IA and AI

For the past 20 years, Protiviti has been publishing a regular whitepaper series on leading practices by internal audit functions titled “Internal Auditing Around the World.” For its milestone Internal Auditing Around the World 20th Anniversary Edition, Protiviti elected not to focus on the practices of individual internal audit teams, but instead to chronicle the progress the profession has made during the two decades of the series.

Summary of Findings:

  • Strategic Evolution: Internal audit functions have shifted from compliance-focused roles to strategic partners, adding significant organizational value.
  • Value Delivery: The focus has broadened from compliance to a wide array of assurance and advisory services, redefining internal audit as a key provider of strategic insights.
  • Board Engagement: Internal audit leaders are now more engaged with boards, advising on high-risk areas such as cybersecurity, fraud, and sustainability.
  • Technology Integration: The modernization of internal audit is driven by advancements in data analytics, automation, and AI.
  • Talent Development: Leading audit functions prioritize diverse talent, emphasizing both technical expertise and soft skills like communication and critical thinking.
  • Agents of Change: Top-tier internal audit teams act as catalysts for organizational change, helping to mitigate risks and seize opportunities.

Future Strategic Directions:

  • Prioritize Transformation: Align internal audit transformation efforts with both immediate business needs and long-term strategic planning, focusing on enhancing processes, customer experiences, and operational efficiencies.
  • Lean on Technology: Embrace technology as an integral part of audit practices to enhance the relevance and value of internal audit.
  • Cultivate Talent: Develop high-performing professionals who can address complex risks and bring strategic focus to internal audit.
  • Adopt an Innovation Mindset: Approach organizational challenges with innovative solutions, extending beyond just technological advancements.
  • Strategic Partnering: Enhance collaboration and communication to align internal audit priorities with those of the board and C-suite, ensuring that internal audit remains a strategic partner in the organization.

Protiviti’s report underscores the importance of these strategies for Chief Audit Executives (CAEs) and their teams to remain at the forefront of the evolving internal audit profession and their teams to remain strategic, highly relevant, focused on value and opportunities, centered on risk, and empowered by technology as advisors.

How to use COSO to implement and scale AI projects

Amid a surge in technological capabilities, many organizations are rapidly deploying artificial intelligence (AI) to make maximum use of data and make certain processes more efficient and effective. But along with opportunities for improvement, AI can pose risks that often are not isolated to a single department such as IT, but affect multiple functions throughout an organization.

As a result, organizations need governance, risk management, and controls to take advantage of AI’s benefits while operating within their own risk appetite. Effective enterprise risk management (ERM) can guide an organization’s strategy in this area, and this topic is addressed in research published by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

COSO is a joint initiative of five private-sector organizations, including the AICPA, that develops thought leadership to enhance internal control, risk management, governance, and fraud deterrence. Over the last few years, COSO has endeavored to publish application-oriented guidance that helps organizations apply its principles-based frameworks to challenges and opportunities they encounter.

The guidanceRealize the Full Potential of Artificial Intelligence, describes how an organization can use the COSO ERM Framework and principles to help implement and scale AI projects. The publication is authored by Deloitte & Touche LLP, and it further explains how Deloitte’s proprietary, nonauthoritative AI framework can be considered in AI implementation.

The COSO guidance explains that by understanding AI-related risks, an organization may be better positioned to deliver return on investment and meet shareholder expectations. Through ERM, organizations can refine and adapt their AI efforts to effectively support their strategies.

COSO Chairman Paul Sobel said in an interview that some companies are implementing AI projects one at a time without considering how AI as a whole fits into their governance processes and strategy.

“You have to view AI from a broader perspective,” he said. “You need governance over your AI initiatives. You need to make sure they fit with your strategies and objectives. You need to understand the risks associated with it and how to manage and monitor those risks.”

According to the guidance, AI platforms need to be:

  • Trusted, because ERM is transparent by nature and it helps keep an organization abreast of its risks and opportunities;
  • Tried, with models continually tested and vetted to make sure they are operating as intended; and
  • True, with governance, risk management, testing, and monitoring processes that help AI platforms reflect the organization’s values and protect its reputation.

