New Transparency International Study Faults China Companies for Creating Conditions for Corruption

By Joseph McCafferty

July 15, 2016

A new report finds that the majority of large, multinational companies based in emerging markets, including China and Brazil, are falling down on their responsibility to provide transparent corporate reporting. The lack of clarity, says Transparency International which published the report, creates an environment that is ripe for corruption to fester.

In the latest edition of Transparency in Corporate Reporting: Assessing Emerging Market Multinationals, 100 of the fastest-growing companies based in 15 emerging market countries and operating in 185 countries around the world scored an average of 3.4 out of 10, where 0 is the least transparent and 10 is the most transparent. The average score fell slightly by 0.2 compared to the last time the survey was conducted in 2013.

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New report finds that the forces causing an overhaul of the internal audit role are just beginning to take shape

By Joseph McCafferty

July 13, 2016

If you thought that the upheaval in the internal audit profession and the rapid pace of change that has recast the internal audit function at many companies is starting to settle down, think again. A new report from Big Four audit firm EY finds that the transformation of internal audit is really just beginning.

While the EY report, “Are We Nearly There Yet?” focuses on financial services firms and their response to the Financial Crisis of 2007 and 2008, the underlying principles are affecting internal audit departments in several industries. And internal audit in financial services has acted in many ways as a leading indicator of what to expect in other industries as scrutiny by regulators and others increases.

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McKessy's departure likely to usher in a new era at the watchdog unit

By Joseph McCafferty

July 13, 2016

The first chief of the Securities and Exchange Commission's whistleblower office, Sean McKessy, announced that he is stepping down later this month. Depending on his successor, the office could become more aggressive in spurring whistleblowers to come forward and provide information about securities fraud and other wrongdoing at companies that fall under the regulator's whistleblower program.

McKessy has held the post since the office was established in February 2011 under the Dodd-Frank Act, and helped establish the whistleblower office that assesses and reviews all whistleblower tips received by the agency, evaluates whistleblower award claims, and makes recommendations to the SEC on whether claimants have satisfied eligibility requirements to receive an award.

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 A conversation with Shawna Flanders, president of Business Technology Guidance Associates

Interview By Joseph McCafferty

July 12, 2016

A patchwork of laws in the United States and abroad is making it difficult for companies to manage and transmit data across borders. Not only has the U.S. government been slow to enact federal law leaving companies beholden to a patchwork of 47 sets of data regulations from states and territories, but Europe is moving ahead with tougher data privacy laws, and other jurisdictions around the word are following suit.

Organizations are struggling to keep up with the complex set of global data privacy and security regulations, says Shawna Flanders, founder and president of Business Technology Guidance Associates and a senior instructor at MIS Training Institute. She says uncertainty about how the regulations will be enforced is also forcing companies to rethink their data governance policies and could impact how they collect and share information.

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Do you know who has access to your most sensitive data?

By Joseph McCafferty

July 5, 2016

What if access to our online bank accounts was managed the same way we manage access to information systems at work? Would we know who can get into our accounts? Who could see how much we have in what accounts? Who could take money out? Who could authorize other transactions? We probably would be much more careful about who has access and what they are cleared to do.

Many companies, however, still don't do a good job of governing the identity and access to systems that contain information just as important and sensitive to their organizations as our bank accounts are to us. According to Diana Kelley, executive security advisor at IBM Security, companies need to do a better job of identity governance and getting a handle on what individuals have access to just the information they need. She says roles need to be clearly defined and access limited to the data they need to do their jobs.

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While Internal audit and compliance have different objectives, they can gain much from working more closely together



July 6, 2016

If it seems like the lines between internal audit and compliance are beginning to blur a little, it's because they are. Many companies are leveraging both functions to do more to assess risks and asking them to weigh in on all the things that could go wrong at a company from regulatory violations to strategic blunders. They are also calling on both functions to do a better job of communicating with each other and coordinating their activities.

In this podcast, Joseph McCafferty, head of audit content at MIS Training Institute, talks with Michael Volkov, CEO of law firm The Volkov Law Group and author of the Corruption, Crime, & Compliance blog, about the convergence of internal audit and compliance.

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Here are some things fraud hunters should never forget about the Madoff Ponzi scheme

By Joseph McCafferty

June 29, 2016

Corporate frauds are cyclical, meaning that they tend to come in waves, particularly when the markets perform poorly or a recession hits. (That is, when the scandals themselves aren't the actual cause of the recession as we saw in the financial crisis of 2008.)

