Case Studies

Case Study 6 – Internal Audit Department Quality Review and Restructuring

Industry: Telecommunications. (South East Asia)

Company: Large national company, listed on NYSE.

Objective: To restructure the Internal Audit department and create a world class resource for the client, in order to comply with Sarbanes Oxley requirements as well as add value to the client organization.

Results:
The client had tasked us with undertaking a quality review of the existing internal audit department and proposal for improving and restructuring. From our review we found the following:

Dumping ground. The Internal Audit department was a dumping ground for employees who were not wanted elsewhere.

Incompetence and lack of motivation. As a result the majority of internal auditors in a total team of 20 were severely stressed, de-motivated and incapable of undertaking quality internal audits or providing added value advice to the Board of Directors and senior management.

Lack of independence. At least three senior members of the internal audit team were also senior executive members of staff unions, staff benefit societies and companies or had previously been served with warnings related to fraud or other irregular activities. The Internal Audit department did therefore not have a good profile in the organization and was not trusted.

Lack of compliance with Standards of Professional Practice of Internal Audit. The Internal Audit department was run almost completely in violation of best practice principles enshrined in the SPPIA issued by the Institute of Internal Auditors. The framework for managing the Internal Audit Department was therefore almost completely absent, including an absence of professional training, non existence of written manuals and methodologies, job descriptions and responsibilities, organization charts and so forth.

With the assistance of an external HR consultant we undertook a thorough review of all Internal Audit staff, their competence, attitudes and future possibilities, which resulted in a proposal to the client to terminate around 75% of staff members. A new CEO which had recently been appointed during our review through a political bidding process was unwilling to expose himself to any union action at the initial phase of his career. Our proposal was ultimately not implemented as one of the senior Internal Audit executives used his position with the union and threats of strikes to pressure management into maintaining the Status Quo.

Lesson learnt:
The tone at the top of an organization and senior management/ Board support are critical in improving the internal control environment in an organization.

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