Speaking about foresight quickly brings out topics like digital transformation and technology. For Magdalena Cordero this is no surprise. For her, technology offers far-reaching possibilities for innovation in audit which, as she sees it, will mean major changes in how and what the ECA audits. She is keen to share her thoughts about how to bring innovation closer to the ECA’s core business: its audit work.
Interview with Magdalena Cordero, Director Information, Workplace and Innovation by Gaston Moonen, ECA Directorate of the Presidency
Technology at the centre of everything
Foresight is clearly a topic that lies close to the heart of Magdalena Cordero. And not only because foresight is a key part of her professional responsibilities. Foresight means being ready for any change that could appear in the future. She points out that ‘technological change can be very disruptive.’
We need to be ambitious; after all, technology will evolve.’
For Magdalena the implications are very extensive. ‘Information technology, today, is at the centre of everything we want to transform.’ She explains a bit further: ‘In some cases, technology is at the origin of the changes, but in most cases it’s impacted. Organisations take decisions that have a technological impact.’ She gives an example. ‘Let’s say you decide to reduce the carbon footprint. This means reducing travelling and optimising heating and cooling. How can you do this? By implementing systems that allow remote working or by analysing the information from temperature sensors.’ She continues, ‘The lack of immediate solutions should not limit the vision. If you have an idea I am convinced that the technology will help with implementation and, if this is not the case, it should not limit your ambition. We need to be ambitious; after all, technology will evolve.’
Innovation in the job title
Ten years ago, Magdalena came to the ECA to work as director responsible for information technology (IT). In recent years her job description has been expanded to include ‘workplace’ and ‘innovation.’ She explains that the second term means keeping a permanent watch on technology, identifying tendencies and possibilities. ‘Artificial Intelligence (AI) is an area we already work on. We want to be ready to work with big data, and text mining — as the data related to audit can be unstructured. ’ She points out that auditing involves a lot of reading and understanding, and developments in natural language processing will make machines read for us. Systems can learn, summarise, classify, suggest key words, and much more. We already have technology developed for us in ECALab, with a dedicated group of people specialising in different techniques and helping colleagues to apply them.’
Our ambition is to design business processes controlled by design to facilitate, and even automate, audit.
Magdalena also touches upon a topic she has been promoting for some time within the ECA: blockchain. ‘That is going to be the future. Our ambition is to design business processes controlled by design to facilitate, and even automate, audit.’ She realises that for many people blockchain technology is still a mystery. ‘At the ECA we have implemented a pilot to show the potential for blockchain in audit.’
Automation changing the scope of audit: how affecting the what
For Magdalena, it is clear that some technologies, such as robots, will automate part of the auditor’s work; this will allow auditors to focus more on strategic issues. In her perspective, how we audit will have an impact on what we audit and vice versa. ‘The world is now digital, and it is possible to use data analytics to examine the full audit population instead of a limited one, and identify risks.’ Smiling, she adds: ‘Then we can better identify not only what we’re going to audit but also how, with different techniques available to do so. Having the technology can be a stimulus and source for new questions, altering our approach to what we audit.’ She gives the example of an audit on VAT, in which data analytics meant outliers could be easily identified. She is also convinced that the use of satellite data could transform the way we audit agriculture.
Having the technology can be a stimulus and source for new questions, altering our approach to what we audit.
Creating ECALab to introduce auditors to new techniques
The existence of technology is one thing, using and applying it is another. Magdalena clearly realises this, pointing to ECALab as a means of address the problem. The ECA decided in early 2017 to systematically move forward with digital audit: data analytics, text mining, visualisation, etc. ‘We decided to assign a physical space and tell people “You’re interested in data analytics, or if you are an auditor with a data project, please come and share on Fridays with those who want to analyse data.” And auditors that had, and have, questions come.’ This is a source of pride for her: ‘I have to say, one year later, we have a fully consolidated ECALab, with resources working on text mining and blockchain, for example, thanks to a small group of enthusiastic officials from different ECA Directorates.’
You have to find out what knowledge and interest are already in house and show how far you can get by using it.
Magdalena explains that her directorate has created a methodology to move forward with innovation The first phase is ‘re-use’. ‘You have to find out what knowledge and interest are already in house and show how far you can get by using it.’ Then comes the second phase, experimentation, which requires dedicated and experienced human resources. She continues: ‘Just re-using we can’t go far. If the College of the ECA believes we need to move forward, and personally I think we have no choice, we need to initiate the experimentation phase.’ Then she explains the third phase. ‘This is industrialisation, where the building blocks come together to form the building, the knowledge and resources are available and data analysis will be offered to auditors as a service. Our ambition is to achieve industrialisation.’
Using technology to realise the ECA strategy
For Magdalena is goes without doubt that using automation technology will be essential for realising the objectives of its 2018–2020 strategy. They relate to three goals: transforming the compliance audit work done for the statement of assurance, increased focus on performance, and thirdly regarding communication. Regarding compliance, Magdalena points out that for reusing work done by others digitalisation can help tremendously. ‘Take those controls that have data, already digital and by using the technology of text analysis we can issue a certification based on a very deep, yet digital, analysis. It will allow you to cover a lot more and find the outliers.’
As to performance she brings up the topic of using open data, adding that Member States need to follow the EU directive on open data. ‘Just by analysing open data, you can add a lot of information into our performance audits.’ She refers to the summer school course in Pisa about data analytics she attended some months ago. ‘We invited an expert from the UK National Audit Office to talk about data analysis and when asked ‘what data are you using’ the reply was: ‘100% open data.’ Just open data, which was encouraging.’
