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Audit Committees Should Focus on Corporate Culture to Mitigate Fraudulent Behavior

Internal Audit Foundation/PwC paper details growing challenges in banking and capital markets sector

ALTAMONTE SPRINGS, Fla. (September 29, 2016) — Audit committees should be aggressively assessing corporate culture to detect and deter unethical behavior in their organizations, according to a new paper released by the Internal Audit Foundation and PwC US.

“Banking on Change: How to Respond to New Expectations for Audit Committees” examines the challenges that audit committees in the banking and capital markets (BCM) sector face in overseeing growing threats to their organizations, including the critical role culture plays in preventing unethical and fraudulent behavior. The paper is part of a new collaboration on thought leadership by the Internal Audit Foundation, formerly known as the IIA Research Foundation, and PwC.

“Audit committees are taking notice of the growing number of ethical lapses that have caused investors billions of dollars and irreversible reputational harm,” said Jason Pett, U.S. Internal Audit Leader, PwC. “These unfortunate instances are inflection points for audit committees and senior leadership to reexamine the important role culture plays in an organization.”

Indeed, as public confidence in capital markets continues to lag in the wake of the 2008 financial meltdown, shareholders, regulators and activists are pressuring audit committees like never before.

“The seasoned professionals serving on audit committees must be able to effectively address a widening array of risks, an increasingly complex regulatory environment, and growing demands from shareholders,” said IIA President and CEO Richard F. Chambers, CIA, QIAL, CGAP, CCSA, CRMA. “This is certainly no easy task. To execute effective oversight, they must be prepared, informed and engaged, which will require accurate information, a keen understanding of the changing landscape, and clear-eyed scrutiny of the organization’s culture.”

While culture is at the top of the agenda, it’s one of several new areas of focus being undertaken by BCM audit committees. “Banking on change” addresses many of these, including:

  • Avoid Role Confusion. Growing attention on such areas as IT risks requires greater oversight. Balancing this responsibility with other vital obligations can lead to “role confusion.” To avoid any overlap, audit committees need to increase their interactions with other committees and coordinate coverage of important tasks.
  • Cut through the Clutter. Many BCM audit committees face information overload, making it difficult to sort through what is important and what is just noise. Audit committees need to demand that management, internal audit, external audit, and others present information in clear, concise reports that help them focus on the right priorities.

“In the modern global world of banking, the regulatory and operating environment is increasingly complex, requiring BCM audit committees to stay actively engaged in all areas of risk management. There is a much greater emphasis on setting the tone from the top, and interacting more effectively with other board members and management to reinforce positive behavior across all levels of the company,” added Rich Reynolds, U.S. Internal Audit Financial Services Leader, PwC.

To download a copy of “Banking on Change: How to Respond to New Expectations for Audit Committees,” visit the Internal Audit Foundation or PwC.

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PwC understands that significant risk is rarely confined to discrete areas within an organization. Rather, most significant risks have a wide-ranging impact across the organization. As a result, PwC’s Risk Assurance practice has developed a holistic approach to risk that helps to protect business, facilitate strategic decision making and enhance efficiency. This approach is complemented by the extensive risk and controls technical knowledge and sector-specific experience of its Risk Assurance professionals. The end result is a risk solution tailored to the unique needs of the organization.

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