure digital systems are able to function. “It doesn’t help you try to audit virtually or do these things in the cloud and you've got a an unreliable WiFi system.”

While this may sound like common sense in an office environment, Exxaro’s connectivity needs extend to harder-to-reach areas, like underground mining operations. “We’ve had to install WiFi underground in some of our mines, so we’ve been investing in 5G networks, which initially comes with a capital outlay, but if you don’t have that you’re not going to be able to get the benefits of digital systems,” he says.

Exxaro has been investing in digital transformation of more than its financial systems and asset management. It’s also been working to digitise certain aspects of the HR function, as well as its supply chain. Riaan says it’s important to prototype the solution and trial it in a specific part of the business to test its effectiveness before rolling it out throughout the group.

“To get the full benefit, you must have a holistic solution, not a ‘point solution’ that only addresses one area, but not the whole value chain. If you’ve got an inefficient process, it doesn’t help you to digitise it – then you just get garbage faster. You need to optimise the whole process first, otherwise digitisation is not going to assist you,” he says.

Exxaro went as far as sourcing routers and dongles for employees during the hard lockdown to ensure they were connected. “It’s important not to assume that all your employees have access to reliable internet,” he says. “Of course, a challenge that’s more unique to South Africa is that all of this sounds very nice, but you run into major problems when loadshedding happens and people can’t get into digital meetings or do their work.”

The human role
Despite the drive towards digital transformation, Riaan believes that completely virtual audits are not necessarily ideal and that a hybrid model is more likely to be adopted in future. “I think it’s still good to have a human interface and that there will always be some kind of personal contact required,” he says.

Even where digital solutions can be employed for the sake of cost, accuracy or human safety (such as drone surveying of stockpiles), Riaan says that auditors might still undertake site visits, but run many of their processes virtually at the site.

“Keeping contact with teams and connecting with people and giving feedback – that is still very important, and I don’t see that changing,” he concludes.