February 2015

A recent report in the Wall Street Journal once again brings into sharp relief just how the repercussions of a crisis can play out. The Feb. 17 article, “U.S. Regulators Revive Work on Incentive-pay Rules” (subscription required) outlines how regulators are considering “clawback” provisions in compensation packages for certain employees of Wall Street firms. The idea is to require organizations to structure compensation so that executives would have to return bonuses if they are found to have committed an egregious error or fraud during their tenure.

The 2008 financial crisis had a significant impact on internal audit’s scope of work and influence.…

At last count, more than 80 percent of internal audit departments assess risks as part of their audit planning process. So, why is it that legitimate risks to the organization are often glossed over, or overlooked entirely, when internal audit is assessing risks? I fear this happens far too often, and that it poses a huge and potentially growing exposure both for internal audit’s clients and for the reputation of the profession.

I have looked under the hood of scores of internal audit functions over the past decade, and I have engaged dozens of other CAEs in discussions regarding their risk-assessment practices.…

In Extraordinary Circumstances, Cynthia Cooper’s riveting account of internal audit’s role in unraveling the financial reporting fraud at WorldCom, she recounts the challenges she had in securing an audience with the company’s audit committee so that she could share the internal audit results. After prolonged foot-dragging by the audit committee chairman, her patience finally wore out. In a line worthy of a ​Clint Eastwood film, she sent word to the chairman that, “if he doesn’t call a meeting today, I’m going to get on the phone and call one myself.” I often wonder how many of us would have such courage, how many of us would ever need to go to such lengths.…

Welcome to what I call “white paper season” for internal auditors. Around this time each year, a number of survey-based white papers are released that provide insight into key challenges and opportunities facing our profession and include the perspectives and expectations of our key stakeholders. Internal auditors should make a point of seeking these out and absorbing the key messages before crafting strategies for the year ahead.

There is no more enduring challenge for internal auditors than achieving and maintaining alignment with the expectations of our key stakeholders. As I have noted before, these expectations are dynamic and definitely prone to change.…