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CPE for Government Auditors

Auditing is Dangerous

Below is an article I wrote in 2012 about the difficult position auditors are put in. What are your thoughts on the subject?

This last week, two events occurred that reminded me how dangerous auditing is. It is dangerous because auditors can’t win! If they tell the truth, it can come back to bite them. If they don’t tell the truth, the scandals they are covering will come to light and implicate the auditor.

One of my internal audit friends is looking for a new job. She has been auditing for 20 years and has on a few occasions pissed the client off for telling the truth. In other words, she was doing a great job as an auditor. One nasty client lost her little mind and yelled at my friend during a board meeting and was subsequently let go for showing bad form. This woman has a grudge against my friend and has, it appears, successfully sullied her reputation with my friend’s desired new employer. So she is paying for doing the right thing.

Another audit colleague is suffering for not doing the right thing. UT Southwestern Auditors are in the news for not reporting excessive, personal travel by a University executive. Here are some excerpts from an investigative report of the situation:

The requirements of the International Standards for the Professional Practice of Internal Auditing are to “communicat[e] risk and control information to appropriate areas of the organization.” Mr. Chaffin told us that he had concerns about Dr. Wildenthal’s spending activities and whether there was a legitimate business purpose for all of Dr. Wildenthal’s travel and entertainment expenses. Mr. Chaffin chose not to document these concerns in the audit report and chose only to discuss these concerns informally with two individuals. Mr. Chaffin’s audit represents a failure in the governance process, as risk information was not properly and formally communicated in writing. Mr. Chaffin failed in his duties and responsibilities as Chief Audit Executive at UT System.

Mr. Chaffin said that the audit report also did not contain a recommendation that Mr. Chaffin considered making, which would have required the submission of an itinerary in advance of foreign travel and a list of attendees for meetings or dinner events. Mr. Chaffin said that, while he believed that these recommendations were important, he was concerned that such recommendations would become immediate headlines for the DMN. Mr. Chaffin stated during his interview that he was generally concerned with the potential for DMN headlines, and, as a result, he withheld numerous recommendations from the audit report. Mr. Chaffin explained that he made a judgment call to leave these recommendations out of the audit report.

3. UT System and UTSW audits failed to alert officials at UT System or UTSW that there were risks related to Dr. Wildenthal’s spending and expense documentation. The risk plans outlined by the auditors at the outset of their inquiries, the audits and the audit reports were inadequate because they failed to address significant questions related to Dr. Wildenthal’s travel and entertainment expenses as President of UTSW. Robert Rubel, Director of Internal Audit at UTSW, who conducted the annual audits of Dr. Wildenthal’s travel and entertainment expenses as President of UTSW, never questioned any of Dr. Wildenthal’s travel or entertainment expenses. Charles Chaffin, Chief Audit Executive for UT System, who conducted various UT System audits of UTSW, developed significant concerns regarding Dr. Wildenthal’s travel and entertainment expenses, but made the decision not to document his concerns in various audit reports, including an audit report which described the results of a “change in management audit” conducted in December 2008 when Dr. Wildenthal stepped down as President of UTSW. Mr. Chaffin specifically chose not to document his concerns that Dr Wildenthal’s travel and entertainment expenses had more of a personal benefit than a specific business purpose and benefit to UTSW and that Dr. Wildenthal frequently failed to include in the documentation of such expenses the names of the donors whom he traveled to see and entertained. Hence, by not asking the right questions or documenting significant findings, the auditors failed to alert UT System and UTSW officials to substantial risks and concerns.

So… do the right thing… get hammered. Do the wrong thing… get hammered. How do we win this thing? Part of it has got to come down to voting with our feet. BUT, if we keep moving on to clean and cooperative clients, then we aren’t much use, are we? Auditing is dangerous.

I’d love your input.

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