Internal auditing – is about exercising judgement (Part 2)

by Sylvester Shamy

Chairman of the Institute of Internal Auditors NZ
and 2016 NZ Internal Auditor of the Year

Editor’s note: The Institute of Internal Auditors is a TINZ Affiliate and a regular contributor to the Transparency Times on the subject of internal auditing.

In our February newsletter we explored the difference between “doing things right” and “doing the right thing” from an internal auditor’s perspective. We now continue the article with a simple example that highlights two different approaches an internal auditor can take.

A manager in a company with a reputation for “excellence” and “putting people first” did not complete a staff member’s performance appraisal by the required due date of 30 June. It was completed on 7 July. The requirement was expected practice but not enshrined in policy. This was identified in a test performed by the internal auditor, who also noted that appraisals were nonetheless completed for four other staff who reported to the same manager. The manager had been away due to serious illness for an extended period of time leading up to when the appraisals had to be completed. Interviews and documents corroborated that the manager and staff member had active performance conversations throughout the year. The staff member expressed full confidence in the support and guidance given by the manager during the year. The manager was anxious and stressed about not completing the one performance appraisal on time.

Doing things right would suggest that the internal auditor should raise the matter as a non-compliance issue in the written report, with an elaboration of the expectation, the sample of performance appraisals tested, a description of the one non-compliant appraisal, and concluding with the requisite recommendation to fully comply. 

In contrast, doing the right thing may be to verbally acknowledge the exception with the manager concerned and secure a commitment to ensure full compliance in the future, but to reflect it in the report as a minor matter not warranting further management action except to ensure that the expectation to complete appraisals on time is reflected in a formal policy document that should be communicated to all staff.

By acting in this manner the internal auditor is able to demonstrate the qualities previously exemplified. The internal auditor recognises the context (the expectation and illness), determines the facts (the exception and lack of policy guidance) and balances the mitigations (manager interaction and support throughout the year). Above all, the internal auditor considers the impact of his or her work and arrives at a course of action that addresses the organisation’s drive towards excellence while simultaneously preserving its respect for its people. The internal auditor demonstrates leadership and incentivises good performance, instead of focussing purely on non-performance.  

Internal auditors can and should bring real value through their work. Sometimes, this is about knowing the difference between doing things right and doing the right thing, and taking a leadership approach in helping organisations and their people.

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