The Artificially Intelligent Internal Audit Profession

2023 saw the take off of artificial intelligence in the terms of the human psyche. It is a market which is expected to grow at an expected compound rate of 38% until 2030. The market for AI-related products is expected to grow twentyfold  to a value of two trillion dollars by the turn of the decade.

So what are the implications for the internal audit profession?

Let’s ask my friend CHAT GPT.

QUESTION:- I am an internal auditor. I am told that I should fear artificial intelligence. Is this the case?

ChatGPT

The idea that you should “fear” artificial intelligence (AI) is not necessarily accurate. AI can bring about both opportunities and challenges, and its impact on various professions, including internal auditing, can be nuanced. It’s important to approach AI with a balanced perspective and consider how it can enhance your role rather than viewing it solely as a threat. Here are some points to consider:

• Automation of Routine Tasks: AI can automate repetitive and routine tasks, allowing auditors to focus on more complex and analytical aspects of their work. This can increase efficiency and enable auditors to spend more time on strategic thinking and decision-making.
• Data Analysis and Pattern Recognition: AI technologies excel at analyzing vast amounts of data quickly and identifying patterns that might be challenging for humans to detect. Internal auditors can leverage AI tools for data analysis, risk assessment, and anomaly detection.
• Risk Management: AI can contribute to better risk management by providing real-time insights into potential risks and vulnerabilities. Automated monitoring systems can help auditors stay informed about changes in the business environment.
• Continuous Monitoring: AI-powered tools can facilitate continuous monitoring of financial transactions, internal controls, and compliance issues. This can lead to quicker identification and response to potential issues.
• Enhanced Decision Support: AI can provide auditors with advanced decision support through predictive analytics and scenario modeling. This can improve the quality of audit decisions and increase the effectiveness of risk assessments.
• Ethical Considerations and Bias: It’s crucial to be aware of potential ethical considerations and biases in AI systems. Auditors should understand how AI algorithms work, be cautious about biases in data, and ensure that AI tools are used ethically and responsibly.
• Skill Enhancement: Embracing AI in auditing may require auditors to acquire new skills, such as data analytics, programming, and understanding AI technologies. Continuous learning can be an essential aspect of adapting to technological advancements.

While there are positive aspects of incorporating AI into auditing processes, it’s essential to be mindful of potential challenges and ethical considerations. Additionally, embracing AI doesn’t mean complete replacement of human auditors; rather, it can complement human skills and enhance the overall effectiveness of the auditing process.

In summary, instead of fearing AI, it may be more beneficial to approach it with a mindset of adaptation and learning. Stay informed about AI developments, understand its implications for your field, and explore how it can be integrated to improve the efficiency and effectiveness of internal auditing.

QUESTION:-  So you are recommending that I take a balanced approach. Let’s look at the upside. What are the specific benefits of using AI in internal auditing? Please be brief. My readers are getting younger and our collective attention spans are getting shorter!

ChatGPT

Certainly! Here are some brief benefits of using AI in internal auditing:

• Efficiency Boost: AI automates routine tasks, saving time and allowing auditors to focus on strategic analysis.
• Data Analysis: AI excels at analyzing large datasets, identifying patterns, and providing valuable insights for risk assessment.
• Continuous Monitoring: AI enables real-time monitoring of financial transactions, internal controls, and compliance issues.
• Predictive Analytics: AI facilitates predictive modeling, enhancing decision-making and risk management.
• Cost Savings: Automation through AI can lead to cost reductions in auditing processes.
• Improved Accuracy: AI reduces the risk of human error in data analysis and auditing tasks.
• Enhanced Fraud Detection: AI algorithms can identify anomalies and patterns associated with fraudulent activities.
• Adaptability: AI technologies can quickly adapt to changing business environments and regulations.
• Strategic Focus: With routine tasks automated, auditors can focus on strategic thinking and value-added activities.
• Skill Development: Embracing AI encourages auditors to acquire new skills, staying relevant in a rapidly evolving landscape.

Embracing AI can contribute to a more agile, efficient, and forward-thinking approach to internal auditing.

