In today's dynamic business environment, organizations frequently undergo significant transformations such as mergers, acquisitions, system implementations and reorganizations. These transformations can have far-reaching impacts on a company's strategy, operations, controls, compliance and financial results.
Internal auditors play a vital role in assessing the effectiveness and efficiency of post-transformation integrations. These audits are essential to ensure that integration processes are executed correctly, risks are identified and mitigated, and controls are in place to safeguard the organization's assets and financial reporting.
Internal auditors should be well versed in several key concepts when conducting post-transformation audits.
What is considered a transformation project?
Transformation projects can encompass a wide range of activities that can significantly alter a company's landscape (such as its strategy, operation, controls, compliance or financial results). Common transformation initiatives include mergers, acquisitions, joint ventures, dispositions, major system implementations, reorganizations and layoffs.
After a transformation project, the results must be integrated into the organization, such as integrating the people, processes and technologies of an acquisition or realigning work after a reduction in force. Regardless of the project's size, there should always be a plan for integration.
Internal audit should assess these integration plans to provide greater assurance of achieving the company's objectives, achieving synergies, and reducing risks.
Internal audits of post-transformation integration projects
Auditing post-transformation integration efforts is essential to ensure the integration process is efficient, effective and compliant with relevant regulations and policies. It also helps protect sensitive data and assets. A successful transformation project may be wasted if it is not properly integrated into the company.
Internal audit is uniquely positioned to evaluate the integration approach before, during and after the project. This includes assessing whether the integration effort is designed to succeed, identifying lacking resources, and determining if management has the best perspective on the integration. Additionally, internal audit can independently report on the success of the transformation, providing valuable insights to management and the board.
Internal audit's steps to success
Step 1: Attend the kickoff meeting
The kickoff meeting is crucial for defining the purpose of the transformation and integration, setting expectations, and identifying leaders and priorities. If no project champion exists, evaluate the project's governance and report to management and the board.
Step 2: Risk assess
Identify and quantify integration risks with stakeholders and challenge how those risks are evaluated and prioritized when necessary. Emphasize the importance of risk management strategies to mitigate potential adverse impacts.
Step 3: Maintain regulatory compliance
Ensure compliance with relevant regulations during integration. Monitor the company's compliance with banking authorities, securities commissions, anti-money laundering and other regulations.
Step 4: Address financial reporting and accounting standards
Stress the importance of maintaining strong internal control over financial reporting and accounting standards compliance. This is especially critical for companies operating under the Sarbanes–Oxley Act. Monitor compliance and risk exposure during the integration, especially in systems implementations.
In some instances, updated accounting policies and procedures will be required to sufficiently achieve compliance.
Step 5: Data security and privacy
Highlight the importance of data security and privacy, with special attention to financial services requirements due to heightened cybersecurity risks in the sector. Monitor data protection and cybersecurity risks during and after integration.
Step 6: Customer data protection and consent
Ensure customer consent and data protection measures are managed during integration. The integration project should manage communications to customers to ensure all required consents are obtained. Assess impacts on business continuity and disaster recovery plans and evaluate how the integration team will address changes.
Step 7: Cultural integration
Internal marketing and cultural alignment are critical for project success, especially during an integration. Address conduct risk related to employee behavior and ethics.
Other considerations
In addition to the outlined steps, other important considerations for internal auditors in post-transformation integrations include M&A due diligence, operational and system integration challenges, and fraud risk management.
Successful integrations for a successful future
With the right steps, internal auditors can help organizations achieve their integration objectives efficiently, effectively, and in compliance with regulations, safeguarding the company's assets and future success. Third parties specializing in accounting and reporting can especially provide value on how to successfully audit your company's integration efforts.
