Are internal auditors under pressure to suppress findings?

Internal auditors are key members of the corporate governance team, helping to ensure risk management processes are running as efficiently as possible. But are some professionals under pressure from businesses and colleagues to hide or downplay unfavourable findings?

 

A new report from the Chartered Institute of Internal Auditors (IIA) Research Foundation revealed the answer may be yes in many cases. The study, which forms part of the Global Internal Audit Common Body of Knowledge, found nearly one-quarter (23 per cent) of auditors had been asked to suppress or significantly alter findings.

 

The proportion climbs to 34 per cent when the respondents who said they would prefer not to answer are included. Chief audit executives (CAEs) were the under the largest pressure to modify their results, and the most commonly cited reason was that audits would reflect badly on key operational managers.

 

In fact, 70 per cent of small and medium-sized audit departments and 77 per cent of large internal audit functions gave this reason for being coerced into suppressing findings. Executive misuse of funds was also prominently reported – three and nine per cent respectively.

Going against the grain

Sadly, internal auditors who resisted pressure to change their reports sometimes experienced adverse consequences. Nearly one-third said they were subsequently excluded from meetings, while 18 per cent claimed they missed out on future opportunities within their business.

 

Meanwhile, 13 per cent responded with ‘other’ when asked about the consequences of their actions. This included various punishments, such as reduced communication from executive management, job losses and discrimination via gossiping and second-guessing.

 

The pressure came from multiple sources within the company, and depended on the seniority of the auditor in question. For example, CAEs found themselves at odds with chief executive officers mostly (38 per cent), while the majority of normal auditing staff reported their own departments as applying the pressure (44 per cent).

 

“Clearly, an efficient and effective internal audit function is crucial for enhancing and protecting organisational value,” the IIA Research Foundation report stated.

 

“But despite the importance of having an independent internal audit function, internal auditors often face pressure to change or omit certain audit findings.”

 

According to the report, pressure to suppress findings is an ethical dilemma that many internal auditors may face during their careers. A number of factors could influence their response, including how much ethics training they’ve received and the overarching company culture.

The IIA Code of Ethics

In order to provide guidance to auditors, the IIA has a Code of Ethics that sets forth a foundation for ethical conduct. The code has four key pillars: integrity, objectivity, confidentiality and competency.

 

The organisation believes the code:

• Guides auditors when they face pressure that could cloud their judgement
• Builds trust and confidence in professionals who deliver reports
• Prevents auditors from pursuing activities that could impair trust in their abilities
• Promotes the open communication of audit findings

Nevertheless, auditors need a strong set of personal values and a positive organisational culture to underpin an ethics code in order to perform in the role effectively.

 

Finding the best candidates for the job can be a challenge. Barclay Simpson data revealed 71 per cent of hiring managers are having difficulties attracting good-quality candidates.

 

We also discovered interpersonal skills, business acumen and credibility within the organisation are becoming increasingly important, which are skills even experienced auditors can lack.

 

However, these abilities are often prominent in internal auditors who can remain independent and deliver results without feeling external pressures.

 

Our 2016 Compensation and Market Trends Report combines our review of the prevailing conditions in the internal audit recruitment market together with the results of our latest employer survey.

 

Image: Nomadsoul1 via iStock