Time to Face Facts About CAE Independence
Norman Marks, CRMA, CPA, is a vice president for SAP and has been a chief audit executive and chief risk officer at major global corporations for more than 20 years.
I recently read how more than half the CAEs in a survey planned to move into a management role, perhaps in the next two years or so. Doesn't that present a significant risk to their independence and objectivity?
When I interviewed for my first CAE job, the CFO said that if he hired me (which he thankfully did) it would not be to run internal audit. It would be for the positions I would hold after I had done that for a few years.
Was I influenced? I would like to think that my personal integrity kept me honest. But is that true for every CAE?
How about the CAE who has been moved into the internal audit executive position from another area, with the plan to rotate again in a year or two? Some companies do this very deliberately, so that the CAE is always somebody who knows the business and can work effectively within it. But, is that person objective? How can they be?
Here's another question: many companies have the audit committee have the final interview and decide among 1-3 candidates for CAE. But, who selected those candidates? Was it HR, without any influence from management, or did the CFO and staff conduct the process. How likely are they to present candidates free from (unconscious) obligation, or ambition to work within the management team? Doesn't the CFO usually look for people who have the potential to move into his organization later?
Or, what about the fiction that the audit committee approves CAE compensation? They may have a word to say that is included in the performance evaluation, but how often do they lead that process and how often do they decide the level of salary and bonus? How often do they override the management process?
Finally, there is the dismal record of CAEs being pushed out the door after reporting significant issues. It is true that they rarely (these days) get fired straight away, but all reports I have heard support the notion that the death is a slow but sure one: in about two years, most are gone. Of course, the official cause for termination is always something different.
So what do you think?
What needs to be fixed?
Will audit committees see the problem and step up to own and fix it?
Posted on Apr 2, 2012 by Norman Marks
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