Internal Audit and the CFO - inherent conflict of interest?

I was reading an interview with the WorldCom whistle blower, once the vice president in charge of internal audit at WorldCom. She made a comment that every CEO whose company has an internal audit function should read. She said having that function report to the CFO, a common situation because of the kind of work internal auditors do, is an inherent conflict of interest for the CFO. The conflict is that much of the work done by internal auditors involves reviewing the work performed by people who work for the CFO. The likelihood of internal auditors reporting problems in their boss's organization seems somewhat problematic, if you think about it.

Her point was that the internal audit team should report to the audit committee of the board of directors, and I agree. Lacking that, such as in a privately owned company that doesn't have an audit committee, that reporting relationship should be to the CEO. The problem: the CEO probably doesn't want the direct responsibility of managing a function whose activities are so foreign to what he/she feels comfortable with. My message to the CEO: get over it! These people can keep you out of trouble and make your company run better.

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If you don't like the sound of "internal controls" then how about "integrity and efficiency controls?" Learn what it takes to oversee these mechanisms in your company, and that includes internal audit. And if your company is over $50 million or so in sales and you don't have a separate internal audit function, you should be worried. If you don't know why you should be worried, call me to talk about a coaching relationship.

I welcome your comments.

What do the world's CFOs think of the economy?

You can't open a newspaper or turn on the TV these days without reading what some reporter, pundit or politician thinks about the health of the economy. Are we going into a deep recession? Is the consumer going to hibernate and sink the economy? Will more bank failures cause the collapse of the entire banking system?

So it was interesting to read what nearly 600 CFOs across the globe told Duke University about their top economic concerns. In a survey sponsored and reported by CFO Magazine (http://www.cfo.com/article.cfm/3734859) the top concerns of CFOs outside the US were the cost of labor and the shortage of skilled labor, not issues typically associated with a recession. In the US, while consumer demand topped the list the cost of skilled labor came in a close second. Hey, I can remember when recessions were about having too much labor around and having to lay off unneeded workers.

We have clients today looking for skilled accounting personnel and finding it can take months to find one that actually has the skills that appear on their resume. And by the way, while one or two of these businesses are retrenching a bit, most of them are building infrastructure for growth and none of them is worrying about their survival as a going concern. Y'know, you just don't get recessions like the good old days. Unless you're in the mortgage business.

We welcome your thoughts...