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How drone technologies can transform internal auditing processes

Tarun Kher, Partner
Risk and Advisory Services

16 February 2022

With technological evolutions in the new millennium, internal auditors progressively enhanced the use of laptops, tablets, smartphones, data analytics tools and web-based/ cloud applications for performing their in-scope agreed-upon procedures. A very recent emerging technological development that has surfaced for enhancing the effectiveness of the internal audit function is the aerial drone technology, also known as an ‘Unmanned Aerial Vehicle’ (UAV).

Auditing inventories, fixed assets and production processes across multiple geographical locations has long been one of the most onerous tasks for an auditor as part of the year-end cut off procedures. Robotic process automation techniques and auditing drone technologies that can speed up the internal audit process and make it more accurate while optimising the efforts of the team members is a significant accomplishment.

Auditing Drone Technology in Internal Audit

According to the research paper, “Prepare for Take-Off: Improving Asset Measurement and Audit Quality with Drone Enabled Inventory Audit Procedures,” drones assist in enhancing internal audit productivity and process efficiencies. Recently conducted studies also denote optimisation of time and efforts while ensuring seamless accuracy in the results. For instance, some of the indicative results for inventory audit procedures denoted:

• Count times were reduced from 681 hours to 19 hours
• Error rates dropped from 0.15% to 0.03%
• The use of drones created higher quality audit documentation.

The Auditing Drone Technology can make its way to the remotest of locations and record significant volumes of audit information in very short periods with precision thereby enhancing the reliability of such data.
Auditing drone technology assists internal auditors in multiple ways, including:

• Drones have great payload capacity for carrying sensors and cameras, thus they can photograph and physically examine the count of large quantities of fixed assets and inventory as well as sense/examine the production process vis-à-vis the approved ‘Bill of Materials’, from multiple angles and over the entire storage/ shop floor area.

• Drones are integrated with image processing software, including photogrammetry and video content analysis, that can algorithmically scan, process and output audit information.

• Drone captured audit information can be combined with various alternative sources of information such as QR code readers, handheld bar scanners, manual counts etc. to optimise quality of deliverables, consolidate audit information and enhance the execution speed while ensuring correctness and completeness of data.

• Drones have extended battery life and can be in operation for longer periods to complete the audit procedures within defined timelines.

• Drones also assist in the physical inspection of assets commissioned over large areas such as DG sets, batteries, plant & machinery, telecom and agricultural farm equipment, supply pipelines, power lines or road networks.

• As part of safety, health and environmental audits, drones facilitate in the execution of project/ site audits especially entailing civil construction and infrastructure development and identifying potentially hazardous environments that can impact health and wellbeing. Drones also assist in other inspections covering areas such as regulatory compliance, transportation, and supply chain management.

Auditors are progressively now applying drone technology across sectors, including:

• Real estate and construction projects
• Telecommunication and broadband/ fibre optical Internet Service Providers
• Agriculture and Farm Produce
• Engineering projects, including civil infrastructure, roads and building management
• FMCG & Retail sector having supply chain operations across warehouses
• Mining and mineral extraction
• Energy generation and power transmission.

Legal Requirements
CPA firms in the US have been applying drone technology since 2016, when the Federal Aviation Administration (FAA) rules on drone technology came into effect.

“A new FAA rule broadly authorizes commercial drone operations in the United States, giving CPA firms an easier path to incorporating drones into their operations. The new rule allows the commercial operation of drones under 35 pounds. While there are still many restrictions, such as a maximum air speed of 100 mph and a maximum altitude of 400 feet above ground level, the new rule greatly opens up the potential for drone operations.”

Legal requirements for commercial drone use are country-specific with the US and Canada taking the clear lead. In India, DGCA has provided new drone rules, which are enumerated in the notification issued by the Ministry of Civil Aviation dated 25 August 2021.

Drone auditing is a rapidly evolving technology and is now being extensively applied for internal audit execution. Soon, there could be drones of the size of small insects which could be cost-effective and offer ease of application for the internal audit profession. Being in the early adoption/ research and development phases of the technology/ application cycle, the drone services market size is expected to grow from USD 10bn in 2020-21 to USD 60bn by 2025-26. While internal audit will only be a trivial percentage of the same, drone technology and its usage is indeed an assuring sight of the manner in which things will unfold as we march ahead.