Strategies for internal audit excellence

By Cassandra Mascarenhas

In the midst of rapidly-changing business environments that continuously test internal auditors by increasing expectations day by day, the fourth National Conference of the Institute of Internal Auditors Sri Lanka held on Tuesday revolved around the timely theme ‘Strategies for Internal Audit Excellence’.

The conference attracted a vast crowd of internal auditors as well as international speakers who shared their experiences and best practices, reflecting on the maturity of internal audit capability and seeking to find answers to the big questions posed to internal audit professionals in the current scenario.

“Given the current state of the economy and recent corporate scandals, fraud is still a top concern for corporate executives. More corporate executives are paying fines and serving prison time than ever before. No industry is immune to fraudulent situations and negative publicity that swirls around them. The implications of management are clear, every organisation is vulnerable to fraud and managers must know how to detect it or at least when to suspect it,” stated IIA Sri Lanka President Dharshana De Silva in his welcome address.

Chief Guest at the conference, the Senior Consultant to the Postgraduate Institute of Marketing (PIM) Dr. Wickrema Weerasooria stressed on the importance of internal audit for any organisation.

“What is the legal liability of an auditor? Do bankers rely on the audit report when takeovers come up?” he questioned. “The statement of the audit is far more important the profit and loss.

The law has developed further and states that if the auditors have negligently passed the audits of a company, they can be held negligible. Auditors have figured in recent decisions of our courts where the courts have made observations on the audit but many members of the public are not aware of it. Under the Roman-Dutch law followed in Sri Lanka, no auditors can be held liable unless you are wilfully negligent.”

He also noted that there is a huge amount of white collar crime today and that it is on the increase, drawing on the example of Hayleys as the biggest white collar crime in the recent past, where the auditors had failed to notice the fraud and were therefore replaced. 

“With technology, funds can be transferred easily, documents can be changed – it is a weapon for fraud and misconduct. The business world is developing and huge volumes of business occur and everyday the media talks of corruption, mainly by the public sector but also the private sector. We have a duty to be relevant – seize the day, be relevant don’t put the dirt under the carpet.”

John Keells Holdings PLC Group Finance Director Ronnie Peiris delivered the keynote address, stating that it is very important that internal audit should become more relevant in Sri Lanka as it is an important function, yet currently viewed as irrelevant.

“I have had very lengthy discussions with CFOs and CEOs about their views on internal audit. We sometimes have very acrimonious debates about the value internal audit bring to JKH. It is necessary that we change course to make the internal audit function more value adding and relevant,” he said.

He added that in the context of the whole organisation, the focus of internal audit should be on the critical success factors and the processes that deliver these factors. Peiris noted that internal auditors have a real opportunity to make emerging risks into competitive advantages – it just requires a change of behaviour.

“Through their reports they must start creating outcomes, creating learning and entrenching them as best practices. Internal audit has a real role to play there and in communication. The expectations that we have created of internal audit is to look for frauds and anomalies. We as boards have not created in internal audit that our feelings go beyond this command and control attitude – we want them to contribute to our organisational success.” He revealed that recent surveys indicate that there is a massive gap of communication between executive directors and internal auditors and called for the development of a communication protocol and suggested that different people be trained for internal audit and not just auditors.  The conference went on to feature India’s largest outsourcing internal audit firm, Aneja Associates India CEO Narendra Aneja, CCH TeamMate – Asia Pacific Managing Director Mike Evans and KPMG Partner and Head of Advisory Services Reyaz Mihular as presenters.

The day’s proceedings were summed up with a panel discussion featuring Narendra Aneja, Attorney-at-Law Maithri Wickremesinghe, Lanka Walltile PLC Managing Director Mahendra Jayasekera and were moderated by Ernst & Young Sri Lanka Country Managing Partner Asite Talwatte.

– Pix by Upul Abayasekara