Sobel said organizations need to carefully consider whether they have the right governance in place over AI.

“It’s important to have good governance over any sort of technology-type initiative, and then the strategy and objective-setting component is, make sure you’re doing this because it actually links with and enables a strategy or objective,” he said. “You’re not doing it just because you can.”

Once governance is established and strategies and objectives are defined, organizations can more effectively consider the risks and how to manage them.

Sobel expects use of AI to continue to accelerate, partly as a result of the coronavirus pandemic. A trend toward automation coupled with worker shortages has increased the likelihood that businesses will use AI to handle certain tasks.

Indeed, research published by IBM indicates that 43% of IT professionals said their company has accelerated its rollout of AI as a result of the pandemic. “We know it’s going to be exploding so much in the future,” he said, “and it would be very helpful for companies to read and understand how to look at AI a little more holistically just like any other type of risk or initiative and apply those COSO components and principles in such a way that it can help optimize your success with it.”

Continental Artificial Intelligence Strategy

More than 130 African ministers and experts have virtually convened from June 11 to 13, 2024 for the 2nd Extraordinary session of the Specialized Technical Committee on Communication and ICT to ignite digital transformation across the continent amidst rapid evolutions in the sector fuelled by artificial intelligence (AI) technology and applications.

The Continental AI Strategy provides guidance to African countries to harness artificial intelligence to meet Africa’s development aspirations and the well-being of its people, while promoting ethical use, minimising potential risks, and leveraging opportunities. 

These steps were reinforced during the 2nd Extraordinary session of the Specialized Technical Committee on Communication and ICT, aiming to propel Africa’s role in global digital governance and ensure that the unique challenges and contexts of Africa are addressed in the global discourse around digital technologies.

The Next Seven Steps Towards a Continental Artificial Intelligence Strategy

  1. Harnessing AI for Development: African ICT and Communications Ministers endorsed a Continental Artificial Intelligence (AI) Strategy to leverage AI for Africa’s development goals, emphasizing ethical use and risk minimization.
  2. People-Centered AI Approach: The strategy emphasizes an Africa-owned, inclusive, and development-oriented approach to build AI capabilities in infrastructure, talent, datasets, innovation, and partnerships while ensuring protection from threats.
  3. AI for Diverse African Realities: Adapting AI to reflect Africa’s diversity, languages, culture, and contexts, aiming to create an inclusive AI ecosystem and a competitive African AI market.
  4. Building AI-Ready Environments: Developing human capital, research and innovation ecosystems, and an AI-ready regulatory environment to apply AI in education, health, agriculture, infrastructure, peace, security, and governance.
  5. Investing in Youth and Innovators: Focusing on investing in African youth, innovators, computer scientists, data experts, and AI researchers to succeed in the global AI arena.
  6. Adoption of the African Digital Compact: Endorsing the African Digital Compact, a vision for Africa’s digital future to foster sustainable development, economic growth, and societal well-being through digital technologies.
  7. Empowering Participation in the Digital Economy: Highlighting the importance of capacity building, knowledge transfer, and creating enabling ecosystems to empower Africa’s youth, private sector, and institutions for participation in the digital economy.

Google and Deloitte Drive Climate Action with Digital Solutions

Google’s new Digital Sprinters sustainability report, commissioned by Deloitte, explores how digital technologies like AI and IoT can accelerate climate solutions, particularly in developing markets. The report emphasizes the role of public policy in deploying these solutions and offers strategic recommendations to drive digital transformation for climate action.

Key Impact Points:

  • Digital Tech for Climate Action: AI, IoT, and cloud platforms can significantly reduce global emissions.
  • Policy Recommendations: Focus on infrastructure, education, innovation, and enabling policies to drive digital transformation for climate action.
  • Climate Resilience: Digital tools enhance forecasting and response strategies, crucial for areas highly susceptible to climate impacts.

Digital Tech for Climate Action

Google, in partnership with Deloitte, has launched the Digital Sprinters sustainability report. This report examines how digital solutions such as AI and IoT can reduce emissions and promote sustainability. Google’s commitment to using technology to combat climate change spans three decades, recognizing the significant potential of digital tech to accelerate meaningful action.

