Office of Internal Auditing Transformation Change Readiness Assessment and Recommendations April 2, 2008.

Office of Internal Auditing Transformation

Change Readiness Assessment and Recommendations

April 2, 2008

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Contents

• Change Readiness Assessment – Purpose

– Delivery and Structure

– Summary of Participation

– Survey Assumptions

– High-Level Survey Results

• Detailed Survey Results

• Summary of Observations and Recommendations– Observations

– Detailed Recommendations

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Purpose

The purpose of the Change Readiness Assessment is to

• Take the pulse of the State of Ohio to determine what extent key stakeholders understand, support, and will implement changes.

• Understand the capacity and readiness of the current State of Ohio’s internal audit functions to adapt to change, based on past experiences and knowledge of House Bill 166.

• Provide a basis to enhance the OIA Transformation Communication Strategy and Plan to facilitate support (e.g., training, presentations, brown bags, leadership speaking points, focus groups, etc.).

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Delivery and Structure

Delivery and Timing

• The Change Readiness Assessment was distributed via a secure, web-based survey to agency leaders across the impacted agencies.

• The survey was available between March 4 – 14, 2008.

Structure

• The survey was divided into three areas: – Demographic Questions – two questions provided information that allowed responses to be

categorized based on agency and role.

– Range Questions – 15 questions prompted respondents to rate their level of agreement from a range of “strongly agree” to “strongly disagree”. Leadership/Sponsorship – How much sponsorship truly exists and is leadership visible and

effective? Organization and Culture – Can the State of Ohio’s culture and knowledge support the

changes introduced by the legislature? Resistance – How much resistance to organizational change really exists? Quality Assurance – Are internal audit best practices practiced and enforced? Communication – How effective are the current communication methods?

– Open Ended Questions – five questions asked respondents to describe overall concerns and challenges in establishing the OIA.

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Summary of Participation

The survey was sent to 118 individuals from 20 agencies providing an overall response rate of 45%.

* At least one response was received from each agency.

Surveyed Agencies*

Alcohol and Drug Addiction Services

Department of Mental Health

Bureau of Workers Compensation

Department of Mental Retardation

Department of Administrative Services

Department of Natural Resources

Department of Aging Department of Public Safety

Department of AgricultureDepartment of Rehab &

Correction

Department of Commerce Department of Taxation

Department of Development Department of Transportation

Department of Health Department of Youth Services

Department of InsuranceEnvironmental Protection

Agency

Department of Jobs and Family Services

Office of Budget and Management

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Survey Assumptions

During data classification, several assumptions were made in order to most accurately classify the survey results.

• In four instances individuals responded with more than one position. When analyzing the data by position, the more senior position was assumed and only counted once.

• Six respondents did not specify an agency. One respondent stated he/she did not work for an impacted agency in the open ended questions. Several other respondents sent an email stating they do not work in an impacted agency. Based upon these comments, their responses were eliminated from the data analysis.

• A non response to a question was not calculated.

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3%18%

79%

2%22%

76%

7%

30%63%

3%

29%68%

High Level Results

The Change Readiness Wheel is a graphical representation of the high level survey results based upon the four survey dimensions. Communication, the fifth dimension, is discussed in more detail later in this document.

Area Ready for Change Area of Potential Concern Area with Obstacles to Change

Organization and Culture

Agencies believe their culture can support the changes proposed by the legislature. Respondents were most concerned about whether internal audit professionals possess the appropriate skill sets for the transformation.

Resistance

Most respondents agree their internal audit professionals will be able to adapt and contribute to the changes introduced by the legislature. A few agencies are concerned more with their professionals’ ability to adapt to transformation.

Quality Assurance

In general, agency internal audit functions are following a quality assurance framework. Respondents are most concerned with understanding how internal auditing will add value to the agencies.

Leadership/Sponsorship

The majority of respondents believe their managers are successful at navigating through organizational changes. However, some areas exist where managers need more coaching on how to manage and support the transformation.

