August 2009

Greetings from San Diego, where The IIA’s aptly titled conference, “Internal Audit Solutions for Tough Times,” is wrapping up. It has been a great event with some very thought-provoking discussions on how the global economic crisis is impacting our profession. In a pre-conference survey of U.S. internal audit practitioners, we learned:

• 74 percent of internal audit functions experienced flat or declining budgets in 2009.
• Almost one-third experienced outright reductions over the past 12 months.
• The outlook for 2010 does not look much better with 80 percent anticipating flat or declining budgets.
• 57 percent have increased coverage of operational risks in the past year.

I have often characterized internal auditing’s journey over the past decade as being one from “the back room to the board room.” Following the spectacular corporate failures in 2001-2002 — and the subsequent regulatory and legislative response — internal auditing found itself front and center with the audit committee and other members of the board. The rapid elevation of stature was reflected in reporting relationship statistics. In 2002, The IIA found that only 55 percent of U.S. chief audit executives (CAEs) reported functionally to their audit committees. By 2007, PricewaterhouseCoopers found the number had leaped to 86 percent. In the past two years, internal auditing’s emphasis on assessing the effectiveness of financial controls has abated significantly.…

By now Cynthia Cooper’s story at WorldCom has assumed legendary status in our profession. Internal auditors even brought up her name during my recent travels in China, Hong Kong, and Japan. Almost everyone in our profession, it seems, believes that her steadfast pursuit of financial fraud at WorldCom almost eight years ago raised the stature of our profession and exemplified the best in what we aspire to be. After all, it is not every day that an internal auditor is named one of Time magazine’s “Persons of the Year.”

All of us would like to believe we would have the courage and fortitude to do what Cynthia and her team did at WorldCom.…