The importance of auditing the culture of your organisation

Organizational culture includes all aspects of an organization’s environment. Each employee’s total life experience combines with that of all other employees to create part of the corporate culture.

Your culture is an amalgamation of these life experiences, combined with the enormous impact of executive influence on the corporate culture. As a result, managers strive to build the right corporate culture. While a corporate culture inspires teamwork and improves organizational effectiveness, a predatory culture seeds conflict.

A ‘cultural audit’ can offer a useful snapshot of the prevailing culture and help identify any issues that need to be addressed. The audit can draw on many different forms of evidence ranging from qualitative to quantitative.

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The first step in a culture audit is often to make the case for auditing culture. The right culture delivers better on business strategy and achieves a greater competitive advantage, while the wrong culture breeds disaffection and erodes the control environment. Some corporate collapses are attributable to some degree to a "hero culture" that had gone unchallenged.

Audits can empirically assess culture, and internal audit is uniquely positioned to provide a panoramic and in-depth view, as its level of independence means it is the function likely to be least affected by vested interests.

Once the case has been made for an audit, the second step is to gain the support of the board and audit committee. This often means overcoming the skepticism that surrounds culture audits. Some boards may ask whether culture can be audited at all. In order to achieve this, you’ll need to articulate the value of internal audit and the fact that it is uniquely positioned to provide a panoramic and in-depth view, as its level of independence means it is the function likely to be least affected by vested interests. Do this while determining whether you seek to be a general barometer or provide insight into a specific area or aspect of the business.

 The next step is to take a risk-based approach. Since culture touches every part of an organization, it isn’t possible to audit all of it in one go. Focus on areas where there is a greater inherent cultural risk (such as high sales commission, locations with higher levels of corruption or a transient workforce), or where there is already evidence of a cultural risk forming (such as poor engagement scores or a high turnover of leaders).

 It is very important to be strategic about resourcing by considering which resource model best suits your audit. One model involves building a specialist team (by hiring specialists in organizational psychology, people and change, HR and organizational design, where these teams have a dedicated capability to audit culture, values and change programs.) This approach earns credibility quickly, but can be an expensive option if the auditors cannot be redeployed to resource audits across the rest of the plan. This method is more common with larger teams in more complex companies.

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 A second model involves establishing competencies in auditing culture by training existing audit teams to incorporate culture audit objectives into audits they currently undertake. Acquiring skills through training can take time and it may still be appropriate to hire specialist skills in the early audits while knowledge transfer takes place. A third model involves integrated audits using the skills of second-line defence functions (risk management and compliance) and/or guest auditors from specialist disciplinary teams. This can be effective as long as the risk of self-review is managed. A final model to consider involves co-sourcing (obtaining the necessary skills on a targeted and temporary basis). This method can be more economical for smaller functions.

 It is important to tailor your approach to the organization by choosing the most appropriate audit method. This can either be discrete (undertaking targeted audits around specific culture risks e.g. a specific business unit, geography or business objective), component (incorporating the assessment of cultural objectives into a wide range of audits, providing greater coverage) or consolidated (examining all audit evidence, be it from specific audits targeted on culture, wider audits or other internal audit activity such as attending programme boards. This results in a single point of view on culture).

 When reporting on culture, consider including context and areas working well: not just reporting by exception. Also, supporting culture observations with specific examples as far as possible. Vary the depth and approaches of your recommendations. It is also important to consider how to drive real organizational change by, for example, setting out the specific steps or behaviours that would lead to stronger cultural performance assessments.

Michael Armstrong (FCA) is the ICAEW Regional Director for Middle East, Africa and South Asia.

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