Key Takeaways
- Internal audit marginalisation can lead to corporate failure and significant financial losses.
- Internal audit has the mandate to detect and prevent irregularities in business organisations.
- Independence is crucial for internal audit to provide credible and trusted assurance.
- Audit committees must shift from passive reviewers to active navigators to ensure effective internal audit.
Audit executives have cautioned against internal audit marginalisation, saying it can hurt business organisations. Festus Ogunmokun, former Chief Audit Executive, Nigerian Institute of Management and West African Portland Cement Company (WAPCO), stated that the consequences of marginalising internal audit could be dire for business organisations.
Ogunmokun cited several cases, including Emron, Wirecard, and Toshiba, where internal audit marginalisation led to massive financial losses. He emphasized that internal audit has the mandate of not just detecting irregularities in business organisations but also preventing them. To detect irregularities, internal audit must have investigative acuity to examine evidence without bias and follow signals wherever they may lead.
Preventing irregularities requires strengthening controls before failure occurs, which involves risk identification, control reinforcement, and ethical embedding. Ogunmokun stressed that to detect irregularities, internal audit must find inconsistencies, early signs of misconduct, behavioural anomalies, and unexplained variances that contradict reasonable expectation in context.
Gate-Keeping: Detecting Error and Fraud in Financial Reporting
Doyin Owolabi, former President of the Institute of Chartered Accountants of Nigeria (ICAN), discussed the importance of gate-keeping in detecting error and fraud in financial reporting. He said gatekeepers ensure that financial statements reflect economic reality and require a posture that is informed, vigilant, and attending.
Dr. Iheanyi Anyaghara, Founder and Chief Executive Officer, Regulatory Compliance Readiness Advisors Limited, emphasized the importance of independence in internal audit. He argued that without independence, assurance collapses into affirmation and oversight becomes a ritual. Anyaghara said that independence anchors public trust in financial reporting, governance structures, and institutional integrity.
Why This Matters
Internal audit marginalisation can have severe consequences for business organisations, including corporate failure and significant financial losses. Therefore, it is essential for organisations to prioritize internal audit and ensure its independence to provide credible and trusted assurance.
By doing so, organisations can prevent irregularities, detect errors and fraud, and maintain public trust in their financial reporting and governance structures. As Williams Erimona, Partner Assurance Services, EY Nigeria, stated, the audit committee as guardian of truth must shift from passive reviewer to active navigator to ensure effective internal audit and prevent marginalisation.