Audit cutback warning from NatWest

UK companies were warned this week to resist the temptation to cut internal audit departments as the UK begins an economic downturn.

The warning came as accountants were also told their role in internal audit departments could be diminished as staff with ?business experience? are brought in to look at operational controls.

Businesses that treat their internal auditors as a luxury to be ditched as part of wider cost cutting, will increase the risks to their organisation at a time when they are needed most, said NatWest UK internal audit boss and new president of the Institute of Internal Auditors, Richard Gossage.

?If managements are considering cuts, they should think very carefully. In a time of change, the internal audit department has an enhanced role,? Gossage said.

He said there was a danger some internal audit departments remained isolated and therefore vulnerable to attack, and warned that departments which failed to ?add value? would be first in line.

Gossage?s view was supported by David Brilliant, an internal audit partner at PricewaterhouseCoopers and a former president of the IIA, who said internal audit departments had, in the past, been treated as cost centres and cut back. ?But it?s the kind of service you need more than ever in a downturn,? he said.

Several companies have been brought to the brink of collapse following breaches of internal controls over the last two years, including DIY retailer Wickes and engineering specialist Powerscreen.

Since then, the IIA has lobbied for an extension in internal audit scope to include non-financial controls.

The Hampel committee on corporate governance agreed in its final report earlier this year, that internal audit should include reports on operational controls.

But Jeanette Hughes, head of internal audit at insurer Royal & Sun Alliance, said she was bringing in staff with business experience to work alongside accountants.

?The board wants more business people in internal audit to add value – to go beyond looking at financial controls.?

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