The real estate internal auditor of the future
The real estate internal auditor of the future
As our ever-changing world presents new challenges, businesses are tasked with adapting to future standards, and BDO Risk Advisory Services Director Farhana Hassim speaks to this business evolution for the real estate internal audit function, specifically in consideration of REITs. She highlights how the internal audit function needs to shift from a more tradition financial assurer into an agile, trusted advisor with specialists addressing digital, ESG, and change management needs.
Hassim says that some of the prevalent risks in the real estate sector of late have resulted in REITs refocusing their resources to remain sustainable, value adding businesses in the longer term. REITs have started to future-proof their businesses by navigating their own forward-thinking strategic initiatives.
She advises that as this shift continues to occur, the role of the internal auditor must evolve from the traditional as REITs require more specialised skills from their internal audit teams such as Digital, ESG, and change management. “While some changes seem further away than others, it is still important that a REITs internal audit function understands their role in the shift, remains agile, and continually ensures the necessary skills to be a trusted advisor.”
What has led to this shift in real estate and a need for internal auditors to change their value proposition? “For real estate, it was the pandemic which prompted organisations to change their approach to managing risks. This has led to a refocus of internal audit plans to areas that matter.”
In the pointers below, Hassim highlight some of the skills a REITs internal audit function needs to possess to add value to its clients.
DIGITAL TRANSFORMATION AND DATA SKILLS
The adoption of AI technology is rapidly increasing across all industries, including retail and real estate. In addition to pure AI technology adoption, businesses are focused on automation and streamlining processes to improve operations.
Internal auditors can play a vital role in the maturity of an organisation’s digital journey over time. Internal audit teams must comprise of the necessary skills to be an effective role player in this space. This means that as REITs implement more technology alongside internal audit functions, their plans must consider pre- and post-implementation reviews, review management’s intended process controls (recommending improvements too), embed data analytics in the internal audit plan, and explore opportunities to optimise data and data analytics.
As digital transformation strategies are implemented, the internal audit plan can be consistently aligned to ensure the internal audit functions’ digital maturity also improves.
NON-FINANCIAL REPORTING
Internal audits have traditionally focused on assuring financial Information. But in recent years, boards and other stakeholders have placed greater emphasis on the need for internal controls to supply accurate and sustainable non-financial information. Thus, in cases where it’s needed, internal auditors should work with management and ESG specialists for assistance with non-financial reporting assurance, as well as considerations around management’s maturity and needs when it comes to ESG.
A forward-thinking internal audit plan must consider management’s risk, strategy, and implementation plans around ESG. The internal audit function of the future must have the relevant ESG skilled resources as part of the overall team.
CHANGE MANAGEMENT AND PEOPLE SOLUTIONS
Change management is becoming a key focus area not only for REITs, but for businesses in general that are future focused. Internal audit functions will need to have the necessary skills on board to work with management in real time to ensure change management is effectively employed at all stages of strategy execution. It is important to note that change management no longer only refers to system changes, but also the changes which affect human resources strategies across businesses.
In South Africa particularly, we have seen “people” rise as an emerging risk on many risk registers. This is largely driven by the implementation of digital transformation which affects change management, emigration of skilled workers to other countries, and cost reduction measures affecting employment. Forward thinking internal audit functions must be able to provide the necessary skills on the team when it comes to change management and people solutions.
COMBINED ASSURANCE
Internal auditors play a vital role in any organisation’s combined assurance model as its third line of defence. The traditional annual three-year audit plan has become stagnant. Instead, an agile audit plan that adjusts to the risk profile of an organisation now provides the best value to clients. When a REITs risk profile changes due to emerging risks or change in strategic direction, the internal audit plan should be updated accordingly.
In addition to being an agile third line of defence, the internal audit function should review the REIT’s combined assurance plans at least quarterly to provide comfort to management and the risk committee. Internal auditors should also understand the client’s risk profile to ensure that areas which are not necessarily part of the internal audit universe, such as valuations and tax, are still covered in the combined assurance plan.
As forward-thinking strategies such as digital transformation and ESG become more prevalent, we should also see a change in the combined assurance providers and even lines of defence in the future.
Key role players of the future in the REIT space could be data scientists, actuaries, and HR/change management specialist consultants and advisors, as an example. The internal audit function must remain agile and up to date with these changes, and have the necessary skills to navigate these changes to clients’ combined assurance plans.
In conclusion, she says the real estate internal auditor of the present and future needs to constantly adapt to changing REIT risk profiles if they are to continue adding value to any business.
