An untenable approach

Internal Auditor, August, 2005 by Hayden T. Joseph

In his letter to the editor ("Mandatory Certification," "Letters," June 2005), Donald Robitaille points out that certification is merely optional in internal auditing. This is a key point in evaluating the import of the ideas and recommendations posited by Bruce Adamec and his co-authors in their article, "Getting a Leg Up" (June 2005).

The authors introduce the many responsibilities of management in the areas of risk management and internal control, the answer to which in every instance was the indomitable resources of the chief audit executive (CAE) and the internal audit department.

There are several issues that make that approach untenable. First, for internal auditing to review the work--or take part in the selection--of the external auditors could be considered a conflict of interest. In doing their audit, external auditors must comment on the effectiveness of internal auditing and control. Any work done by the internal audit department is reviewed by the external auditors in determining the level of control risk, and consequently the audit fee. Any work done by the internal audit department in the course of the annual audit must be supervised and sanctioned by the external auditors. It seems incongruous, therefore, to assume that the internal auditor could be considered independent and objective enough to give an evaluation to the board/management on the sufficiency of the external auditors' work.

Second, such an evaluation may have little weight when, in fact, the eventual report and the responsibility for its representativeness is that of the external audit firm. Stockholders are more inclined to sue the auditors than management for the results of undiscovered fraud and malfeasance. Additionally, there are many internal auditors who lack the qualifications and experience to evaluate the work of the independent/external auditor.

Some of the authors' statements seem presumptuous and irresponsible, such as "the internal audit department is the most independent and knowledgeable of the organization's financial functions" or "internal auditors have an in-depth knowledge of the organization and its vulnerabilities, thus they can assess the suitability of the external auditor's efforts in terms of audit scope and coverage."

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But it does not end there. The authors also say, "internal auditors are the best choice to help the audit committee oversee the external auditors because they are highly qualified" and "less expensive," and they have "more candid and meaningful observation opportunities and are in a better position to provide assistance to the audit committee." It is difficult to accept these statements as factual.

Perhaps we need to acknowledge that it is the board or management who decides what role the CAE plays and what qualifications he or she must have. We may also have to accept that the internal auditor is not the panacea to every financial problem.

Thankfully, the last section of the article, "Making It Happen" is redemptive. In those paragraphs lies what appears to be a prescription for the success of any internal audit department. The ending is closer to reality and sends a clear message to internal auditors--we need to step up and perform.

HAYDEN T. JOSEPH, CIA, CPA, CMA

Internal Auditor

North Miami Beach, Fla.

hayden49@aol.com