andtheImpactonCAEs

PattyMiller,CIA,QIAL,CPA,CRMA,CISAPKMillerRiskConsulting,LLC

pkmiller100@gmail.com

�  Background

�  Approach

�  Results of Interviews/Survey

�  Aggravating Factors for Political Pressure

�  Implications for Chief Audit Executives

�  Concluding Thoughts

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� Whydothisresearch?�  Everybodymustnavigatepoliticalwaters�  Internalauditverysusceptible�  Minimalexistingresearch�  TheIIARF:toomanycaseslooklikepoliticalpressure

DefinitionofPoliticalPressureRelatedtoInternalAuditThesituationinwhichindividualsinleadershippositionsexercisetheirauthoritytoachieveapersonalbenefit,ortoprotectanorganization,byattemptingtomanipulatetheinternalauditactivityorinternalauditreports.Suchmanipulationmayresultinactionstorestrictthescopeofauditactivities,suppressauditfindings,orunderminethecredibilityofthechiefauditexecutiveortheinternalauditactivity.

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�  Reviewofresearch,articles,andreportsonpoliticalsituationsaffectinginternalauditing

�  Conducted23interviews

�  Fortune100Companies

�  GlobalOrganizations

�  Governmental–federal,stateandmunicipalities

�  FocusgroupatGeneralAuditManagementConference

�  FlashsurveyofNACAEs

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�  CAEthreatenedwithlossoffuturejobopportunitiesiftheycontinuedaudit

�  CAEwhoignoredexecutiveandreportedissuetoboard,subsequentlyexcludedfromkeyexecutivemeetings

�  ExecutivewhosharedtheirversionofeventswithCEOandboardbeforeCAEcouldpresentresults,swayingultimateconclusion

�  CEOwhorefusedtomeetwithCAEtoavoidhavingdirectknowledgeofissueathand,onadviceoflegalcounsel

Couldtheeventsdescribedhappen

toauditors?

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� Majorpubliclytradedconsumerservicebusiness

�  Standardofficerexpenseaudit

�  Newlypromotedofficerdoctoringexpensereceiptsandchargingpersonalitems

� WouldCEOlookbadifnewlypromotedofficerwasterminated?Officerhadmadesignificantcontributionstoorganization–couldofficerbesalvaged?

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� Majorgovernmentalagency

�  Subcontractedimplementation

�  Auditwasselectedtolookatprofitsharing–laterexpandedtofraud

�  “Outofscope”auditactivities

�  Boardsupportcriticaltocompletingauditandreportingissues

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45%Never 51%Never

�  Restructuredoutofcompany

�  Negotiatedpackagetoleavecompany

�  Eventualtermination

�  Personalthreats

�  Silenttreatment

�  Treatedasnotpartofteam/notateamplayer

�  Accesstoinformationrestricted

�  Deniedrequestforadditionalresources

�  Stagnationwhenpeersupgraded10

�  Lackofstrongethicalculturefromtopdown

�  Lackofstrong,independentandsupportiveauditcommittee

�  Culturethatembracesriskandnotcontrol,orculturethatwantstoputpositive‘spin’onissues

�  WeakrelationshipbetweenCAEandACChair,CAEandkeyexecutives

�  CAEwholacksobjectivity,integrity,courage,orsoundjudgment

�  Internalauditfunctionthatlackscompetence

�  Enculturationofemployees–weseewhatweexpecttoseeoracceptwhatwehavelearnedisacceptable

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�  Foundational

�  CAEAttributes�  RelationshipBuilding

�  InternalAuditFunction

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�  Stronggovernance,knowledgeableboard�  Strongreportingrelationshipandposition

�  Directreportingrelationshiptoboard/auditcommittee�  CAEseniorindependentposition

�  ClearandsupportiveCharter�  Documentsuniquerole�  Specifiesauthorityandunrestrictedscope�  Codifiesexpectations

�  Decisionframework–whentotakeastand�  Identifyalternatives,consequences,bestaction

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�  Integrityandcourage�  Knowyourinternal‘compass’�  Standgroundonimportantissues

�  Objectiveandfair�  Relationshipbuilder–withboard,executivesandmanagement

�  “Weareafterthesameobjectives.”

�  JudgmenttoknowwhatISanimportantissueandwhentotakeastand�  Thinkstrategically

�  Anticipatesandproactivelyaddressissues�  Discussprotocolsinadvance�  Knowkeypartiesandmotivations

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� Meetoutsideofscheduled,formalmeetings

�  Learnaboutperson–objectives,accomplishments,interests

�  LeadoutsideofIArole;bevisible

�  Educateonemergingtopics

�  Findmutualareasofinterest;donottakemeetingscasuallybutprepare

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�  Effectivecommunication�  Sharedunderstandingofscope,objectives,rationale�  Towhomandwhentocommunicateissues�  Factbasedconclusionswithclearbusinessimplications

�  Staffing–rigorousselectionandtraining�  Competence�  Poise�  Reliableevidence/strongdataanalytics

�  “Factsareyourfriend.”

� Thinkstrategically,knowthebusiness,presentalternatives,jointlyfindsolutions

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�  Politicalpressurecanbemanagedandpartiallymitigated,butitisalwayspresent

�  Goodcorporategovernancecritical,butcanbetransient

�  Professionalcompetencerequired,butnotsufficient

�  Continuouslyworktoaligninternalauditwithorganization

�  Effectivecommunicationismorethanreportwriting

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