Overall, Agency Leaders believe they are positioned to adapt to changes to the legislative requirements with a supportive organizational culture and management team.

Detailed Survey Results

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Findings: Leadership/Sponsorship

Survey Results: Key Observations:

• Overall, Agency Leaders agree their managers are ready and capable of leading change.

• Agency Internal Audit Executives share potential concern with agency managers’ ability to coach and work with individuals who do not support change.

• ADA respondents show the highest level of potential concern with their agency managers’ ability to lead and manage organizational change.

Key Observations:

• Overall, Agency Leaders agree their managers are ready and capable of leading change.

• Agency Internal Audit Executives share potential concern with agency managers’ ability to coach and work with individuals who do not support change.

• ADA respondents show the highest level of potential concern with their agency managers’ ability to lead and manage organizational change.

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Findings: Organization and Culture

Survey Results:Survey Results: Key Observations:

• Overall, Agency Leaders report their culture and knowledge can support the changes introduced by HB 166.

• Agency Directors were the most confident in their agencies ability to accept the changes brought about with HB 166, while the Agency Internal Audit Executives were neutral.

• Respondents from AGR, DEV, and JFS were mostly neutral in their agency’s ability to adapt to change.

• The following agency’s internal audit staff may require additional coaching and skill development for integrating with the OIA: ADA, AGR, DEV, DMR, EPA, JFS, and OBM.

Key Observations:

• Overall, Agency Leaders report their culture and knowledge can support the changes introduced by HB 166.

• Agency Directors were the most confident in their agencies ability to accept the changes brought about with HB 166, while the Agency Internal Audit Executives were neutral.

• Respondents from AGR, DEV, and JFS were mostly neutral in their agency’s ability to adapt to change.

• The following agency’s internal audit staff may require additional coaching and skill development for integrating with the OIA: ADA, AGR, DEV, DMR, EPA, JFS, and OBM.

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Findings: Quality Assurance

Key Observations:

• Agency Leaders believe their internal audit functions strive to improve the quality of their work; however, variation exists across agencies related to following established internal audit best practices.

• CFO’s are most confident in their internal audit functions level of quality; however, a large portion of the respondents do not see the value that internal audit brings to their agencies.

Key Observations:

• Agency Leaders believe their internal audit functions strive to improve the quality of their work; however, variation exists across agencies related to following established internal audit best practices.

• CFO’s are most confident in their internal audit functions level of quality; however, a large portion of the respondents do not see the value that internal audit brings to their agencies.

Survey Results:

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Findings: Resistance

Survey Results:Survey Results: Key Observations:

• Agency Leaders report concern over their internal audit professionals’ ability to adapt to possible changes with the introduction of the OIA.

• The following agencies show concern over their agency’s internal audit professionals ability to easily adapt to possible changes from the creation of the OIA: AGR, DEV, DNR, OBM, and JFS.

• Overall, AGR respondents show the most concern over their internal audit staff’s ability to adapt to and participate in the changes with the creation of OIA.

Key Observations:

• Agency Leaders report concern over their internal audit professionals’ ability to adapt to possible changes with the introduction of the OIA.

• The following agencies show concern over their agency’s internal audit professionals ability to easily adapt to possible changes from the creation of the OIA: AGR, DEV, DNR, OBM, and JFS.

• Overall, AGR respondents show the most concern over their internal audit staff’s ability to adapt to and participate in the changes with the creation of OIA.

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MemosBulletin Boards

News-letters

Surveys FAQ'sStaff

Meetings

Formal Presenta-

tions

Open Panel

Forums

Brown Bag

LunchesEmail Internet

Conference Calls

Web Casts

Videos Voicemail

ADA AGE AGR BWC COM DAS DEV DOH DMH DMR DNR DOT DPS DRC DYS EPA INS JFS OBM TAX

Findings: Communication Preferences

As a whole respondents rated staff meetings, formal presentations, and memos as the most effective communication methods. Summarized are the top three preferred methods of communication for each agency:

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Question Themes

The greatest benefit of House Bill 166 to my agency is…

Increases accountability, consistent practices, and standards. Provides opportunity to increase internal audit knowledge across the agencies. Increases independence, autonomy, and professional culture of internal audit

professionals. Helps increase awareness of the value add of internal audit processes. No benefits seen in agencies where sub-recipient monitoring occurs and when

looking at losing top performing staff.