QUESTION:- OK – that sounds exciting. Permit to delve a little deeper but not too much. Can you explain how AI can help me analyse the risks inherent in my audit universe and how to grade them. Perhaps you can also explain how I can prioritise the possible audit reviews in my audit plan.

ChatGPT

Certainly! AI can significantly enhance risk analysis and prioritization in internal auditing. Here’s how:

• Data Analysis and Pattern Recognition: AI can analyze historical data to identify patterns and trends associated with various risks. Machine learning algorithms can detect anomalies, helping to pinpoint potential areas of concern.
• Predictive Analytics: AI tools can employ predictive modeling to forecast potential risks based on historical data and current trends. This allows auditors to anticipate and address emerging risks proactively.
• Risk Scoring and Grading: AI systems can assign risk scores to different audit areas based on the likelihood and potential impact of identified risks. These scores help auditors prioritize and focus their efforts on high-risk areas.
• Continuous Monitoring: AI enables real-time monitoring of key risk indicators, providing instant insights into changes or developments in the risk landscape. Auditors can respond promptly to evolving risks.
• Natural Language Processing (NLP): NLP can be utilized to analyze unstructured data, such as textual reports and documents, to extract valuable information about risks and controls. This enhances the depth of risk analysis.
• Scenario Modeling: AI can assist in creating and analyzing various scenarios to assess the potential impact of different risk scenarios on the organization. Auditors can use this information to develop contingency plans and mitigation strategies.
• Prioritization Algorithms: AI algorithms can consider multiple factors, such as risk scores, financial impact, regulatory compliance, and business priorities, to prioritize audit areas. This results in a more objective and data-driven approach to audit planning.
• Dynamic Audit Planning: AI allows for dynamic and adaptive audit planning that can be adjusted in real-time based on changes in the business environment or risk landscape. Auditors can respond swiftly to new information or emerging risks.

By leveraging AI in risk analysis and audit planning, internal auditors can enhance their ability to identify, assess, and prioritize risks effectively. This not only improves the efficiency of the audit process but also enables auditors to focus on areas that pose the greatest risk to the organization.

QUESTION:- Wow – let’s look at another aspect of my audit engagement process. Can you help in my being more efficient in my internal audit testing?

ChatGPT

Absolutely! AI can significantly enhance the efficiency of internal audit testing. Here’s how:

• Automated Testing: AI-powered tools can automate routine testing procedures, saving time and resources. This includes automating data extraction, transaction testing, and other repetitive tasks.
• Data Analytics: AI enables advanced data analytics, allowing auditors to analyze large datasets quickly and efficiently. This helps in identifying trends, anomalies, and potential areas of concern.
• Pattern Recognition: AI algorithms can recognize patterns indicative of irregularities or potential fraud during testing. This enhances the ability to detect issues that may go unnoticed through traditional methods.
• Continuous Monitoring: AI facilitates continuous monitoring of key controls and transactions, providing real-time insights into potential issues. This reduces the need for periodic, manual testing and enhances the agility of the audit process.
• Machine Learning for Sampling: AI can optimize sampling techniques by learning from historical data and identifying patterns, leading to more accurate and targeted sampling. This helps auditors focus on areas with higher inherent risks.
• Anomaly Detection: AI algorithms excel at detecting anomalies in data, making it easier to identify unusual or suspicious activities during testing. This enhances the effectiveness of control testing.
• Natural Language Processing (NLP): NLP can be employed to analyze textual information, such as policies and procedures, to ensure that testing aligns with the organization’s documentation. This reduces the risk of oversight and improves the completeness of testing.
• Risk-Based Testing: AI can assist in identifying and prioritizing areas for testing based on risk assessments. Auditors can focus testing efforts on high-risk areas, optimizing resource allocation.
• Adaptive Testing Strategies: AI allows for adaptive testing strategies that can be adjusted in real-time based on emerging risks or changes in the business environment. Auditors can respond quickly to new information and adjust their testing approach accordingly.

By integrating AI into internal audit testing processes, auditors can streamline procedures, improve accuracy, and focus on areas that pose the greatest risks to the organization. This not only enhances efficiency but also allows for a more targeted and effective audit approach.

QUESTION:- Can you give me an example as to how you can my traditional internal audit reports more appealing to readers?

