So much said about the auditor’s independence. But are we really independent? In my view, once we are on the company ‘s payroll, our independency comes in question. How can we be independent while the organization determines hiring and firing the auditors in addition to pay and bounces?.

Well, do you not want to get paid? Just kidding . Seriously, though, I think the only way to maintain true independence is for the auditor to serve at the will and pleasure of the Audit Committee. In other words, if you're going to get canned, the Audit Committee makes the decision, not the management. That goes for pay increases and so forth.

The issue of independence is subject to many factors. It is my understanding that for an internal auditor, the most important points of being independent means that you have no operational responsibilities for the areas being audited and you report directly to the audit committee or the BOD.


If the fact that you work for your employer compromises your independence, then would it not also compromise the independence of your external auditor that your bank engages their services and pay them?

Independence is hard to define, as everyone should be working as a team, and not by the "gotcha" attitude. The Institute of Internal Auditors has guidelines for the internal auditor including the definitions.

One recommendation is to get a mission statement adopted by the Audit Committee. There are also many publications available for the Board and Audit Committees which are generally informative and no charge. "Tone At The Top" is specifically written for the Audit Committees and Boards and upon request will be e-mailed when published.

Considering the Board's new liabilities under Sarbaines, the independence is something they should insist on. The IIA's website is www.theiia.org

Former Chapter President who used their materials often.

No . . . if you let the fact that an employer could fire you at any moment color your opinions.

The concept of independence as it relates to internal audit involves the ability of the auditor to carry out his/her duties without obstruction within the organization. It is not an absolute theory of total independence.

There can never be a total absolute independence whether you are in internal audit, external audit or even a government regulatory agency. Economic pressures and can be put to bear on all groups of auditors. As you hinted, internal auditors face concerns about employment. External auditors also face pressures on maintaining clients. And, government regulators can be pressured by industry through elected representatives by way of budget constraints and other political pressures.

The IIA's guidance states:

"Practice Advisory 1100-1: Independence and Objectivity . . .

. . . Internal auditors are independent when they can carry out their work freely and objectively. Independence permits internal auditors to render the impartial and unbiased judgments essential to the proper conduct of engagements. It is achieved through organizational status and objectivity."

Notice it says when "they can carry out their work freely and objectively." If an employer designs the audit department so that it does not have the optimum authority to perform the work necessary, then you as an auditor are not independent. If the audit department is placed properly within the organization and given the necessary status, only the individual auditor can allow independence to be defeated. If an auditor succumbs to the fear of payroll or employment intimidation, whether real or imaginary, then that auditor is not independent.

To combat this personal independence struggle, auditors must maintain the concept of freedom and independence within ourselves so that he/she can project this air to all that we deal with. If an auditor expects independence, he/she will have a great chance of obtaining it. If however, the auditor's fear seeps into the work, others will pick up on this fear and the auditor's ability to achieve confident independence will be a great struggle. And of course, if the auditor ever allows management to convince him/her to change an opinion by threatening with payroll or employment sanctions, that auditor will forever be hounded and most certainly not achieve the independence needed to effectively carry out the audit charter within the organization.

Sorry for the lecture, but I have experience at being pressured and successfully resisting.

Independence is an fleeting concept...

From a practical standpoint, the closest a bank can get to independence will be to have the Chief Auditor report directly to Audit Committee and have the Audit Committee responsible for hiring, firing, and compensation of this person.

Most banks won't go quite that far...they will have the Chief Internal Auditor report to the Audit Committee but management will be very involved, if not 100% responsible, for hiring, firing, compensation, bonuses, etc.

Technically, there won't be true independence as long as management if involved (even if the Audit Committee makes the decisions, they rely heavily on management's opinion...if management doesn't like you, you might as well hang it up); therefore, in most cases, there technically won't be true independence.

Examiners are generally independent...they can do their job without fear of losing their job.

Therefore, internal auditors have to have what I would call internally-generated independence. I do my job and call it like I see it. If doing my job causes me to lose my job, so be it. I've changed jobs before, generally for the better.


Another thought on independence...

If I do a consulting project such as developing a policy or implementing a process, then turn around and audit that area, it would be argued that I lack independence because I may not be willing to criticize myself.

However, if I audit an area this year, then turn around and audit that same area next year, the argument could also be made that I lack independence because if I found that I missed something last year, or miscalculated something last year, I might have a tendency to overlook it this time around.

Therefore, I go back to my previous comment that regardless of the circumstances, practical independence many times comes down to having integrity and doing what is right...calling it like you see it.