We believe that fighting climate change is an important collective challenge and for three decades, we have been using technology to accelerate meaningful action

Google

Policy Recommendations

The report provides policy recommendations across four strategic areas: Infrastructure, People, Enabling Policies, and Technology Innovation. These recommendations aim to enhance digital transformation and support climate action:

  • Infrastructure: Policies expanding internet access and data availability, along with public support for satellite and IoT deployment, can create an environment conducive to effective climate solutions.
  • People: Enhancing digital education can develop a workforce skilled in climate science and digital technology.
  • Technological Innovation: Establishing innovation hubs, supporting early-stage digital businesses, and adopting digital climate solutions can bolster government initiatives.
  • Enabling Policies: Creating standards for climate-related information and using digital tools to implement sustainability regulations can help foster sustainable markets.

Climate Resilience

With over 3.6 billion people living in areas vulnerable to climate change, digital tools are essential for crisis response and building resilient infrastructure. These technologies enable precise climate impact forecasting and improve decision-making, automation, and innovation.

Digital tools enable precise climate impact forecasting through data collection and analysis, forming the basis for planning and response strategies,” highlights the report.

Google’s Digital Sprinters framework assists governments in shaping policies for digital transformation. The report underscores the need for strategic public policies to deploy digital solutions effectively, thereby accelerating climate action and fostering economic growth.

Swiss Government’s contribution to the Green Climate Fund

There is a shrinking window of opportunity to address the climate crisis. Average global temperature is currently estimated to be 1.1°C above pre-industrial times. Based on existing trends, the world could cross the 1.5°C threshold within the next two decades and 2°C threshold early during the second half of the century. Limiting global warming to 1.5°C is still narrowly possible and will be determined by the investment decisions we make over the next decade. The Green Climate Fund (GCF) – a critical element of the historic Paris Agreement – is the world’s largest climate fund, mandated to support developing countries raise and realize their Nationally Determined Contributions (NDC) ambitions towards low-emissions, climate-resilient pathways.

Switzerland will continue to support the Green Climate Fund (GCF) with a total contribution of CHF 135 million over the next four years. The Federal Council took this decision at its meeting on 10 April 2024. The GCF helps developing countries take concrete action to achieve the goals of the United Nations Framework Convention on Climate Change and the Paris Agreement. In particular, it funds initiatives aimed at reducing greenhouse gas emissions and adapting to climate change.

The Federal Council has decided to allocate CHF 135 million to the second replenishment of the GCF for the years 2024 to 2027, as provided for in the Dispatch on Switzerland’s International Cooperation 2021–24. This decision demonstrates the Federal Council’s commitment to addressing the growing challenges of climate change and the urgent need for action.

The GCF is the world’s largest fund dedicated to combating climate change. Its approach prioritises the needs of developing countries, which are disproportionately affected by climate change. The GCF also supports efforts to reduce CO2 emissions and adapt to climate change. To date, the GCF has invested in over 250 projects in 130 countries, which are expected to benefit more than a billion people and sustainably reduce global CO2 emissions by approximately 3 billion tonnes.

Related Article: IFC and Switzerland Expand Partnership to Build Climate-Resilient Urban Infrastructure in Emerging Markets

Switzerland’s support for the GCF is part of its contribution to international climate finance and fulfils one of its obligations under the United Nations Framework Convention on Climate Change and the Paris Agreement. This obligation includes providing financial support for climate initiatives in low-income countries, thereby also contributing to the implementation of the 2030 Agenda for Sustainable Development.

CEO to resign over plans that will enable greenwashing

Staff at one of the world’s leading climate-certification organisations have called for the CEO and board members to resign after they announced plans to allow companies to meet their climate targets with carbon offsets.

They fear that companies will use the offsets for greenwashing, while avoiding making the necessary cuts in greenhouse gas emissions – without which the world faces climate catastrophe.

The UN-backed Science Based Targets initiative (SBTi), which certifies whether a company is on track to help limit global heating to under 1.5C, has validated hundreds of net zero plans from companies including J Sainsbury plc, John Lewis and Maersk. Until now, the SBTi has ruled out the use of carbon offsets, instead emphasising the importance of deep greenhouse gas emissions cuts.

