AN UPHILL BATTLE
tor, the major participants are less greed-driven. They are power-driven and ego-driven and political-posturing driven. You have
the problem of Napoleon’s definition of politicians: “dealers in
hope.” Dealers in hope request money, raising a lot of expectations,
and are only held accountable after one, two, four, five, or 10 years.
Sometimes, by then, they’re out of office. At the same time, they’re
promising excellent controls, which are sometimes not achievable if you’re honest about the risk profile. Dealers in hope may
turn into wheeler-dealers in hope.
For the internal auditor, there are tremendous similarities
between the calamities we’ve had in the private sector and those
in the public sector. The limits of what is possible are very similar in both sectors. After three years back in the internal audit
profession, I question the adequacy of the expectations of management that we have as a profession. You have Enron, WorldCom, Ahold — Europe had its fair share of scandals, too. There
were seemingly state-of-the-art internal audit departments in
those companies. So, what went wrong? We had all the COSO
tools, all the risk-management tools, all the lessons of the 1980s
and 1990s. We recognized organizational behavior as a major
variable. We recognized the danger of control overrides. Why
did we fail?
Internal auditors have done and are doing excellent work at
the subsidiary level but still have a tremendous amount of difficulty honoring the expectations that we’re raising with products like 360-degree governance auditing, where you’re supposed
to sit in judgment on the governance and effective power structure of your own senior management. Plus, there’s the new
call for tone-at-the-top auditing. I would like to see the U.S.
Office of Management and Budget do a tone-at-the-top audit
of the White House!
The internal audit profession should do some soul-searching
about whether it’s letting the pendulum swing to an extreme where
it no longer controls the expectations that it’s raising. We can
probably label our work as audits at the subsidiary level, but at
senior management level, we have to be extremely cautious. There,
we cannot play anything more than some sort of consultancy role
and, even then, only on request if the will is there to listen. But,
don’t call it audit. It’s too dangerous a concept.
We don’t know how many internal auditors have been
kneecapped when trying to be serious, or how many internal
auditors have silently disappeared from the scene. These internal auditors will hardly speak up and say, “Listen, I’m one of
them.” These people want to have another job, too, and it is not
a recommendation if you apply for your next job and have to say,
“In my last job I really superbly allowed myself to be counseled out of my job because I had a fight with senior management for the right reasons.” You don’t hear about those internal
auditors who really made a stand for the right reasons and were
told to leave. It’s a warped perspective you get of the perfor-
mance of the internal auditors. There’s a danger that we’ll let
ourselves be pulled into a whirlpool of enthusiasm for the idea
that we can actually sit in independent judgment of the control environment, right at the top.
It sounds as if you’re saying that internal auditors should be
careful not to confuse their powers and responsibilities with
those of the board of directors.
Well, yes, but internal auditors can help the board of directors if
senior management is willing to allow them to help. Senior management also has to be willing to hear their judgments, and not
resort to mind-twisting their views into sweet nothingness.
In some of your writings, you seem to say that internal auditing
is very fortunate in that it has not attracted the blame and
finger-pointing leveled at external auditors like former Big Five
accounting firm Arthur Andersen.
Right. I think we’ve escaped close scrutiny because we’re internal. And now, as a result of the crisis, we’re getting wind in
our sails, and we’re getting empowerment. I’m warning that we
should not overstate our case. At the top management level, the
internal auditor’s possibilities are limited — unless you’re willing to play Russian Roulette.
Any good news for a besieged accounting and auditing profession?
Because history tells us that history will repeat itself — professional credibility crises are at present not excluded — it
is important to keep an eye on the very good news that, paradoxically, comes with the bad news; that morality cannot
be legislated or regulated.
That means that, like our parents and our children, each
one of us — with no exception — will remain continuously
challenged regarding our moral fiber. Challenged, in particular, when the going gets tough and the process seems to
offer such an easy way out; even more in situations of perverse peer group dynamics.
Thus, the good news is that when push comes to shove, it will
inevitably be for the individual, and the individual only, to make
the call on natural tensions that go with everyday competing
objectives, such as between the bottom line and the moral high
ground in everyone’s work. It is a privilege that nothing, or no
one, can take away from those keen to live a real life, including a working life.
It comes as natural as one can have it with our birthrights and
obligations. Our individual response to it, every time, decides
which side of the table we find ourselves on at the next crises.
Never a boring day. Isn’t that great!
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FEBRUARY 2004 INTERNAL AUDITOR