Among the many changes born of the financial crisis that's sweeping the globe are changes in internal auditing departments.
Just as duties have expanded and responsibilities increased, tighter budgets are squeezing the ranks of personnel who are supposed to be keeping an eye on the money.
Bob Rudloff, vice president of internal audit at hospitality and gaming conglomerate MGM Mirage, has seen his company restructured and his own department shrink - then expand - as the company's audit committee struggles to balance costs and an increased need for faultless financial control.
"Because of the downsizing of our organization, some layers have been cut out," Rudloff said. "Probably without realizing it, internal controls get affected because the segregation of duties that we had, the multiple layers of staff involved, no longer exist. So it's putting some pressure on us to make sure we still have the same level of control in the organization, despite smaller numbers of staff people."
The general downsizing at MGM Mirage touched the internal audit department briefly, but as the department experienced difficulty in covering key risks, it was authorized to add to its staff.
Rudloff said that although his audit committee hasn't yet made any special requests of his department - except to be aware of changes within the company - the committee has been inquiring regularly whether the internal audit function still has the resources it needs to maintain sufficient diligence.
Richard Chambers, recently appointed president of the Institute of Internal Auditors, sees the crisis as both pressure and opportunity for internal auditors, as the profession emerges from the previous crisis and moves on to the current one.
"This is one of those crossroads in our profession," he said. "We get to these points periodically in the evolution of the profession. The last time was with the round of corporate failures in 2002. Internal auditors now have an opportunity to step up to the plate with some expertise and to demonstrate their value for key stakeholders - audit committees and executive management."
Chambers said that the stature of the profession rose considerably with the advent of the Sarbanes-Oxley Act. Since then, the number of internal audit departments reporting directly to the audit committee has risen from 55 percent to almost 90 percent.
RISK MANAGEMENT
The financial crisis brought on by the problems in the global market has changed the focus of the internal audit function, Chambers said. After the Enron bankruptcy and other major corporate frauds in the early part of the decade, internal auditors were tasked with improving financial controls. Today, they are increasingly asked to assess risk management.
"A lot of IA departments haven't tooled up to do that," Chambers said, "but IA has always been a function that retools as expectations evolve ... . Now there is going to be a shift to the assessment of strategic and business risk, and you're going to see a quick move for IA functions to get out there and acquire the right mix of talent."
Part of the problem at MGM Mirage, and presumably many other companies that have suffered layoffs, is that the complicated documentation of financial controls that were developed in response to the Sarbanes-Oxley Act must now be reassessed to reflect changes in personnel.
"We went through an extensive effort to document the controls that we had in 2003 and 2004," Rudloff explained, "and since then, the organization has changed by downsizing, so we have a lot more work trying to understand if we still have the same proper controls with the segregation of duties, with the right level of controls in place, or have we sacrificed some of that because of the loss of people."
Rudloff said that his department has seen an increase in calls to the company's ethics hotline. "People are being asked to do with less, and they're seeing others in the organization that might not be making the same sacrifices, so they are questioning it," he said.
One big question: How well are internal auditors positioned for the next crisis that will inevitably come down the pike?
Again, Chambers sees opportunity in crisis.
"This is a great opportunity for our profession, because internal auditors in a typical corporate structure are in a place in the company where they have the ability to see all aspects of the company and also have the independence and objectivity to advise the board with some assurance," he said. "I don't see any other natural player who would be as uniquely positioned to do that."
