Risk & Compliance

Internal Auditors Strain under Unethical Pressures

Many report repeated instances of being pressured to squash or alter valid audit findings.
David McCann and Sean AlloccaNovember 2, 2016
Internal Auditors Strain under Unethical Pressures

Almost a quarter of all internal auditors experience pressure to change or suppress unfavorable audit findings, but the true prevalence of such pressure might be far greater.

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Socrates: Father of Ethics

In a new report from the Internal Audit Foundation, based on a survey of more than 14,500 audit professionals from 166 countries, 23% of respondents said that “yes,” they’ve been directed to suppress or significantly modify an internal audit finding or report that they believed to be valid.

However, an additional 11% of participants chose a “prefer not to answer” response option. Those responses plus the 23% “yes” responses created a “pressure score” of 34%, wrote the report’s author, Larry Rittenberg, a University of Wisconsin professor and the audit committee chairman for Woodward Inc.

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For those reporting that they’ve experienced this kind of pressure, it’s hardly a one-off occurrence, according to the research. Virtually the same percentage of respondents indicated having felt such pressure at least once per year.

Survey participants were also asked to identify the sources of pressure to change or suppress unfavorable audit findings.

Not surprisingly, most of the pressure put on chief audit executives (CAEs) came from a senior management executive. Among CAEs who reported feeling pressure, 87% pointed to the CEO, CFO, or top operations officer, or a combination of them, as a source of pressure.

Perhaps more surprisingly, almost one in five (18%) of these pressured CAEs said the board of directors or audit committee leaned on them.

Below the CAE level, 44% of staff auditors and 34% of directors/managers who reported feeling pressure said it’s come primarily from within the internal audit department. But while the data did not clarify the reasons for this result, Rittenberg drew on his experience to suggest that intra-departmental pressure may not have much to do with ethics.

Instead, he wrote that staff pressures may arise from a combination of factors, including:

  • Lower experience levels may have led the staff auditor to raise issues that were not material to an audit.
  • The staff auditor did not appropriately communicate issues in drafts of audit reports due to lack of good writing skills.
  • There was poor communication between the CAE and the staff.
  • The staff auditor’s inexperience led to failure to identify the business issues tied to audit findings.

On the other hand, again among those who have felt pressured, it may be telling that 77% of them (both CAEs and staff) from large internal audit functions, and 70% of those from small or midsized functions, cited “audit would reflect badly on key operational management” as a reason for the pressure.

“Internal auditors do not always operate in environments that foster ethical approaches, and many organizations do not have codes of conduct or codes of ethics to support them,” said Richard Chambers, president of the Institute of Internal Auditors. Overall, 69% percent of respondents reported that their organization does have a code of ethics.

Generally, those who feel pressured in the workplace to carry out actions they disagree with are concerned about potential repercussions, should they resist. And those concerns are valid, according to Rittenberg.

“Clearly,” he wrote, “some of the pressure can arise simply because there is a disagreement regarding the facts or the implications of the facts.”

However, he added, “we know that we do not live in a perfect world. There may be consequences to resisting pressure to change audit findings, which may include pay cuts, transfers to other positions, terminations or being eased into retirement, budget cuts, exclusion from important meetings, and being ostracized by individuals in the organization.”

Indeed, among survey participants who said they have stood their ground on audit findings in the face of pressure to suppress or modify them, 33% said they’ve been excluded from meetings, 18% have lost opportunities, and 4% have been handed budget cuts, although only 1% reported being demoted and just 1% have suffered a pay cut.

The report, “Ethics and Pressure: Balancing the Internal Audit Profession,” was based on the Internal Audit Foundation’s 2015 Global Internal Audit Common Body of Knowledge survey.

Photo: Mary-Lan Ngyuen, Wikimedia, CC BY 2.5. No changes were made to the original.

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