The Emerging Role of Internal Auditing in Building Stakeholder Trust

Governance, transparency and accountability reforms have dramatically changed today’s business environment around the world and organizations are challenged with an abundance of new standards and stakeholder expectations. As a result, stakeholders have expressed a need to make themselves heard on important issues and they want to have a voice on who has a seat on boards.

Internal auditors are often tasked with assessing an organization’s governance structure. They identify whether the board composition meets the needs of the organization, and then provide an independent assessment, opinion, and recommendations.  In addition, at the heart of an internal auditor’s responsibility is assessing ethical environments, operational issues and policies and procedures.

What role should internal auditing play in good corporate governance and what are their responsibilities to stakeholders? Following is a listing of some of the priorities of stakeholders and the role that internal auditing can take in the concerns.  

• Stakeholders do not trust a board that lacks independent leadership.

To ensure independent oversight, a board chair should be a non-executive leader. Internal auditors understand the importance of both a perception of independence and independence in reality. As they assess the organization’s governance, internal auditors are well positioned to look deeply into the board’s structure and composition to uncover an evidence of perceived or actual conflicts.

• Stakeholders expect disclosure of the company’s true condition.

Every organization will have areas in need of improvements, but deciphering which weaknesses might be red flags often is difficult for an outsider. The work done by internal auditors reveal of the true picture of an organization’s viability or lack thereof. The internal audit activity provides assurance that internal controls in place are adequate to mitigate risks, ensure that governance processes are effective and efficient and organizational goals and objectives are met. 

• Stakeholders want reasonable exit scenarios.

The practice of rewarding executives who have demonstrated a lack of ethics creates a tarnished perception of the organization. Assessing the appropriateness of separation policies and procedures for poor performance should be a part of the internal auditors’ governance audit.

This article is available in full in The Institute of Internal Auditor’s April  Tone at the Top newsletter. Tone at the Top is committed to provide executive management, boards of directors, and audit committees with concise, leading-edge information on such issues as risk, internal control, governance, ethics, and the changing role of internal auditing. You can read this article and other Tone at The Top editions and subscribe to receive future editions of Tone at the Top by visiting:
http://www.theiia.org/periodicals/newsletters/tone-at-the-top/.