http://www.theiia.org/intAuditor/ask-the-experts/2012/legally-blindsided/ Blogen-us Wed, 07 Nov 2012 02:40:45 PMWed, 07 Nov 2012 02:40:45 PM http://www.theiia.org/intAuditor/ask-the-experts/2012/legally-blindsided/2012-11-01Indeed the Sam's situation is very sad, but there is his fault that he did not adhere to the internal audit standards where the protection of internal audit activity is clearly defined, if the structure of the organization and audit committee is appropriate. Before join an organization look at the structure and learn if there will be any disputes with management team and besides your accurate diplomacy approach, is there any way to protect you work from the unfair management through the Superior Level (audit committee members that should be independent from the company's management). The Sam's situation is also known for me in my previous internal audit practices where the top management has collusion in-between or the Superior Level was just enjoying there retirement by doing nothing, and there was no way to get justice and the only way was just to leave companies. But anyway, I am very proud that I am Internal Auditor and my job is exactly difficult and accountable but also is very interesting, pleasurable and enjoyable. http://www.theiia.org/intAuditor/ask-the-experts/2012/legally-blindsided/2012-10-29Sam should seek a meeting with the Board Chair to explain the situation, background and likely consequences. http://www.theiia.org/intAuditor/ask-the-experts/2012/legally-blindsided/2012-10-10Time to change jobs. Attempting suggestions from several of the earlier posts highlights youthful inexperience. http://www.theiia.org/intAuditor/ask-the-experts/2012/legally-blindsided/2012-10-08During meetings, the point needs to be made up front that it's the business owners who own the processes and controls, not legal. Any potential findings and how these should be addressed should be the responsibility of the business owners. As auditors, we should just say what we observed and why we are saying it using multiple supporting examples found through our fieldwork. http://www.theiia.org/intAuditor/ask-the-experts/2012/legally-blindsided/2012-10-08I would go through with the face-to-face with the Audit Committee Chair, seeking an audience with the full audit committee. At this meeting I would remind the audit committee of the sacrosanct nature of independence, and urge them to reject the GC's proposal citing the sequence of events and the possible ramifications if such a proposal was allowed. http://www.theiia.org/intAuditor/ask-the-experts/2012/legally-blindsided/2012-10-05I would ask the audit committee to fund a pear review from a reputable firm or company, that was approved by the IIA. The scope should include independence, audit workpaper review, competence and training of auditors, etc. Report to be presented to the Audit Committee, not GC or CFO. http://www.theiia.org/intAuditor/ask-the-experts/2012/legally-blindsided/2012-10-04Good afternoon, I read with empathy Sam's story. As I have unfortunately discovered, there is little Internal Audits can do when a company's senior leaders care more about protecting themselves rather than protecting the company. My advice to Sam is to confidentially find another job as soon as possible. When I encountered a similar situation in 2009, it took me until mid 2011 to find a fairly suitable job. In 2009, I had worked a few years for a now-bankrupt company in the midwest. I saw unethical behavior by the CFO, and reported it to the audit committee (to whom I reported to, dotted-line, at that time). In my report, I explained also that independence of the internal audit function was impaired as a result of my solid-line-reporting to the CFO. I respectfully asked the committee to have me report solid-line either to them or to the CEO (who, I later learned, was just as corrupt as the CFO). An example of unethical acts of the CFO: within weeks after being hired, the CFO fired the 3-person payroll department—which I had just audited and found to have a very strong system of internal controls. Despite my findings, the CFO replaced the entire payroll department with 1 person - her best friend who she brought with her from out-of-state, from a previous company at which the two of them had worked together. Instead of taking action on my report, the audit committee left everything up to the committee chair. And, the audit committee chair did not except chide me for being "too conservative" and "caring too much about 'your' accounting rules." Bottom line, the committee chair cared nothing about the company, but only about protecting himself and his board of directors—for, he had hand-picked both the CFO and the CEO. And, he and the board had ousted the great, founding CEO to replace him with the corrupt CEO who then bankrupted the company in less than a year—a company that had had a stellar, 25-year history. A few months after my report to the audit committee, the CFO paid herself an $80,000 unauthorized bonus, with the help of her payroll friend and the accounting director, who—like the payroll friend—had been installed by the CFO after the CFO constructively terminated the previous, ethical accounting director. By the end of 2009, the CFO along with the CEO and the accounting director set about filing bankruptcy, claiming that they planned to continue operations after “shedding debt.” As you may have guessed, however, the CEO cashed out his 401(k), he nor the board ever bothered to prosecute the CFO for her $80,000 bonus, the accounting director and her department cronies paid $10,000 to $40,000 to themselves in “bonuses,” the audit committee and board went gleefully about their jobs at their own, unaffected companies—unscathed by their fiduciary failure and disregard for 300 employees and 2,000 shareholders—and I and 300 other hard-working individuals became unemployed, at the height of 2010’s unemployment spike. Because I was the person who outed the senior leaders’ corruption, I was retaliated against by being the only person in the finance department to be terminated when the company shut down. Whereas the rest of finance was allowed to remain on the payroll indefinitely, until they found jobs elsewhere to ensure they always had income. I filed a complaint with the EEO and later filed as a creditor/claimant against the company’s bankruptcy. However, EEO pretty much blessed the company by claiming “we could find no evidence of retaliation…” And the judge tossed my creditor claim, claiming that I “did not have an employment contract” with the company, and because the EEO had already denied my claim. Wow, really? Is there no punishment for wrongdoing? Moreover, the board elected the accounting director as executor of the bankrupt company. So to this day, she receives a 6-figure salary simply for opening and responding to mail for the bankrupt company. I, on the other hand, was summarily terminated, and on food stamps and a $270 a month unemployment for months, because of corruption, greed, and fiduciary failure of a board, audit committee chair, and 3-pack of senior “leaders.” I began looking for another job in 2009, immediately after the CFO made her first move of firing payroll. But it took me until mid-2011 to find a somewhat decent paying job in the audit field. Sam, I wish you much luck. Jamie P Seudonym