Leader’s Edge for Internal Audit: Can you Hear Me Now?

Bridgepoint Consulting hosted an event for internal audit executives at Whole Foods Market World Headquarters in Austin, TX on April 25. Attendees shared insights on developing strategic alignment and effective communications between internal audit departments, executive management, audit committees and boards. Chris Yost, Internal Audit Director at Whole Foods, facilitated the discussion and David Roe, Director of Governance, Risk and Compliance at Bridgepoint Consulting, was the moderator.

Here’s a brief summary of the conversation topics among the participants:

• Different motivators: Understand what drives your stakeholders’ decisions. For example, company management may view internal audit as a “value add” function to supplement and support company initiatives/growth. Whereas, the audit committee may view internal audit as primarily a compliance function to support the board’s risk management responsibilities. Different approaches may be required to maintain independent and objective, but “mutually aligned” relationships with both groups.
• Reporting structures: A common organizational structure of internal audit is reporting functionally to the audit committee and administratively to the CFO. Some have experienced challenges with this structure such as differences of opinion regarding scope and budget. Reporting administratively to the General Counsel or CEO may be considered a best practice.
• Communication: Prevent surprises (a.k.a. turmoil). Maintain open lines of communication with the executive management (CEO or CFO) and the audit committee, including formal or informal updates on a quarterly or defined, consistent basis. Update the executive team before reporting to the audit committee. In some cases, it’s a good practice to get with the General Counsel beforehand as well.
• Know your audience: Different people have different ‘hot buttons’. If you have a new Audit Committee Chairperson, get to know that person. For example, if your Audit Chairperson has previous experience in dealing with certain types of issues or industries, anticipate questions and inquiries that are similar to this person’s previous experiences.
• Face time: A best practice to consider is for the audit committee to periodically meet with the audit team, in addition to the internal audit executive, to further support communications and create a positive relationship.
• Culture: Yes, it’s true. The company’s culture often dictates the formality of the reporting lines between internal audit and its constituents.  The more “corporate” the environment, expect to have more formal reporting processes. Even if you exist in an informal culture, however, it’s still important to maintain solid relationships and a consistent reporting line.
• Trust: In the end, relationships between internal audit and stakeholders come down to trust.  Having a true understanding of the business and relevant risks, along with board level and management expectations, will help foster the best relationships as an independent, trusted advisor.