The saga of Volkswagen’s auto emissions scandal has been well-chronicled in recent months. Company engineers installed software in the engines of 500,000 U.S. vehicles and 11 million vehicles worldwide designed to illegally circumvent strict emissions rules. The allegations and subsequent confirmation by company executives have severely damaged public confidence in the iconic company.
However, as despicable as the actions at VW were, company executives have made a number of notable efforts to acknowledge what happened in an effort to restore public confidence. The most recent effort was a December 10th press conference where senior VW executives, including Chairman Hans-Dieter Pötsch and CEO Matthias Müller, made public the results of a recent internal audit report on the scandal.
In discussing the scandal, Pötsch stated that VW’s, “first priority is the technical solutions for our customers.” Then in a clear indication of how company executives believe VW can regain public confidence, he stated that, “Our second priority is establishing the truth with internal auditing.”
In discussing the results of internal audit’s review, he noted that it disclosed, “. . . that procedural problems encouraged misconduct.” The chairman took great pains to note that internal audit did not identify any involvement of executive board in the scandal. Instead, it concluded that the cheating software was the result of the actions on the part of a group of employees and that inadequate compliance procedures fueled the deception for years. As the website Marketplace noted, “Müller used words like ‘clarity’ and ‘transparency’ when talking about the results of the internal audit aimed at getting to the bottom of the scandal.”
It remains to be seen whether all of the “chips have fallen” at VW, or to what extent, if any, senior company executives might have been involved in the scandal. However, VW’s use of internal audit reports to begin restoring public confidence is encouraging, and yet another example of how the credibility of the internal audit profession is growing.
Internal audit shouldn’t be reserved to identify, as the old saying goes, “who shot John.” Before driven to do so by crisis, companies should maintain a well-resourced internal audit function that is organizationally independent from operating management and serves as a key source of assurance on the effectiveness of risk management and internal controls.
However, when a risk management failure, control failure, or scandal threatens to seriously undermine public or investor confidence, boards and executives should turn to internal audit to get the facts and present the truth. We have long seen this in government where scandals in federal agencies inflame public confidence until an independent report by an inspector general establishes the facts and assigns potential blame. As VW’s actions indicate, the corporate sector is beginning to recognize the value of this approach.
When a risk management or control failure strikes at the reputation of a high profile organization, the public seeks the truth. They will not be persuaded that they have it until someone who isn’t implicated in the failure offers an assessment or explanation. Unless criminal activity is involved, I would encourage organizations to call on internal audit to get to the truth.