It's early and I was up late...enough rambling.

How about working for a smaller institution ($110M) and report to the President rather than the Audit Committee or Board? This is used as a loophole since he is a member of both.

I have been told to strike a couple of items that "might make us look bad if the regulators see it", especially after I wanted the VP of RE to change his responses to be appropriate and truthful. (i.e: lying to make it look like I got my information incorrect.) I have the copy of the original audit with handwriting on it stating to remove the items.

Do I "inadvertantly" leave the copies of items that I found in the audit folder with my working papers?

Of course, I wouldn't want to keep a copy at home (since the advent of GLBA).

Sorry for the rambling. I'm a little stressed.

I was a previous internal auditor in a small bank and reported to BOD. The bank President sat on the BOD and would leave the meeting when I came in. We worked closely but I still maintained my "independence" to conduct my work. Sounds like you need to get the BOD behind you.

I think you need to figure that one out for yourself, sorry to say. My old boss used to say, "After you've lost everything else, the only thing you have is your integrity." This has been my motto for years.

There are some strong ethical themes in what you are writing about. I can't help but think if I was working in that environment, I would be looking for another job. I'd love to know how this pans out for you. Good luck to you.

I agree that you had better start looking for another job. I had the same thing happen here. The auditor in question was asked to destroy workpapers and refused. Three months later he was downsized because we were too small to have a person dedicated to IA, BSA & Security. It will not get better. It will get worse. Your talent and skill are needed elsewhere. And you need your sanity as well as your integrity.

It is completely inappropriate for the President to change your report in that fashion. You need to ensure you have all your evidence protected and create a packet that you can give to the BOD. I would start looking for other employement, then go talk to the President. If you can't resolve it, you need to talk to the Chairman of the BOD &/or the other Audit Committee members who are on the BOD, showing them your evidence. Be prepared to resign at that point.

I knew another auditor at a hospital that waited 2 months for his staff to find jobs then went to the BOD with evidence the President was blatently violating Medicare laws. He gave the BOD his evidence and resigned. Tough way to go, but he didn't want to be personally liable.

Since everyone else is sharing his/her experiences, let me share with you mine! I was auditing the expense department and I came across some questionable paid invoices for big amount. I took copies and discussed it with the Head of the Department. Then I got a call from the Head of Internal Audit asking me to drop the comments or he knows where to find me!!. You call this being independent!. To save my job, I dropped the whole comment. How strange, I was asked to audit the expense department, and once I find a serious discrepancy, I was asked to drop it.

Please tell me you are not still working there.

This is a clear indication that something is seriously wrong in your company. I hate to bring this up but . . . if illegal activity is occuring and you were threatened, you could be in real danger. Sometimes people will go to great lengths to protect themselves from the law.

When I was younger, a commercial loan officer told me that if I didn't back off on an audit, I might find myself at the bottom of the harbor with cement shoes. The funny thing is, when I told my boss at the CPA firm, he also warned me to back off or I could get hurt. Being a principled person, I did not back off. Although I was never again threatened, I later learned that the bank president was convicted of fraud in commercial lending. I guess they were just trying to scare me away. But what if they would have taken the next step?

I think you should consider getting out of Dodge City.

Ha!! We outsourced our consumer loan review this year because we have had problems in our portfolio and the OCC asked for some specific test work to be done. We (internal audit) did not have the time to perform the test work, so we engaged a reputable firm to do the work for us. Needless to say, they gave us all the info we were looking for. We submitted the report to management and they told us that the report was not adequate, when the report reflected EXACTLY what was engaged. Anyhow, the report was issued back in May and we just received a 1 paragraph response from Management last week! In the midst of all of this Management asked us if THEY could re-write the report and put information in it that wasn't even reviewed or in the scope of the audit so that the OCC would find the work adequate.

Can you believe it??? They wanted to write the audit report!!!!!!!!! They couldn't grasp the fact that it was an audit and that they cannot write the report.

We reported it to the Audit Committee which in turn demanded a response by the end of last week. The response came in at 4:30 on Friday and basically said they don't agree with any of the information in the report and that the audit was not adequate. It was more than adequate!!! They just didn't get the results that they wanted and are afraid it is going to look bad to the OCC. Independence??? Did someone ask???

If the OCC asked that specific testwork be performed, I'm guessing that they already have a really good idea of what's going to be in the audit report. I sincerely doubt that even rewriting the report would help anything along, except maybe the OCC's legal case against management.

Oh, I am pretty sure they knew what to expect. We are under a formal agreement right now and have been for over a year, mostly due to the loan area.