Recently, I wrote a short paper on business intelligence (BI) for a graduate course assignment. Much to my surprise, I found myself creating more questions about the value of BI for local government organizations than I could possibly answer. More importantly and more personally, I asked myself the question: can BI increase the value of internal audit for a local government organization?
Let’s approach this question by first defining the conventional definition of BI. Simply put, BI is the use of an organization’s data (data mining and analysis) to provide useful information to decision makers. The objective is to help the organization achieve its vision in the most efficient and economical manner. Well, with that understanding of BI, one would ask, “Is BI really something new?” After all, government auditors have probably been using analytics since the invention of the calculator to add value to their work. A more refined and practical definition of BI would be helpful here. From the many articles I have read on the subject, I would summarize BI as the use of data from throughout the entire organization that have been converted into relevant information designed and presented in a manner that helps managers predict the future and realize the organizational vision.
The City of Memphis has been working to implement a form of BI--the Balanced Scorecard. The article titled: Keeping Score on Strategy, by Tom Duffy, Microsoft Executive Circle Print, takes business intelligence to another level. It viewed BI as both an art and a science that obviously required a well-developed approach to gain the greatest business value. The real business value is getting decision makers the right information and at the right time. The article implies that the decision makers should be making decisions that implement the strategy that will lead the company toward its vision. Therefore, the approach offered to gaining the best value from business intelligence is the “Balanced Scorecard” (BS) approach.
The Balanced Scorecard approach differs from the traditional view of BI. Traditionally, the approach to BI has been to take data and find a way to package the data for decision makers. The BS places the emphasis on the business strategy and the collection of data that provided feedback regarding the strategy. The BS has five principles that make it clear that strategy instead of data should be the driving factor. The principles are 1) mobilize change through executive leadership, 2) translate the strategy to operational terms, 3) align the organization to the strategy, 4) make strategy everyone’s job, and 5) make strategy a continual process. The BS requires everyone in the organization to understand and know the interrelationship between business units and how they should interact to help the company achieve its visions.
The BS, therefore, requires a process to monitor and track the effectiveness of the strategies. It recommends the use of a few metrics to help assess the strategy. The metrics will need specific data elements. The data elements placed in the context of evaluating the strategy represent the real BI for the company. The BS also requires the use of technology to obtain and manipulate data elements.
For the City of Memphis and our balanced scorecard program, I see a very important role for internal audit. Inherently, City stakeholders will expect the same independent analysis and audit skepticism for certain balanced scorecard activities. Auditing the balanced scorecard could very well become a major component of our annual audit plan.
Predicting the future and forecasting strategic actions certainly do not sound like anything that auditors should do. Auditors typically provide their opinion on what has already happened and haven’t been in the forecasting business as a part of audit work. Perhaps some of us may have been involved in forecasting and strategic planning under the auspices of nonaudit or consulting services.
For clarification on this notion of using BI to add value to internal audit, I visited the trusted Yellow Book. I quickly began to evaluate the parallels between the role of BI and the yellow book concept of “accountability.” The yellow book discussion on “prospective focus”resonated in my mind and mentioned things such as identification of risks, risk mitigation, analytical services, research, etc. In a commentary on the subject of BI, Shelly Stalnaker, of BetterManagement.com noted that “companies use business intelligence to help them identify, mitigate, manage, and avoid risks.” This sounds a lot like what auditors should do by providing management a “prospective focus.”
Recently, the City of Memphis added a resource to its information technology area that has expertise in data mining. After spending a little time learning more about the job duties and responsibilities for this resource and the possibility of the City employing software support, I immediately began to mentally explore the possibilities of leveraging this resource to add additional value to our work.
While I feel strongly that opportunities exist for auditors to provide a prospective focus for local government organizations, I believe it is prudent to proceed with caution. There are several potential mine fields that auditors must avoid to provide this much needed service. For most local government organizations, the required expertise to associate raw data in a manner that provides timely, relevant, and consistent information may prove to be challenging. How will stakeholders (citizens, elected officials, management, etc.) view the information? Will internal auditors become in essence the de facto decision makers? The most significant concern regarding the use of BI for any organization is data quality.
I am sure all of you are familiar with information technology phase “GIGO,” garbage in, garbage out, as it relates to data entry and reporting. If the data entered in the systems are incomplete, inaccurate, untimely, irrelevant, etc. then the associated information will undoubtedly be unreliable. Coupled with GIGO, we must also be concerned with adequacy of controls over data collections throughout the entire organization at all times.
Nevertheless, public sector organizations should aspire to fully utilize their resources and avail themselves of any tool that helps to identify, mitigate, and manage risks, particularly since funding for most local governments is scarce. Likewise, internal audit should play a major role in providing decision makers with the best, most reliable, information available, including forecasting the impact of management decisions on the organization. I believe that using business intelligence responsibly and within the constraints of government auditing standards can provide a tremendous value to a government organization.
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