“The real estate internal audit function of the present and future needs to have the necessary skills to transcend from a traditional role into a trusted advisor to management, boards, and stakeholders.”
Author: BDO Risk Advisory Services Director Farhana Hassim
Hassim says that some of the prevalent risks in the real estate sector of late have resulted in REITs refocusing their resources to remain sustainable, value adding businesses in the longer term. REITs have started to future-proof their businesses by navigating their own forward-thinking strategic initiatives.
She advises that as this shift continues to occur, the role of the internal auditor must evolve from the traditional as REITs require more specialised skills from their internal audit teams such as Digital, ESG, and change management. “While some changes seem further away than others, it is still important that a REITs internal audit function understands their role in the shift, remains agile, and continually ensures the necessary skills to be a trusted advisor.”
What has led to this shift in real estate and a need for internal auditors to change their value proposition? “For real estate, it was the pandemic which prompted organisations to change their approach to managing risks. This has led to a refocus of internal audit plans to areas that matter.”
In the pointers below, Hassim highlight some of the skills a REITs internal audit function needs to possess to add value to its clients.
DIGITAL TRANSFORMATION AND DATA SKILLS
The adoption of AI technology is rapidly increasing across all industries, including retail and real estate. In addition to pure AI technology adoption, businesses are focused on automation and streamlining processes to improve operations.
Internal auditors can play a vital role in the maturity of an organisation’s digital journey over time. Internal audit teams must comprise of the necessary skills to be an effective role player in this space. This means that as REITs implement more technology alongside internal audit functions, their plans must consider pre- and post-implementation reviews, review management’s intended process controls (recommending improvements too), embed data analytics in the internal audit plan, and explore opportunities to optimise data and data analytics.
As digital transformation strategies are implemented, the internal audit plan can be consistently aligned to ensure the internal audit functions’ digital maturity also improves.
NON-FINANCIAL REPORTING
Internal audits have traditionally focused on assuring financial Information. But in recent years, boards and other stakeholders have placed greater emphasis on the need for internal controls to supply accurate and sustainable non-financial information. Thus, in cases where it’s needed, internal auditors should work with management and ESG specialists for assistance with non-financial reporting assurance, as well as considerations around management’s maturity and needs when it comes to ESG.
A forward-thinking internal audit plan must consider management’s risk, strategy, and implementation plans around ESG. The internal audit function of the future must have the relevant ESG skilled resources as part of the overall team.
CHANGE MANAGEMENT AND PEOPLE SOLUTIONS
Change management is becoming a key focus area not only for REITs, but for businesses in general that are future focused. Internal audit functions will need to have the necessary skills on board to work with management in real time to ensure change management is effectively employed at all stages of strategy execution. It is important to note that change management no longer only refers to system changes, but also the changes which affect human resources strategies across businesses.
In South Africa particularly, we have seen “people” rise as an emerging risk on many risk registers. This is largely driven by the implementation of digital transformation which affects change management, emigration of skilled workers to other countries, and cost reduction measures affecting employment. Forward thinking internal audit functions must be able to provide the necessary skills on the team when it comes to change management and people solutions.
COMBINED ASSURANCE
Internal auditors play a vital role in any organisation’s combined assurance model as its third line of defence. The traditional annual three-year audit plan has become stagnant. Instead, an agile audit plan that adjusts to the risk profile of an organisation now provides the best value to clients. When a REITs risk profile changes due to emerging risks or change in strategic direction, the internal audit plan should be updated accordingly.
In addition to being an agile third line of defence, the internal audit function should review the REIT’s combined assurance plans at least quarterly to provide comfort to management and the risk committee. Internal auditors should also understand the client’s risk profile to ensure that areas which are not necessarily part of the internal audit universe, such as valuations and tax, are still covered in the combined assurance plan.
As forward-thinking strategies such as digital transformation and ESG become more prevalent, we should also see a change in the combined assurance providers and even lines of defence in the future.
Key role players of the future in the REIT space could be data scientists, actuaries, and HR/change management specialist consultants and advisors, as an example. The internal audit function must remain agile and up to date with these changes, and have the necessary skills to navigate these changes to clients’ combined assurance plans.
In conclusion, she says the real estate internal auditor of the present and future needs to constantly adapt to changing REIT risk profiles if they are to continue adding value to any business.
“The real estate internal audit function of the present and future needs to have the necessary skills to transcend from a traditional role into a trusted advisor to management, boards, and stakeholders.”
Author: BDO Risk Advisory Services Director Farhana Hassim