The Non-Executive Internal Auditor

As I enter the portfolio phase of my own career, one of the focal points of my pondering concerns the fact that not many internal auditors make it to the boards of companies yet alone their audit committees. How can this be?! The audit committee as represented by the chair has long been viewed as the source of all authority for all things internal audit – our resourcing, our plan, our findings and a point of advocacy for recalcitrant management. One would think that elevating experienced internal auditors to the audit committee and ultimately the chair would be a very natural and wise career progression. Yet how many internal auditors do you know who have made this journey? 

Not many.

Isn’t it time this changed?

Lets look at the business case for internal auditors being trusted to make this journey:-

• The role of an audit committee and its non execs is to challenge and hold the executive to account – which is exactly what an internal audit function does and at a very early age in terms of its members
• The audit committee needs to have an intimate understanding of the business – it goes without saying that a successful internal auditor will have this understanding
• In business, one needs to be able to manage the trade off between reward and risk – the role of the audit committee is to challenge how this trade off is being managed – isn’t this what the internal auditor does on a day to day basis but on a more detailed basis? Familiarity with risk appetite statements and the way they are executed is our stock in trade.
• The audit committee is responsible for oversight of the organisation’s internal control framework (from a non executive perspective) – the internal auditor majors in understanding internal control best practices.

Hopefully case made. So why is the internal audit profession struggling to make this transition.

Let me share a theory. The audit committee does not only oversee internal controls in relation to risk. It is also responsible for oversight of the financial statements. These are statements that are audited by external audit firms. These are external audit firms who provide the majority of audit committee members. In other words, the external audit profession dominates the audit committee and, as a result, its nominating processes.

It’s time for this to change – obviously I have a conflict of interest as President of the Chartered Institute of Internal Auditors and somebody who is looking to secure some NED work.

Not all conflict of interests are malevolent.