A. Rajamani, AIMA DBM
Deputy General Manager and Internal Finance Advisor
[Public Sector Company], Kochi, Kerala State, India
The recently reported cases of internal control deficiency can be traced to the detection failures of internal and external audit activities worldwide. The tools in the hands of modern day auditors, whether internal or external, are not adequate for the changing business scenarios in which they perform. It does not mean that the traditional tools are not effective. They proved their worth and still prevent large-scale internal control failures. However, many of the cases of reported control deficiency can be traced to tone at the top — technically a part of the control environment of the organization.
The control environment is one of the five components of The Committee of Sponsoring Organizations of the Treadway Commission's Internal Control–Integrated Framework, widely used by internal auditors globally. Most of the time, the board discharges its functions through various committees. The committee members very often delegate their tasks to lower executive functionaries — these individuals draft reports of their findings, and the committee members then sign on the dotted line. This practice must go. The committee members should be made accountable for not exercising due care and professionalism whenever they have failed to apply their attention to the issue.
The audit committee is one of the most important organs of the board, and it interacts with the internal audit function through the chief audit executive (CAE) or audit director. Most of the time, the CAE's reports are not deliberated in detail in the committee meetings. Moreover, the external auditors are often busy handling more clients than their resources permit, so they report seldom or minimally to the committee. The information and communication deficiency exists at the top level in this modern era of incessant e-mail messages and perpetually ringing mobile phones.
The financial performance indicators need to be installed and watched, with deviations traced to accounting, operational, and marketing deficiencies. Below-target performance is something to be taken very seriously. Moreover, the analytical figures compared with actual should be studied for variations, and corrective measures need to be evaluated on a timely basis. And last but not least, top management should take the internal audit function very seriously and strengthen its tools and competence through training and hiring the best from the profession.