Company boards, particularly in the financial services sector, are strengthening the role and reach of internal audit functions to ensure their independence and visibility, in the face of increasing risks to business and greater regulatory scrutiny, according to research from the Chartered Institute of Internal Auditors (IIA)
The annual survey of heads of internal audit shows that 82% of private sector internal audit chiefs now report functionally to the chair of their audit committee, compared to 68% in the same survey last year. In the financial services sector, the figure is 84%, up 4% on last year.
Half of heads of internal audit also reported that the audit committee rather than the executive is responsible for evaluating their performance, double the 21% recorded last year.
Internal audit departments in the financial services sector also scored higher than other sectors on measures to ensure independence from their organisation’s executive management. Non-executive audit committee chairs in this sector are more likely to appoint, appraise and set pay for their heads of internal audit, as well as to have responsibility for their internal audit team’s budget and audit plan.
The IIA notes that since the introduction of its Code, Effective Internal Audit in the Financial Services Sector, in July last year, there have been significant improvements in financial services internal audit teams’ strength and ability to provide the board with independent assurance on the effectiveness of the organisation’s risk management.
The latest survey shows that 56% of heads of internal audit now sit at executive committee level compared to 45% last year, giving them greater insight into key decision making processes and the ability to give boards a more holistic assessment of risks and the controls in place to manage them.
Dr Ian Peters, IIA chief executive, said: ‘The level of regulatory and public scrutiny of the financial services sector, including moves to increase the personal accountability of directors means that boards will need to rely on their internal audit team even more to ensure they have a tight grip on risks.
‘But it is important that organisations in other industries learn from the experiences of financial services and the increase in the numbers of internal audit chiefs reporting to non-executives suggests this is happening.
'The last couple of years have seen significant scandals in sectors as diverse as pharmaceuticals and supermarkets – boards in all sectors therefore need to ensure they are confident that the systems and processes they have in place to anticipate and mitigate problems are fit for purpose, based on an independent and objective assessment.’