But on Tuesday, the SBTi board of trustees released plans to allow carbon credits in their net zero standard by permitting companies to use them to offset emissions from their supply chains, known as scope 3 emissions.

The board said there was “ongoing healthy debate on the subject”, but that “when properly supported by policies, standards and procedures based on scientific evidence”, the use of offsets in supply chains could be “an additional tool to tackle climate change”, and so it had decided to extend their use. They said a draft of the new rules would be published by July.

The announcement was met with fury by many SBTi staff and advisers, who say they were not consulted on the decision and that the move is not based on science.

Australia court finds Vanguard guilty in greenwashing suit 

A federal court in Australia released a ruling today, finding that Vanguard Investments Australia was guilty of making misleading claims about one of its ESG funds, including failing to exclude investments in companies with fossil fuel activities from the fund as claimed in its communication materials and disclosures.

The Australian Securities and Investments Commission (ASIC) said on Thursday Vanguard Investments Australia had promised investors that one of its fund filtered out bond issuers with investments in industries including fossil fuels when it was not always the case.

“Vanguard had claimed the index excluded only companies with significant business activities in a range of industries, including those involving fossil fuels,” the regulator said in a statement. “But (Vanguard) has admitted that a significant proportion of securities in the index and the fund were from issuers that were not researched or screened against applicable ESG criteria.”

The fund in question is Vanguard Ethically Conscious Global Aggregate Bond Index Fund which removes corporate bonds exposed to fossil fuels, nuclear power, alcohol, among other sectors, according to Vanguard Australia’s website.

“There was never any intention to mislead, but Vanguard recognises it has not lived up to the high standards it holds itself accountable to and apologises for the concern this matter may cause for our clients,” Vanguard said in an emailed response to Reuters. ASIC has been stepping up action against Australian firms which are found to have made exaggerated claims about their environment-friendly investments and products, called “greenwashing”.

South Africa’s Largest Clean Energy Plant

 Within just two years, the largest clean energy power plant of South Africa has emerged out of nothing on the vast wilderness in Northern Cape. It is the 100MW Redstone concentrated solar thermal power plant constructed by POWERCHINA in South Africa, a country thousands of miles away from China.

South Africa’s economic development has been constrained by insufficient energy supply. In fact, South Africa is one of the countries most suitable for developing concentrated solar thermal power (CSP) projects in the world. Leveraging this advantage, SEPCOIII Electric Power Construction Co., Ltd. under POWERCHINA constructed the Redstone CSP project in South Africa, the largest renewable energy investment project in the country. It is estimated that the project will generate about 480GWh of electricity for the country’s grid each year after it is put into operation, meeting the power demand of 200,000 local households at peak time and substantially boosting trade, investment and economic development of South Africa. On October 20, 2022, South African President Cyril Ramaphosa visited the construction site of the Redstone 100MW CSP project. He spoke highly of the project’s engineering quality, and expected the power project to begin operation as scheduled and further enhance friendship and mutual trust between China and South Africa.

Before joining the project, John was an electric technician in a small local company, and made a living on odd jobs. Since he began to work for the Redstone project, John has participated in vocational trainings on circuit analysis, circuit theory, electronic technology, and others. Soon, he grew from a grassroots technician into an indispensible electric engineer. With the increase of his income, his family’s living standards have greatly improved.

At present, there are nearly 1,000 local employees like John working with the Redstone project of POWERCHINA, which has created a large number of job opportunities for locals.

POWERCHINA actively implements a strategy of localization. Grounded on local resources in South Africa, it gives priority to local enterprises in terms of procurement and outsourcing. To date, the corporation has established partnerships with 50 sub-contractors in South Africa, forming a new industrial cluster in the locale.

To enhance local employees’ vocational skills, POWERCHINA’s Redstone project set up a welder training base. In the future, POWERCHINA will join hands with local universities to launch the “Power Plant Lecture” program, with an aim to cultivate new energy talent for South Africa’s power development.