June 2011

An Uninvited Guest

Edited by Michael D. Marinaccio

After learning that his organization's chief financial officer invited himself to a private meeting with the audit committee, a chief audit executive considers his next steps.

 

Bill is the chief audit executive at Big Bank Corp., a global financial holding company that provides banking and nonbanking financial services and products to individuals, businesses, and large corporations in the United States and internationally. The company serves its customers through a network of approximately 1,500 banking centers and 8,000 automated teller machines. They offer a range of banking products including debit cards, checking and savings account options, access to unsecured debt and credit card financing, and a full range of home financing options.

Bill meets formally and regularly with Big Bank Corp.’s audit committee. After each formal meeting, he attends the committee’s executive session. These private sessions typically are unstructured and allow Bill the opportunity to provide candid feedback to the audit committee. Bill likes these sessions because they allow for an open discussion of management issues without the presence of other executives. In the past, he has spoken freely to the committee with the expectation of confidentiality and privacy.

At his last audit committee meeting, Bill was caught off guard by what can best be described as “executive session crashing” by the chief financial officer (CFO). During the session, he wondered to himself why the CFO wanted to attend and was allowed to do so by the committee chair. This tactic made him very uncomfortable and reluctant to share his insights on risks and controls candidly with the committee. After the session, Bill went back to his office to think about what had just occurred and to consider his next steps in light of this intrusion.

Bill feels strongly that he should meet with the audit committee alone, without management, in a genuine executive session. What steps should he now undertake with the committee chair and the CFO?

How would you handle this scenario? Share your comments below.


Uninvited Guest
If the CFO steps in to the audit committee meeting, it is also the role of the committee chair to remind the CFO that the session requires him not to be present in this meeting. The CFO could ask for some input regarding the topics to be discussed in the meeting as he has the right to know. However, the matters/details discussed within the meeting are out of his wing. By reminding the CFO about the roles and responsibilities of the audit committee and the internal audit, already described in the charters, the audit committee could make it clear that the CFO should step out of the meeting.
Posted By: Erick
2011-10-17 5:21 PM
uninvited gust
The very reason Bill attends the AC executive session is, in my opinion, to give an in-depth look over the risks of the Bank to satisfy the oversight control role of the Board of Directors through AC. Then who is the looser? Bill however, refer the Charter to Chair of AC and request for private session with out the presence of the CFO for the future. But if the CFO is present to give explanation over the IA audit report, Bill should be confident to defend the report for the benefit of the Bank.
Posted By: Samuel Ademe
2011-07-19 4:09 AM
Executive Session
As an executive session it is acceptable to have any key member of management present such as the CFO. There must be something of value that the CFO must express to the Audit Committee and it could be worth listening to. If the presence of the CFO undermines the CAE Independence, this should be expressed to the Audit Committee Chair and the Executive Session could be modified to have ie. 2 sessions of 30 minutes instead of 1 of an hour, giving the CAE the privacy needed to speak openly.
Posted By: Roberto Santos
2011-06-20 7:23 PM
Uninvited Guest - Clarity of Exec Sessions
The background indicated that Bill attends the AC board's executive session, it doesn't say that it was the executive session with IA. Therefore, Bill should seek to clarify in the charter and/or in practice that he needs a periodic CAE session with the AC and also be open to exploring the value of having the CFO continue to attend with him part of the board's executive session.
Posted By: Jeff
2011-06-10 9:33 AM
uninvited guest
The internal audit charter and audit committee charter should be explicit and clear as regards the executive session the CAE holds with the Audit Committee. In this session, the CAE ordinarily talks about other things candidly without management being present............status of if the CFO crushes into that meeting uninvited by both parties, then that is a breach of both charters and should not be allowed. For me, i would completely switch off and will hold back until the audit committee chair clarifies what is the way forward.
Posted By: erick audi
2011-06-06 3:16 AM
An Uninvited Guest
Bill should first ensure the minutes reflect that the CFO was present during the executive session. If this happened frequently the banking regulators will probably comment on it. If the Audit Committee does not have an executive session with the CFO only they should establish that practice. Otherwise, Bill should discuss this with the Audit Committee Chair during one of their routine telephone calls, if they don't talk between meetings they should be. I have 2 or 3 telephone calls between our Audit Committee meetings with the Chair.
Posted By: Paul Bowler
2011-06-03 3:42 PM
Board committee misconduct: Uninvited guest
At a big bank both the CFO and Audit Committee Chair(ADC) can be expected to know the rules of conduct. They offered no explanation. The CAE must go to the Board Chair. The CAE has no confidence in the ADC. The ADC should be replaced by the Board Chair. The CFO's position must be questioned by the board as well. At the meeting the CAE should have raised the issue, had the response documented, and left the meeting if necessary, but it is too late now. The Chair should question the leadership ability of the CAE.
Posted By: Don
2011-06-02 1:09 PM
An Uninvited Guest
Speak directly with the Audit Committee Chair about the meeting and executive session protocols.
Posted By: Paul
2011-06-02 11:48 AM
Advice for Bill
I suppose that Bill can send e-mail to the Audit committee chair and to ask about the genuine executive session with the reference to IA charter regarding the right of CAE to communicate directly and confidentially with the committee members (if this povision is in place). The same time it is possible to initiate the meeting with CFO with purpose to clarify the reason of his/her participation in the executive session. May be he/she is unhappy with the content and/or timing of reports obtained from IA regarding the financial topics recovered during the audits, so the better communication frame should be agreed. Kind regards, Anna
Posted By: Anna Mekh
2011-06-02 11:44 AM
About articule "An Uninvited Guest"
Bill should always be output to meet privately with the Audit Committee or the Board of Directors, if this privilege is prevented, Bill should speak frankly to the Audit Committee and forwarded to the Charter Committee (if any), the Internal Audit Charter, to international standards. In this Bill will have a basis to explain to the Committee's independent directors, the importance of meeting alone with the Committee without the presence of managers, to avoid impediments to the independence of the Internal Audit function. Bill siempre debe tener la salida de reunirse en privado con el Comité de Auditoría o con el Consejo de Directores, si esta prerrogativa se impide, Bill deberia hablar francamente con el Comité de Auditoría y remitirse al estatuto del comité (si lo hay), al estatuto de Auditoría Interna, a las normas internacionales. En esto Bill tendrá una base para explicar a los directores independientes del Comité, la importancia de reunirse a solas con el Comite sin la presencia de Gerentes, a fin de evitar impedimentos a la independencia de la función de Auditoría Interna.
Posted By: Wilfredo Mancia
2011-06-02 11:40 AM


COMMENT ON THIS ARTICLE

Internal Auditor is pleased to provide you an opportunity to share your thoughts about the articles posted on this site. Some comments may be reprinted elsewhere, online, or offline. We encourage lively, open discussion and only ask that you refrain from personal comments and remarks that are off topic. Internal Auditor reserves the right to edit/remove comments.

Name:

Email:

Subject:

Comment:


To make something bold:
<strong>Text to bold</strong>

To make something italic:
<em>Text to italicize</em>

To make a hyperlink:
<a href="URL">Text to link</a>

 

Subscribe_June 2014 

IIA_AllStar_July2014

IIA_AllStar_July2014 

IIA Seminars_Nov 2013  

 

 

 Twitter

facebook IAO 

IA APP