Boards Beware – 3 Ways to Stifle Internal Audit Under the Guise of Support

By now, many stakeholders realize the value of an empowered and effective internal audit function.  These functions provide stakeholders with independent evaluations of an organization’s operating environment.  Management also benefits from these independent evalutions, however, global acceptance by management is not as consistent as stakeholder acceptance.  I firmly believe some of this has to do with the fact that internal audit functions are often mandated.  Few of us like to be told “what to do”.  New York Stock Exchange listed organizations are required to have audit functions.  NASDAQ recently proposed mandating audit functions for its listed organizations.  So if you must expend time, money and efforts on an audit function, why not utilize it to benefit the organization?  Thankfully many organization do just that.  However, there are some organizations that make a conscience effort to stifle internal audit functions.  Moreover, many stifle the activity under the guise of support.  Here are three ways a management team can stifle internal audit efforts under the guise of supporting the function.

Engagement Evasion

Developing an internal auditing strategy involves coordinating with various areas of an organization to determine when, where and how to audit.  However, audit functions and Boards should be leary of communications consistently discouraging review of specific areas.  Obviously audit functions can delay engagements when there is significant change in an operating environment, however, most environments are constantly changing.  At some point, audit functions must determine if the engagement evasion is simply a tactic to avoid review.

Salary Suppression

Salary suppression is simple.  This is when management teams outwardly “supports” audit functions by allowing them to exist in organizations (i.e. creating a charter and audit committee, providing funding, etc) but not providing adequate funding to truly support the acquisition/retention of qualified personnel.  Here’s how salary suppression works.  The audit function has an approved budget, however, the salaries are far below market rate.  Personnel hired stays for short periods of time because “better” offers are not hard to find.  Personnel leave with significant pay increases.  The audit functions spends more time recruiting than performing audit and consulting engagements.  The appearance is that the function is supported, however, it is underfunded and under utilized and will not be as effective as it could be.

Damaging Diversion

Damaging diversion is when known issues are purposely concealed from the audit function.  Moreover, the audit functions attention is purposely diverted to areas with little or no risk.  This is a waste of time, effort and funding.

Can you think of other ways to “support” an audit function without truly supporting an audit function?

Robert Berry (108)

Robert (That Audit Guy) Berry is a risk, compliance and auditing advocate, educator and innovator. He helps good professionals become better by creating articles, web services and training that allow them to expand their knowledge network.