By David Chiang — Director of Professional Services with ACL Services Ltd.
When Siemens, one of the world’s largest companies, was recently shaken by internal fraud and abuse scandal, their corporate board members realized that they needed to enhance their ability to oversee such a large organization. The Siemens case impacted the company’s governance structures all the way up to the board and C-suite level. And board members around the globe have watched the case carefully as a cautionary tale of the inherent challenges in governing large organizations. Being a board member is a serious commitment in this regulatory age.
Board members are by law required to be good stewards of their organizations, which means that when compliance risks and key exceptions emerge, the board (and its designated audit committee) need to be informed immediately. That’s why today’s strongest boards are developing better, more direct reporting relationships with the Chief Audit Executive (CAE). In the past, the relationship between the board and the internal audit department was focused on financial reporting, with a strong emphasis on financial statement audits and other public disclosures. Today, boards need to view the CAE as their “agent on the ground” – an independent leader who can provide objective, targeted insight into regulatory compliance, business processes, and corporate controls.
As the board chair of a university and a member of several audit and finance committees including that of billion-dollar community not-for-profit organization, I’ve seen first-hand why it’s critical to establish and support an effective internal auditing department. Internal audit needs to comply with industry best practices and develop a strong reporting relationship to the audit committee. Just as board members are playing a more active part in ensuring airtight corporate controls, the internal audit team and the CAE are expected to provide increased oversight into all areas of the business. An audit charter, agreed to and signed off at the board level, provides a formal structure to uphold this new working reality.