These fraud waves have a pattern to them that is now familiar to most observers of Corporate America: A series of very similar frauds and schemes crop up devastating investors, employees, and pensioners and damaging the financial system itself. The judicial/enforcement system struggles to hold anyone responsible, managing a few scapegoats or forcing big companies to write checks they can cut without even having to check their account balances at the bank. Next, politicians and regulators hoot and holler and pass a series of laws to ensure that, “something like this never happens again.” About a decade or less passes and the process starts all over again. Lather, rinse, repeat.

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 A conversation with Tom O’Reilly, director of internal audit at Analog Devices

Interview By Joseph McCafferty

June 22, 2016

It’s an exciting time to be an internal auditor, according to Tom O’Reilly, Director of Internal Audit at Analog Devices. While many organizations are experiencing increased pressure to manage costs and are using new technology to change the way they do business, those trends are particularly magnified within internal audit shops. Internal audit must adapt, says O’Reilly, in order to continue to provide value to the business.

MISTI’s Joseph McCafferty sat down with O’Reilly at Audit World 2016 in Boston last week to discuss the latest trends impacting internal auditors, as well as some areas he suggests these departments should focus on to remain relevant and successful within their organizations.

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Part four of our series, Building the Modern Corporate Risk-Assurance Function

By Matt Kelly

June 21, 2016

Cybersecurity is unlike any other business risk because it isn't a risk at all. It's simply a new manifestation of all the business risks you already have.

That point may sound trite, but its implications are profound. Managing cybersecurity in a comprehensive, effective way will take audit and compliance executives well beyond their comfort zones. All the risk assurance efforts you build on the framework of the COSO cube and the strategy of the Three Lines of Defense will still exist, but in new mixtures and new forms. Much of what you do today will need to be re-imagined.

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June 8, 2016

The agenda has been released for the 2016 SuperStrategies conference taking place in Las Vegas from September 26 to September 30, and the focus of the event is how the internal audit profession is adjusting to address the changing risks that companies are working to manage.

Among the main sessions will be talks on how internal audit is now providing assurance on such areas as compliance, operations, strategy, and even culture. Speakers at the event will also look at how audit departments at leading companies are evolving to help tackle such major challenges as improving cybersecurity, uncovering fraud, and governing the growing stockpiles of data organizations are collecting.

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They say they are struggling to compile the needed data  and to implement policies to comply

By Joseph McCafferty

June 7, 2016

Just 10 percent of companies are prepared to adopt the new Financial Accounting Standards Board (FASB) lease accounting standards, according to a recent report by audit firm Deloitte. And it's not that many companies are just procrastinating; only 15 percent of respondents say they expect compliance to go smoothly when requirements begin kicking in as early as next year.

Respondents to the Deloitte survey say the top challenges to lease accounting implementation are collecting necessary data on all organizational leases in a centralized, electronic repository (33.3 percent); and instituting processes to evaluate quarterly adjustments for the balance sheet, as well as profit and loss statements (20.5 percent). The firm surveyed more than 5,400 financial and accounting professionals.

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A global survey of audit committee requirements finds increased oversight of audit processes

By Joseph McCafferty

May 31, 2016

U.S. regulators have expanded the role of the audit committee in recent years to oversee the hiring and performance of the external auditor in the hopes of improving audit quality. In many ways, the United States was just catching up with audit governance practices that were already common in Europe. A new survey, however, finds strong audit oversight by the audit committee is a concept that is taking hold around the globe.

The survey, conducted by the Board of the International Organization of Securities Commissions (IOSCO) and titled "Survey Report on Audit Committee Oversight of Auditors," seeks to identify audit committee practices that could improve audit quality at publicly listed companies.

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Market downturns have a way of exposing accounting frauds

By Joseph McCafferty

May 25, 2016

Warren Buffet, the king of folksy, one-liner investment aphorisms, has one for the problems that a bear market can cause: "It's only when the tide goes out that you can see who has been swimming without their trunks on."

For the last seven years or so, companies have been swimming in a rising market tide with only some minor ebbs and flows along the way. But we all know that bull markets don't last forever, and this one is likely running on borrowed time. So what should we expect when the stock market retreats? If history is any judge, expect a raft of accounting troubles and scandals.

