A Time for Transformation: Internal Audit Helps Guide Barclays in Mission to Become “Go-To” Bank

A Time for Transformation: Internal Audit Helps Guide Barclays in Mission to Become “Go-To” Bank

Internal Audit - Barclays
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Company Headquarters — United Kingdom

Number of Countries Operates in — 50+

Number of Employees in Company — 140,000

Industry — Financial Services

Annual Revenues — gB£28 billion (as of dec. 31, 2013)

Number in IA Function — 621

Number of Years IA Function Has Been in Place — 100+

IA Director/CAE Reports to — Audit Committee and Chief Executive Officer

 

 


“ Internal audit is now the facilitator and champion of GRC across the organization.”

Michael Roemer


 

Barclays PLC can trace its roots back to 1690, when two goldsmith bankers, John Freame and Thomas Gould, started trading in Lombard Street, London. More than 300 years later, the financial services provider has built an extensive international presence in more than 50 countries across four continents. It’s also credited with a number of firsts, including offering the first credit card in the United Kingdom in 1966 – the Barclaycard – and introducing the world’s first automated teller machine (ATM) in 1967.

Barclays’ operations include personal banking, credit cards, corporate and investment banking, and wealth and investment management. The company reported GB£28 billion in revenue in 2013. The major U.K. retail bank operates Barclaycard under its own brand in the United Kingdom, Germany, and several other countries, and offers a cobranded card in the United States. Barclays is also a major investment bank in the United States and the United Kingdom. Additionally, it has a major presence in Africa, operating in 14 countries on the continent.

Michael Roemer joined Barclays as head of internal audit in January 2012, taking over the role from an interim chief auditor. He came on board in a year that would prove to be one of Barclays’ most challenging in its long history. First, the company was changing its shape, moving from a federated or vertical model to a more horizontal structure. Second, while it was in the process of restructuring, the LIBOR scandal hit in July 2012, and both Barclays’ chairman and chief executive resigned soon after.

As was subsequently recognized by a number of parties, including the investigating authorities, the fact that the LIBOR submission process was an unregulated activity – and until the financial crisis, was deemed low risk – meant that there was not the level of focus on scrutinizing this activity as compared to others deemed higher risk. Part of the bank’s philosophy is to ensure it seeks to learn from these instances for the future.

A fundamental but necessary shift

In August 2012, Barclays named a new chief executive, Antony Jenkins, who was previously chief executive for Barclays’ Retail and Business Banking business. He launched a transformation program with a corporate goal of turning Barclays into a “Go-To” bank. Roemer says, “It sounds simple, but it’s a very complex goal to achieve.”

As part of this effort, Barclays developed a Purpose and Values program and framework for the entire organization. Barclays’ newly defined purpose is “to help people achieve their ambitions – in the right way.” The company also has committed to measuring and rewarding its people “not just on commercial results, but how they live [Barclays’ values].” Those values include respect, integrity, service, excellence and stewardship. All 140,000 employees at Barclays are required to participate in structured training specific to this program.

This new focus for Barclays is a fundamental but necessary shift, says Roemer: “Senior leadership discussed the impact of what the behaviors and attitudes of a few people in the company had done to Barclays’ reputation, brand and market capitalization. Out of these discussions came an understanding that Barclays’ culture needed to change.”

Another part of Barclays’ transformation, according to Roemer, is a concerted effort to try to make every strategic and tactical decision through the “lens” of the customer. “If we’re going to create a new product, for example, we consider why we’re creating it, which customers will use it and how they will benefit, and whether the product is priced fairly and is easy for customers to understand,” he explains.

Focus on the “Four P’s”

Like Barclays itself, the company’s internal audit department has a long history. The function began in the late 19th century as the “Inspection” department, which employed one inspector. Today, there are 621 internal auditors on Barclays’ internal audit team.

When Roemer arrived at Barclays in 2012, he spent time gathering feedback from clients, regulators and auditors. Through that effort, he identified opportunities to move the internal audit function to the next level and implemented a “very robust people agenda” for internal audit. This includes sharing the performance objectives of the chief auditor, which are set by the board audit committee. “These are publicized to the whole group and the performance objectives for the rest of the team cascade from them,” Roemer explains.

Roemer also instituted the “Four P’s” concept in the function: people, partnership, process and performance. Each of the P’s is designed to help internal audit at Barclays focus on becoming more effective. For example, Roemer says the “people” aspect includes initiatives such as a guest auditor program, and efforts under “partnership” include moving internal audit away from its image as a “police function” and more toward becoming a strategic partner with management.

“Process” was definitely an area with opportunity for improvement, says Roemer: “We were conducting about 300 audits per year – 3,000 hours per audit, 20-30 pages per report. It was difficult for the business to understand what was important. So, we retooled our methodology and simplified the technology our auditors were using. In the old system, 400 fields of data were required to start an audit. Now, it’s down to 70, and we’re trying to reduce that number even further.”

These changes have allowed Barclays’ internal audit team to expand their coverage significantly. “In 2012, we conducted 450 audits. Last year, it was 600. In 2014, we expect to reach 700,” Roemer says. “The audits now average about 600 hours, and they’re much more focused. We use a risk assessment to fine-tune our approach. Reporting is also simplified; our reports are mobile device-friendly and now average three to six pages.”

Another change: Internal audit has added a management control approach rating to complement both its control environment assessment and Barclays’ Purpose and Values program, Roemer says. Additionally, as of 2014, most audits at Barclays now include reviews of risk, culture and fraud.

Roemer spearheaded the effort to redesign and simplify Barclays’ governance, risk and compliance (GRC) framework as part of the company’s transformation. One outcome of this effort is a comprehensive guide, available on the company’s website, that outlines how Barclays operates – from its governance structures and control environment to employees’ code of conduct and management’s strategic decision-making process.

“Internal audit is now the facilitator and champion of GRC across the organization,” says Roemer. “GRC is now built into the onboarding process for the organization, and it’s a part of every employee’s accountabilities and performance assessment at the end of the year.”

A destination for top talent

When Roemer joined Barclays as head of internal audit, one of his goals was to help make Barclays the employer that “every internal auditor in the world wants to work for.” He says he wants the company to be known for its emphasis on professional development for internal auditors, and its effective use of technology to help save the audit team time and “free up their minds.”

Roemer says the company is making progress: “The changes we have made so far are intended to help remove bureaucracy. As a result, we’ve been able to expand our audit coverage exponentially without increasing the size of our staff. Also, our continuous auditing and monitoring work is leading to a more predictive and proactive approach to risk and audits. Our internal auditors now have more time to look at risk and understand the business.”

Other results, according to Roemer, include a “dramatic” decline in turnover in the department. Internal audit is receiving more requests from the business to conduct audits. The chief auditor is now invited

to every executive committee meeting. And people in the organization are clearly starting to view the function differently. Roemer says: “In January 2014, we had 100 requests to participate in our guest auditor program. The view now internally is that internal audit is a fun place to work, as well as a place to develop professionally and make a huge impact on how Barclays does things in the future.”

He adds, “I do think that since the financial crisis the internal audit function, especially in the financial services industry, is looked at more as a place of reason – and as the conscience of the organization. When internal audit is supported and viewed in a positive way by the organization, it can be a very exciting place to be.”

 

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