February 5, 2016 Boosting internal audits
The duties and responsibilities of corporate directors are fairly well documented but there is one area which is perhaps not as well-publicised as it should be. That is the role given to those tasked with internally auditing the company.
Essentially, the role of an internal auditor is to evaluate and improve the effectiveness of governance, risk management and control processes. Reporting to the board, internal auditors are in effect the fingers on the pulse of the company; running regular health checks and seeking out potential areas for improvement.
Once thought of as a ‘nice to have role’ rather than an essential element of corporate governance, the role of internal auditor has risen in importance in recent years. This is particularly true in banking and financial services, where internal auditors came in for a fair measure of criticism for failing to take steps to prevent the toxic practices which were largely responsible for the banking crash. This was highlighted in a recent speech by Sasha Mills, Director, Cross Cutting Policy, Bank of England when she commented that “Too often we felt that Internal Auditors were able to claim that they had provided “reasonable assurance” and yet the fact that their organisation was in trouble was apparently nothing to do with them.”
Although the speech was largely directed at the financial services sector, it contains a number of recommendations and observations about the internal audit function which would equally apply to other organisations. These include:
- Look ahead. Proactively scan the horizon for emerging risks and help the organisation to be prepared to face new threats and opportunities.
- Think broadly. Rather than look at every element to be examined in isolation, consider what impacts a particular action or policy may have on the organisation as a whole and its culture.
- Be independent. Provide challenge as well as assurance and work to ensure that the organisation and its directors are fully compliant.
We’ve previously commented about the way which diversity in the boardroom can help to ensure a more balanced and proactive leadership. But no matter how diverse the boardroom, it is all too easy for it to succumb to groupthink. Maintaining a robust internal audit function helps to ensure that policies are reviewed and challenges issued and this in turn strengthens overall corporate governance.