Nearly one-in-four internal auditors say they've been pressured to suppress or change valid audit findings
By Joseph McCafferty
November 2, 2016
Just about every internal auditor will face an ethical dilemma or difficult situation at some point in their career. Among the toughest scenarios is when the CEO or other senior executive exerts pressures to suppress or change the results of an audit finding because it reflects poorly on management or some other aspect of the business. A new report indicates, however, that it's an all-too-common occurrence.
The latest CBOK study from the Internal Audit Foundation, the research unit of the Institute of Internal Auditors, finds that 25 percent of the internal auditors at North American organizations surveyed said they have been pressured to "suppress or significantly modify a valid internal audit finding or report" during their career. Another 6 percent indicated that they would rather not answer the question.
"In an ideal environment, internal auditors should always be able to present findings without the threat of personal recrimination," the report's author, Larry Rittenberg, writes in the report. "Unfortunately, internal auditors do not always operate in such environments."
Internal auditors faced different levels of pressure across geographic regions of the globe. For example, 31 percent of respondents in Sub-Saharan Africa reported facing pressure to change audit findings, the highest in the report, while 27 percent of Latin America & Caribbean respondents said they faced such pressure. The lowest result came from internal auditors in the East Asia & Pacific region (15 percent), although 19 percent of respondents from that region also declined to answer the question. Rittenberg surmises in the report that they may have faced a different kinds of pressure. "One interpretation is that when participants stated that they preferred not to answer, that response often may have indicated that pressure existed not to respond, either from an internal or external source," he states. The average across all regions was 23 percent who said they faced pressure to change findings, and 11 percent who declined to answer.
On a Regular Basis
Of those that did face pressure to suppress or modify audit findings, many reported that it happens on a regular basis, with 24 percent indicating that it happens on an occasional or frequent basis. Chief audit executives were the most likely to face pressure (29 percent), while 20 percent of staff internal auditors reported pressure to change findings.
"The pervasiveness of pressure suggests that there is a need to improve two related factors: (1) governance and overall support for internal auditing, and (2) a mindset of always improving the quality and value of internal audit work," writes Rittenberg. "It is also important to recognize that pressure will never go away. It may exist because of legitimate disagreements about audit findings, or it may exist simply because human nature is such that individuals do not like to see negative results."
Source of Pressure
The source of the pressure to suppress or change findings, when it occurred, was surprisingly varied and depended on largely on the rank of the internal auditor reporting the pressure. CAEs, for example, faced pressure most often from the CEO (38 percent), operations management (25 percent), and the CFO (24 percent). Staff internal auditors, however, more often faced pressure from operations management (21 percent) and from the internal audit department itself (44 percent), presumably the chief audit executive. Perhaps the most troubling results of the survey are that CAEs even face pressure from the board. Of those who reported being pressured, 12 percent said it came from the board and 6 percent said it came directly from the audit committee.
The overwhelming reason for the pressure to change results, said respondents, was that "the operational audit would reflect badly on key operational management." At large internal audit departments, that was the case in 77 percent of instances where there was pressure to change findings and in 70 percent of cases for small-to-medium-sized internal audit functions. Other reasons for large department auditors who faced pressure were executive misuse of corporate funds (9 percent), financial reporting issue at odds with the external auditor or the CFO (4 percent), and other (11 percent).
Stand Your Ground
When internal auditors stood up to the pressure to suppress or change findings, they often faced consequences, the survey finds. Indeed, 33 percent of internal auditors said they were excluded from meetings for standing their ground on an audit issue. Another 18 percent said they lost out on job opportunities, and 4 percent said they faced budget cuts as a result of resisting pressure. In some rare instances, internal auditors said they faced job elimination, pay cuts, or hostile work conditions after resisting pressure.
A common refrain at the recent SuperStrategies internal audit conference, held in Las Vegas in September, was that internal auditors not only need to have integrity, but they also need courage to stand up to forces that could try to undermine that integrity. As the CBOK survey results indicate, internal auditors do face significant pressure to act unethically and also that they face consequences when they resist such pressures. Writes Rittenberg: "The survey results demonstrate that the ethical environment can be improved."
Joseph McCafferty is head of audit content for MIS Training Institute. He can be reached at firstname.lastname@example.org.