ChatGPT

Certainly! Here are some enhancement:-

Enhancements Using AI:

• Data Visualization: Incorporate a visual representation of the error rates over time using a line chart or bar graph. Highlight the impact of manual errors on payment delays through a visually appealing infographic.
• Natural Language Generation (NLG): Use NLG to generate a concise and reader-friendly narrative that explains the significance of the findings in plain language. Turn statistical data into a relatable story, explaining how errors impact the company’s financial health and vendor relationships.
• Customized Insights: Tailor the report to different stakeholders, emphasizing aspects relevant to each audience. For finance teams, focus on the financial impact; for operational teams, highlight process efficiency improvements.
• Automated Report Generation: Implement automated report generation to save time and reduce the risk of manual errors in compiling data. Ensure the report is consistently formatted and easy to navigate.
• Dynamic Reporting: Provide a link to an online dashboard that dynamically updates with real-time data on the Accounts Payable process. Stakeholders can access the latest information whenever they review the report.
• Language Translation: If your organization has a global presence, offer a translated version of the report in key languages spoken by stakeholders. This ensures that language barriers do not hinder understanding.
• Sentiment Analysis: Use sentiment analysis to gauge the overall tone of the report and adjust language to maintain a balance between highlighting issues and providing solutions. Ensure that the report’s tone aligns with the organization’s culture and communication style.

By incorporating these AI-enhanced elements, your internal audit report becomes more visually engaging, tailored to the needs of different stakeholders, and efficient to generate and update. This approach can make the findings more accessible and actionable for a diverse audience.

FINAL QUESTION:-

Now I am intrigued but I have a major dilemma. I am the President of the Chartered Institute of Internal Auditors. I am elected to protect the interests of the members of this profession. What should I say to my members who may fear AI replacing them?

ChatGPT

Addressing the concerns of internal auditors regarding AI replacing their roles is essential for fostering understanding and managing expectations. Here are some key points you can communicate to your members:

• Augmentation, Not Replacement: Emphasize that AI is more likely to augment the roles of internal auditors rather than replace them entirely. AI can automate routine tasks, allowing auditors to focus on higher-value activities such as strategic thinking, analysis, and decision-making.
• Enhanced Efficiency and Effectiveness: Highlight how AI can enhance the efficiency and effectiveness of the internal audit process. Automation can streamline repetitive tasks, enabling auditors to allocate more time to critical thinking and addressing complex issues.
• New Opportunities for Skill Development: Communicate that the adoption of AI opens up new opportunities for skill development. Encourage members to acquire skills in data analytics, AI technologies, and other areas that complement and enhance their traditional auditing expertise.
• Focus on Value-Added Activities: Stress that AI can enable auditors to shift their focus from routine, manual tasks to value-added activities. This includes providing more strategic insights, advising on risk management, and contributing to decision-making processes within organizations.
• Ethical Use of AI: Emphasize the importance of ethical considerations in the use of AI in auditing. Reinforce the need for auditors to maintain oversight, ensure data integrity, and critically assess the outputs of AI systems.
• Continuous Learning Culture: Promote a culture of continuous learning among members. Encourage ongoing professional development to stay abreast of technological advancements and ensure that members remain relevant in a changing landscape.
• Collaboration with AI: Frame AI as a tool to collaborate with, not a replacement for, human auditors. Highlight that the synergy between human judgment and AI capabilities can lead to more robust and comprehensive audit outcomes.
• Job Evolution, Not Elimination: Communicate that jobs in internal auditing may evolve with the integration of AI, requiring a shift in focus rather than elimination. Point out that adaptability to technological changes is a hallmark of a resilient and forward-looking profession.
• Association Support: Assure members that the professional association is committed to supporting them through these changes. Provide resources, training programs, and forums for knowledge-sharing on AI-related topics.
• Transparent Communication: Maintain transparent communication about the organization’s AI strategy and its impact on the profession. Address concerns openly and be receptive to feedback from members.

By addressing these points, you can help alleviate concerns and instill confidence among your members that embracing AI can lead to a more dynamic, efficient, and resilient future for the internal auditing profession.