Latest research finds pressures ranging from physical threats to cuts in audit staffing, budgets
Internal audits play an important role in corporate governance, providing organizations with objective information needed to make effective decisions. But new research reveals widespread efforts to put political pressure on internal auditors, forcing them to manipulate audit findings by omitting or modifying damaging findings or by ignoring high-risk areas of a company’s operations.
The research was conducted by Larry Rittenberg, professor emeritus at the Wisconsin School of Business at the University of Wisconsin-Madison, and Patricia K. Miller, a partner at Deloitte & Touche LLP, on behalf of the Institute of Internal Auditors Research Foundation (IIARF). Rittenberg and Miller surveyed about 500 North American chief audit executives (CAEs), conducted in-person interviews with heads of audit around the world, and ran focus group interviews. According to their findings:
- Nearly 55 percent of North American CAEs surveyed reported being directed to omit or modify an important audit finding at least once;
- 49 percent reported being directed to not perform audit work in high-risk areas; and
- Nearly 32 percent reported being directed to work in low-risk areas so an executive could investigate or retaliate against another individual.
“It was shocking to see the extent to which practicing internal auditors have been subjected to political pressure in the performance of their jobs,” said Rittenberg. “This wasn’t simply a few horror stories from shaken internal auditors in bad job situations. We found pervasive efforts to undermine transparency and effective corporate governance.”
The report found political pressures coming in many forms. Some were overt, including physical threats or threats of being fired, while others were more subtle, including cuts in internal audit staff and budgets.
Rittenberg said that to help internal auditors manage such risks, the report offered a number of recommendations, including:
- Determine your moral compass in advance and identify where you need to stand your ground;
- Build strong relationships with the Audit Committee and Board;
- Work with those resisting your message to understand you are all on the same team;
- Present findings from a business risk point of view; and
- Make sure your facts are unassailable.
“Unfortunately, sometimes you have to be prepared to leave a situation if your professional ethics are being compromised or disregarded,” said Rittenberg. “These findings suggest the need for independent, compensated audit committees for many smaller public companies and governmental entities, as well as larger charitable organizations.”
The report, The Politics of Internal Auditing, is available through the IIARF bookstore and at Amazon.com.