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Regulator weighs in on use of unsanctioned accounting measures, amid uproar

By Joseph McCafferty

May 24, 2016

The fury over the increasing use of non-GAAP accounting measures when companies report earnings is building, and now the Securities and Exchange Commission is weighing in with some guidance on practices that are and aren’t acceptable.

As part of its published Compliance & Disclosures Interpretations guidance, the SEC issued a series of questions and answers that may come up as companies consider releasing non-GAAP measures. The guidance also serves as a warning to companies to use caution when using non-GAAP measures.


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Part three of our series, Building the Modern Corporate Risk-Assurance Function

By Matt Kelly

May 18, 2016

Risk assurance executives—whether they work in compliance, internal audit, risk management, IT security, or any other related function—ultimately worry about three things as they do their jobs.

  • Is everything functioning normally?

  • Do I understand how to address anything not functioning normally?

  • Am I working effectively with everyone else in the organization who helps fulfill my goals?

Those three questions, for example, invoke all five elements of the COSO internal control framework: risk assessment, the control environment, and monitoring (the first question); control activities (the second question); and communication (the third question). Those questions seek to understand what is normal and abnormal, and whether you can respond to events properly as the need arises. In one way or another, we all ask ourselves these questions every day.

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The price of worldwide corruption is rising for those that get caught…and those that don’t

By Joseph McCafferty

May 17, 2016

Companies are paying a huge price for worldwide corruption and bribery, even if they are adopting practices to fight against it. That's because the cost of corruption takes many forms, including loss of business to less scrupulous companies, regulatory requirements, and lost opportunities in regions where corruption risks are too high.

According to a new survey from consulting firm Alix Partners, corruption risks for companies in the United States, Europe, and Asia are expanding. Anti-corruption laws and regulations are proliferating, increasing the need for compliance efforts. They are also causing some companies to avoid or delay acquisitions due to bribery risks, and they are avoiding or pulling out of some regions or countries due to those risks. Nine out of ten respondents said their industries are exposed to corruption risk, compared to 85 percent in 2015, and 28 percent cite "significant risk," compared to 22 percent last year.

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The number of companies reporting non-GAAP measures is on the rise, as is the hyperventilating over their use

By Joseph McCafferty

May 11, 2016

There is a growing backlash against the use of measures that don't meet Generally Accepted Accounting Principles (GAAP) when reporting earnings results, and its quickly becoming a frenzy.

Late last month, the New York Times proclaimed, "Fantasy Math Is Helping Companies Spin Losses into Profits." A headline on Yahoo in March warned, "Companies haven't fudged their numbers this much since the financial crisis." Even Warren Buffett got into the act—although in his famously level-headed way—suggesting in his annual letter to shareholders: "It has become common for managers to tell their owners to ignore certain expense items that are all too real."

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After several months of debate, plans are set to take effect next year

By Joseph McCafferty

May 10, 2016

The Securities and Exchange Commission has approved a plan by the Public Company Accounting Oversight Board to require audit firms to disclose the names of audit engagement partners and to provide more information about other firms that participate in audits.

The PCAOB hopes the new rules will improve the transparency of audits by identifying the lead person in charge of conducting them and shed more light on additional firms that participate, particularly those who contribute audit work on overseas operations.

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Common attributes that advance some IT audit departments from good to great.

By Fred Roth

May 5, 2016

As the use of information technology continues to proliferate so do the associated risks organizations face.

The massive cyber heist affecting more than 100 financial institutions in some 32 countries is only the latest in a spate of data security breaches worldwide. Losses from the attack, disclosed last year, eventually could exceed $1 billion. During the past 10 years, hackers have infiltrated millions of files of customers at eBay, Target, Sony, Heartland Payment Systems, and so many others.

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A new survey finds communication and critical thinking skills in demand among auditors

By Joseph McCafferty

May 4, 2016

A new survey is out about the skills that audit leaders are looking to add to their departments and you may be surprised at what tops the list. Cybersecurity chops? Nope, that ranked twelfth. Financial acumen? Tenth.

The top skills that chief audit executives say they are looking for are critical thinking and communications. Those are the only skills that more than half of respondents cited in the top five traits they are seeking. Nearly two-thirds (64 percent) of the CAE's polled ranked analytical and critical thinking skills among the top five things they look for when recruiting new internal auditors, while just over half (51 percent) said they want candidates with communication skills.

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