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Executives attempt to suppress adverse findings by pressuring the messengers, survey finds.
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Internal auditors ‘bullied into silence’
15 July 2022
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Internal auditors are getting bullied and sanctioned when they present uncomfortable findings to management and the recent Star Casino case is just one example, according to a survey by their professional body.
One in seven internal auditors – 14 per cent – said they had been sanctioned for an unfavourable report with reactions ranging from bullying by peers to denial of promotion to dismissal.
The survey, by the Institute of Internal Auditors at its recent conference, also revealed 83 per cent of respondents said their job had become more difficult in the past two years and 45 per cent had made findings that were not acted upon in a timely manner.
Comments included: “Less support and resources from the senior management to adequately discharge our duties. For example, the senior management like us to reduce the numbers of audits/assurance coverage we conduct each year because they do not wish to see higher numbers of audit outstanding items and create administrative burdens to senior staff and operations.”
Another said there was “pressure from executive to change report after final has been published”.
The chief executive of the IIA, Peter Jones, said the Star Casino case had drawn attention to the problem but it was far from an insolated incident when management disliked what internal auditors found.
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“That was certainly the case in the Star Casino findings that KPMG wrote the report about,” he said.
He said senior executives “basically went berserk when they saw the report that was pointing out deficiencies in their anti-money laundering” and tried to apply direct pressure on two KPMG partners as a result of the internal audit report.
He said the job of internal auditors was to speak truth to power and was not about embarrassing management.
“In terms of doing their investigations, they do speak to management and the information they get goes into their reports,” he said.
“But they’ve got to call it out how they see it.
“It’s not about surprising or embarrassing anyone because often these findings are done in draft form and management see them and I think at that point is where the sanctions, the bullying … the problems occur.”
He said a 2018 APRA report into the Commonwealth Bank showed how a company board could be left exposed by management pressure on internal auditors.
“That report identified quite a few deficiencies where red-flagged issues had been reported by internal audit through to the audit committee, and management ignored them, the audit committee ignored them and didn’t pass through those red flags to the board,” he said.
“And the problem, of course, is that the board’s not fully informed. And when that occurs, their duty of care to their shareholders, to the organisation, and to the public at large is compromised. And that’s very serious.”
Internal auditors took a “helicopter view” of a company with a broad brief to monitor standards in a range of areas and report to the chair of an audit committee, he said.
While the function could be done by staff within the company or outsourced they were vital to maintaining internal controls, fraud prevention and highlighting other areas of risk.
“Internal audit is all about trying to preserve organisational value and to enhance organisational value,” Mr Jones said. “So what internal audit reports identify is ways the organisation can improve.”
He said the survey findings had come as a shock.
“We’ve always known that internal auditors can be under pressure, can be under duress,” he said, but the inaugural IIA research had been “unsettling” in uncovering the one in seven who had been subjected to pressure in the past.
“If members have been pressured in this way, and it’s fairly black and white what’s occurred, then we will call it out.
“But you never know if people are dismissed, where they’ve been paid extra to sign a nondisclosure agreement … so there are a lot of ways that employers can try to hide what’s happened.”
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