(on media monitoring tools)… we should also use […] for programming to identify from the media where the focus is…
As to the third objective regarding communication remarks that everyone makes the link what technology represents today for the good and bad. This includes the ECA’s presence in social media for which media monitoring tools are used, which is about text mining. With a twinkle in her eye she explains: ‘We use these media monitoring tools for communication. But we should also use them for programming to identify from the media where the focus is, what are the things we should observe. Then it is not just what media says about us, it is what we learn in a subject of interest from the media. If we want to audit something in research, let’s use the tools we have what pops up in media. And use this feeding into our audit work programming.’ She gives a very concrete example: ‘Let’s say passenger rights. Imagine you go to social networks and data mine what the attitude of people, where they feel something goes wrong. That is useful additional information.
A cultural change towards an appetite for… change
TECALab is clearly an important tool for bringing new techniques to auditors. But according to Magdalena something else is needed: an appetite for change and trying new things. With some prudence she explains: ‘It is not easy to create an appetite for change in an organisation that doesn’t want to take the risk of failure. One thing here is that, in order to change, you need to promote the experimentational spirit and allow for investment. And make failure part of the learning curve.’
It is not easy to create an appetite for change in an organisation that doesn’t want to take the risk of failure.
Another important element for the take-up of new technology is understanding the possibilities. ‘Our staff needs to understand that, when we talk about data, we are not only talking about figures or structured information. We are talking about text, pictures, images. All that is data.’ She underlines that text, if digitised, is data.
Auditors don’t need to be experts in all this technology, just come to us with their original questions!
Then she brings up another misconception. ‘Auditors don’t need to be experts in all this technology, just come to us with their original questions!’ According to Magdalena you need to think in a multidisciplinary way. ‘It is not about training auditors to make them experts, that’s the past.’ For her the set-up will be that the auditor will work together with experts to identify what is happening in an analysis. ‘In an audit team, you need specialised staff to prepare the data and to do the data analyses.’ In her view, this might also have implications for new recruitment. ‘In the private audit sector some companies declare they recruit up to 20% of engineers or mathematicians.’
Alerting senior management to be prepared
All these possible changes, including changes in the work of audit, also raise the question about the role auditors may play in the future. According to Magdalena, the nature of performance audit itself might not change that rapidly, but the role of the auditor will. ‘Auditors have a lot of knowledge and expertise. They may play more of a consultancy role, which could increase their influence at strategic level. We are already doing opinions on legislative proposals; this is the beginning of a process.’
Management decisions and sponsorship: this is where real transformation happens.
Magdalena believes that the core focus for her department and its people will continue to be the promotion of innovation at the ECA. ‘We aim to be innovating. We signal evolutions that are happening, and we want to influence the organisation to move forward. In many cases, these changes are strategic, they represent a real transformation and decisions must be taken at senior management level. Management decisions and sponsorship: this is where real transformation happens.’
… two things I believe are happening with increasing impact for the future. […] artificial intelligence, […] and the other is security and cyber attacks
Looking back at the 2018 ECA seminar on foresight, Magdalena finds that many of the relevant issues were covered. In this context she refers to the presentation on the ECA trendwatch map (see pages 28–29). ‘This map highlighted, by means of many dots and crossesin this ‘subway’ map , two things I believe are happening with increasing impact for the future. One is artificial intelligence, which will be at the origin of the automation of our jobs, and the other is security and cyber attacks. Those are the most intensively ‘crossed’ features of the diagram. These two topics very much relate to what I mentioned before, the importance of technology.’
On a personal note, Magdalena points out that she expects transformation of cities and the way people live and travel. This also relates to two other topics she highlights. The first is demographic changes: ‘Very important from the perspective of an ageing society.’ The second is climate change. ‘If we want to succeed in Europe we need to focus the campaign on what makes Europe different — all the work on environmental issues. Look at our global competitors — the USA, China. This is the area where Europe can excel in what we are doing well, although certainly not yet perfectly, not enough.’
Looking back and forward
When asked about the biggest change at the ECA since her arrival ten years ago, Magdalena gives a striking reply. ‘It is actually change itself. The big change of the ECA is that it has become much more dynamic. Ten years ago not that much was happening, you may call it stable, if you want. The difference now is that we are constantly changing.’ She refers to the ECA’s new published products, new visuals, the organisational reform, more conferences. ‘What I like most about that change — particularly from the area of knowledge management — is that the ECA has become a more open organisation, and not only one focusing on audit. We work more together with external experts, stakeholders, academics, other institutions.’ She now perceives the ECA as a learning organisation. ‘We are moving much more, trying to improve. I love to be a member of a learning organisation and not a static one.’
The big change of the ECA is that it has become much more dynamic.
And she sees a big challenge when it comes to the ECA’s staff development in the future, giving the example of millennials. ‘We see that they are different, even in the physical space in which they work. This is something we have seen happening, at least in IT organisations. For example, millennials need to receive constant feedback, which poses new challenges for managers. We send alerts about what we observe. Millennials are not here yet, but they will arrive. The managerial skills, the technology we are providing, the way they want to work is completely different. This is a scenario we have to be prepared for.’
I love to be a member of a learning organisation and not a static one.
Looking forward, Magdalena hopes to see an ECA that will lead in all areas relating to and using digital transformation in audit. ‘The ECA is now held up as an example for performance audit, it’s a leader, at least in my perception. I would like the ECA also to be leading the digital transformation of public audit. But to do so we need to move fast and with ambition.’
This article was first published on the October 2018 of the ECA Journal. The contents of the interviews and the articles are the sole responsibility of the interviewees and authors and do not necessarily reflect the opinion of the European Court of Auditors.