by Glenn Cheney

Coral Springs, Fla. - LeRoy E. Bookal has wasted no time putting a spin on his chairmanship of the Institute of Internal Auditors.

In the wake of a rash of corporate and audit firm disasters, he has called for wider recognition of internal auditing as integral to good corporate governance. And, in September, he met with Chinese Premier Zhu Rongji to discuss, among other things, the oversight of internal and external auditing.

Bookal met with Zhu during the institute’s biannual Global Forum, which was held in Beijing. Bookal and IIA representatives from three countries met with the Chinese premier to discuss the crucial role of internal auditors. They were surprised with a question about external auditors.

"Zhu Rongji mentioned that, in 1999, he put forth a law in China that required external audits be done by international auditors because Chinese auditors did not have the requisite training and professionalism," Bookal said. "That law was accepted in China, but after the failures of Enron, WorldCom and others, he has been bombarded by Chinese companies and auditors asking why that law is still in effect because, if foreign auditors are so competent, how could so many companies have failed? To be honest with you, we couldn’t give him a very good answer."

Though an interpreter translated the institute representatives’ comments, Bookal said that it was obvious that Zhu understood English as it was spoken and was responsive to the more poignant points of the discussion.

Bookal told Zhu that the IIA was impressed with the organization and dynamism of the institute’s affiliate in China. The country now has the most candidates sitting for the CIA exam, with roughly 14,000.

One of Zhu’s questions was whether the United States used separate entities to oversee external and internal auditing. Bookal outlined the roles of the American Institute of CPAs and the IIA and explained the imminent creation of a new public oversight board. Zhu was interested because China also has separate oversight entities for internal and external auditing.

Premier Zhu expressed his commitment to internal audit education programs and the urgency of increasing the number of professional internal auditors in China. He also indicated the need to elevate the level and number of public accounting firms in China to international standards. As a result, he is establishing three new Chinese accounting/audit schools.

The forum in Beijing was the institute’s fourth, its third outside of the United States, following forums in Montevideo, Uruguay and Berlin. Slightly over half of the institute’s 78,000 members live outside of North America.

Bookal’s call for recognition of internal auditing’s importance to good governance comes at a time when the United States is still assessing what went wrong at half a dozen high-profile corporations which have recently collapsed in financial scandals.

In cases such as that of Enron, inadequate internal auditing failed to perceive impending problems. At WorldCom, on the other hand, internal auditing produced the first reports of financial and management improprieties, albeit too late to save the company

"Over the years, while others have seen corporate governance as a three-legged stool, we’ve seen the stool as having four legs," Bookal said. "Good governance depends on the board of directors, management, external auditors and internal auditors. But even today, internal auditors are too often not mentioned or given their due."

Bookal said that over the last 20 years, internal auditing has moved away from financial activities to operational activities. At the same time, external auditors, he said, have moved away from financial-based audits toward risk-based audits. With so many recent corporate disasters caused by inappropriate financial activities, internal auditors have to make sure that external auditors are carrying out their responsibilities fully.

Bookal and IIA president William G. Bishop met with the New York Stock Exchange earlier this year to recommend stronger requirements in internal auditing. They recommended (1) that the management and boards of listed companies report on internal controls in an annual report, (2) that companies should have internal that functions operate under the standards of the IIA, and (3) that each company should adopt and comply with a set of governance principles. The NYSE is intending to require some form of all three recommendations.

Bookal, who is both a certified internal auditor and certified management accountant, retired from Texaco after rising to the position of general auditor. Since joining the IIA in 1992, he has served in several high-level capacities, including that of president of the IIA Research Foundation Board of Trustees.

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