2013

Stakeholder support is vital to internal auditing’s ability to add value and contribute to the organizations we serve. When chief audit executives and their staff are not meeting stakeholder expectations, there are typically signs or early indications that the support we might have enjoyed in the past is starting to slip.

I saw this scenario play out many times during my years leading internal audit for the U.S. Army. I have likewise seen it occur in the corporate sector. Like many of my colleagues, I’ve also taken over internal audit functions where my predecessor had lost that connection with stakeholders. So I’ve seen the signs.…

The Association of Certified Fraud Examiners’ (ACFE’s) 2012 Report to the Nations on Occupational Fraud and Abuse estimates the global cost of internal fraud at US $3.5 trillion, or 5 percent of total revenue. And, as we all know, internal fraud is only part of the picture.

Everything is moving faster these days, including fraudsters. Today, a rogue employee with a smartphone, given a weak enough control environment, could transfer significant sums of money offshore in the blink of an eye. According to the ACFE, the average fraudster takes US $160,000 out of a company before the fraud is detected. Little of that money is ever recovered.…

I recently spoke at a conference where one of the sessions was called “Four Most Dangerous Words in Finance.” It reminded me of a blog I wrote a few years ago called “Ten Things Not to Say in an Audit Report.” In that blog I wrote about types of things not to say. Beyond the categories of phrases or messages that I explored in that blog, however, lie a handful of words that are so useless or polarizing that they should be banished from the internal audit dictionary. 

Words have power. A well-written audit report is a call to action. A poorly written report can result in inappropriate action, or no action at all.…

As we recently learned, NASDAQ has withdrawn a proposed new rule (PDF) requiring that companies listed on the exchange establish and maintain an internal audit function, citing push-back from issuers and others during the public comment period. Some companies and commenters didn’t see the value of an internal audit function. There weren’t a lot of comments, but there were enough that it was troubling to NASDAQ.

The Securities and Exchange Commission (SEC) received dozens of comments, both for and against the proposal, including an official endorsement from The IIA under my signature. I have never been an advocate for laws or regulations requiring an internal audit function because I believe that mandates diminish the perceived value of auditors as trusted advisers to senior management and audit committees.…

This year marks the 35^th anniversary of the U.S. Inspector General Act of 1978 — the landmark legislation that created the audit and investigative agencies that serve as the “watchdogs” in the U.S. federal government. Under the Act, inspectors general (IGs) are responsible for:

• Conducting and supervising audits and investigations relating to the programs and operations of the various federal agencies.
• Providing leadership and coordinating and recommending policies (1) to promote economy, efficiency, and effectiveness, and (2) to prevent and detect fraud and abuse in their agencies.
• Providing a means for keeping the head of their agencies and the U.S.

You’ve heard the expression, “People who live in glass houses shouldn’t throw stones.” A corollary drawn from a presentation I share with government auditors, though applicable to all internal audit shops, is “If you’re going to throw stones, you’d better live in a shatterproof house.”

As internal audit professionals we do live in glass houses. People expect us to walk the talk. They expect us to be, perhaps, just a bit more ethical than everyone else. And if at some point in our careers we have had a lapse in good judgment, or someone in the internal audit department had transgressions that others in the company knew about, we can expect to be discredited by those we critique.…

No relationship for a chief audit executive (CAE) has been transformed more over the past decade than that with the audit committee. According to The IIA’s Audit Executive Center, more than 75 percent of internal audit departments in North America report functionally to the audit committee. And in many companies, the audit committee holds a discussion session with the CAE at every meeting.

 The audit committee’s success is tied to the effectiveness of the internal audit department. Accordingly, audit committee members must have complete confidence in the internal audit function and its CAE. This confidence can only be achieved with a strong, continuous, and open dialogue between the CAE and the audit committee. Of…