While the heads of internal audit usually don’t report directly to CFOs, they do look to finance chiefs for leadership. Best practice is for the head of internal audit (also called the chief audit executive, or CAE) to report functionally to the audit committee and administratively to a top executive, usually the CFO. This preserves the independence between the two functions and creates an unusual but important relationship.
Last month, I wrote about what the CFO should expect from the head of internal audit. This time, I will look at what the CAE should expect from the CFO. These traits include:
Honesty: I put this first because it is the most important attribute the CFO should expect from the CAE, and it is essential to an effective working relationship built on mutual trust.
Information and inclusion: One of the most significant challenges for the CAE is understanding what is happening within the organization, including its objectives, strategies, and plans; the management team’s concerns and priorities; and the company’s current performance and outlook. As CAE, I can focus the audit work on the key areas only when I understand what issues are important to the company and its more significant risks. As mentioned last week, the CFO and CAE share a desire for the organization to succeed, and every CAE welcomes being included when information is shared among the senior leaders of the organization.
Support: The CFO is the first person the CAE will turn to when concerns are raised over the adequacy of internal controls and the management of risks. Although the CFO may not be the “owner” of all internal controls, the CAE generally looks to him or her as the champion within the executive management team.
A mentor: There are two aspects to this. The first is the ability of the finance chief to help the CAE navigate through and be effective in discussions with top management, including the CEO. Although CAEs should have direct access to the CEO, they don’t have the same relationship with the chief executive as the CFO does -- and could always use advice on how to tackle sensitive issues. The second is the ability of the CFO to coach me and help me improve. Although I may report directly to the audit committee, the CFO should play an important part in assessing my performance and contributing to its improvement.
I also expect the CFO to support the internal audit function, including the provision of necessary resources. But internal auditors know that is not a given. They have to earn the finance chief’s support by providing valuable assurance on governance, risk management, and internal control processes, along with recommendations that improve their effectiveness.
Norman Marks CPA is a vice president with SAP and a long-term internal audit and risk-management practitioner.