The greatest benefit of House Bill 166 to the State of Ohio is…

Provides a formal structure, vision, and standardized processes of internal auditing across the agencies.

Shows accountability to the taxpayers and builds fiscal integrity of the State. Improves visibility, transparency, and importance of internal auditing. Assists in curbing fraud and assessing State risks.

The greatest impact of House Bill 166 on my agency’s internal auditors is…

Creates uncertainty and disruption for individual agencies. Enhances the professional development opportunities of the internal audit

professionals. Changes current jobs and staffing models. Relocates current internal auditing professionals and shifts team sizes.

Findings: Open Ended Questions

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Findings: Open Ended Questions (cont’d)

Question Themes

My greatest concern with creating the Office of Internal Auditing or the Audit Committee is…

Lack of added value to the agencies. Changes current staffing models and structures. Creates a lack of institutional agency knowledge and program understanding. Impacts the scope of internal auditing and the State’s budget.

The greatest barrier to the successful implementation of the Office of Internal auditing or the Audit Committee is…

Introduces constraints with increased training and staffing needs. Creates a challenge in meeting all stakeholder’s needs. Increases the need for change management and communications to deliver

successfully. Creates a funding challenge.

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Findings: Additional Comments or Questions

Themes Comments

Concerns A flexible framework is needed to recognized the unique requirements for some agencies and to mitigate the internal audit functions that are currently working well in some agencies.

Concerned that loosing the internal auditors that are conducting sub recipient monitoring will cripple our ability to comply with regulations.

IT Audit should be considered as a part of OIT to minimize the large costs associated with ramping up the highly technical nature of the function.

Concerned that House Bill 166 is based on the assumption that major state agencies have significant internal audit resources and that it would be effective to relocated these resources under an independent authority. If this is the case, there are very few real “internal audit” resources in the major state agencies, and effective implementation may require either significant new resources or the use of a critical, understaffed, “external audit” or “monitoring” function.

Many questions and concerns remain unanswered.

As Office of Internal Auditing continues to further define itself and its mission, it is important to note that standardization and uniformity is only good to a certain extent when dealing with an extremely diverse landscape of agencies and entities. One size does not fit all. Thought should be given to retaining subject-matter audit experts for each agency. This may mean assembling a different audit apparatus for each agency or groups of similar agencies.

Additional comments or questions provided…

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Themes Comments

Support I applaud this effort, and eagerly embrace the concept of providing consistent fiscal controls for state departments. I also appreciate the apparent understanding that consistency does not equal total uniformity as departments, their functions, risk level and vulnerability vary.

I think this consolidation has all the potential of providing opportunities for team growth and adding value to agency operations through accountability.

Questions If agency internal auditors did not possess certain certificates or designations, would they be allowed ample time to achieve that goal?

How will those agencies without an internal audit function have their audit risk and audit universe determined?

Will employees be considered internal to OBM or their current agencies for employment opportunities?

Findings: Additional Comments or Questions (cont’d)

Summary of Observations and Recommendations

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Observations and Recommendations

Some observations can be addressed by multiple recommendations, while some recommendations apply to multiple observations. It’s important to not look at the recommendations in a vacuum, but as an integrated approach to successfully transform the OIA.Observation Recommendation

Agencies are open and willing to change if they understand the reason for change. Respondents want to be communicated to often, involved in the process, and understand how they will be impacted.

Communication Strategy and Plan

Readiness Workshops

OIA Awareness Campaign

Ongoing Stakeholder Assessment

Change Network

A majority of respondents understand House Bill 166 and see the benefit to their agency and the State of Ohio.

Leadership Alignment Workshops

Ongoing Stakeholder Assessment

Respondents are uncertain about job security, relocation, changes in job duties, and expectations.

Communication Strategy and Plan

Readiness Workshops

Change Network

Training Plan

Agency Internal Audit Executives overall show an openness to change, however were more neutral in responses as compared to other agency leadership positions.

Leadership Alignment Workshops

Readiness Workshops

Ongoing Stakeholder Assessment

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Observations and Recommendations (cont’d)

Observation Recommendation

A majority of respondents agree that their agency works well across boundaries and would accept potential changes brought with the creation of OIA. However, there are some concerns of whether their internal auditors’ possess the professional skills needed for integration.

Training Plan

Change Network

Agencies agree that leadership and sponsorship are ready for and can support change.

Communication Strategy and Plan

Readiness Workshops

Leadership Alignment Workshops

Internal auditors may feel some amount of resistance adapting to changes from the creation of OIA, but are willing to contribute to the development of standard processes and systems and adopt common processes and controls.

Communication Strategy and Plan

Readiness Workshops

Change Network

Varying levels of quality assurance and following best practices for internal auditing are established and enforced across the State of Ohio.

Training Plan

Different communication methods are most effective within the individual agencies.

Communication Strategy and Plan

Overall, for a successful transformation, we recommend leveraging the Agency Directors’ enthusiasm and confidence in House Bill 166 to overcome the Internal Audit Executives’ concerns related to the

ability to adapt to change and the skills sets required of the internal auditors within the Agencies.

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Detailed Recommendations

Activity Description

Office of Internal Auditing Awareness and Brand Campaign

Create a plan that targets the OIA customers and builds awareness and support for the goals and objectives of OIA. Communications should build awareness for OIA’s charter, mission and objectives; demonstrate the benefits of OIA to the State and individual agencies; provide an overview how agencies and the OIA work together; and educate the agencies on OIA’s processes.

Readiness Workshops

Conduct a series of focus group sessions with internal auditors, leadership, and other key stakeholders at each agency to discuss impacts and prepare stakeholders for changes.

Leadership Alignment Workshops

Conduct workshops to confirm agency leaders understand the changes to their internal audit staff, become sponsors of the changes, and enlist colleagues and internal auditors in support of the changing environment. The success of this transformation will be driven, in part, by how leaders support (and communicate) changes and willingness to coach and work with individuals who do not support change.

Communication Strategy & Plan

Create a strategy and plan focused on equipping leaders, employees, and other stakeholders to understand and embrace the transformation of agency internal audit functions. The plan should address questions related to job security, relocation, change in job duties, and expectations. The plan should also consider the best methods for communicating with each of the agencies.

A detailed description of Change Readiness Assessment recommendations:

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Detailed Recommendations (cont’d)

Activity Description

OngoingStakeholder Assessment

Monitor commitment levels during the transformation to confirm stakeholders are moving to the desired level of the commitment curve. Keeping the pulse of the stakeholders helps to keep the transformation on track and can help mitigate obstacles if a particular stakeholder is not progressing to the desired level.

Change Network Establish a Change Network to include individuals from the impacted agencies, and at different levels of the OIA. This team would act as a sounding board for OIA’s leadership to understand employee perceptions of the transformation. Change Network members should be tasked with (1) sponsorship of the change, (2) communicating changes within their agency, (3) reviewing and providing feedback on communications/training materials before distribution, and (4) sponsoring celebrations of transformation milestones and holding team building activities. It is important to consider including members that are supporters and non-supporters of the change. When non-supporters become advocates of the change, they help “sell” the concept to others in the agencies.

Training Plan Create a plan to equip transitioned OIA leaders and employees for their new positions, outlining the knowledge, skills, and abilities required to support OIA’s mission and objectives.