The Strategic Impact of Internal Audit on Ethical Corporate Culture

The Global Internal Audit Standards state that Internal auditors must encourage and promote an ethics-based culture in the organisation. 

CEOs, academics, and investors are obsessed with discovering why some companies rise above the rest. Sure, you can look at things like a superior product or service, a killer marketing strategy, or an aggressive sales team. With that said an organisation’s internal culture can be the "killer app" that distinguishes it from the competition. An ethical corporate culture is the embodiment of the company's core values and ethical standards in the actions of its employees and management. It shapes decision-making, risk management, and overall corporate governance. A robust ethical culture fosters higher employee morale, stronger financial performance, and an enhanced reputation.

The Global Internal Audit Standards state that Internal auditors must encourage and promote an ethics-based culture in the organisation. While the corporate leadership establishes the tone of the ethical culture at the top, an internal audit function can assist in assessing and promoting an ethical corporate culture within the organisation. It can be a secret weapon to shape your ethical corporate culture and reach your goals.

Internal Audit: How to promote ethical corporate culture
The Internal Audit function can use several levers to promote an ethical corporate culture. While one of these levers is effective in and of itself, combining two (or more) can go a long way toward creating the most ethical internal culture possible. The best organisations find a way to incorporate all of these levers consistently.

The first lever involves assessing the ethical culture by evaluating the tone at the top, middle, and bottom of the organisation. This consists of examining the ethical values promoted by senior management, the ethical climate among middle managers, and employees' behaviours and attitudes. The Internal Audit function can review the effectiveness of the organisation's compliance programs, including codes of conduct, ethics training, whistleblower policies, and disciplinary procedures. This involves checking whether these programs are not only in place but also effectively communicated and enforced.

Ethical risks are a significant aspect of an organisation's risk profile
The Internal Audit function can identify and assess risks related to ethical behaviour, such as conflicts of interest, fraud, corruption, and compliance breaches. This helps organisations prioritise areas that require more stringent controls and monitoring. Following the identification of risks related to ethical behaviour, the Internal Audit function can evaluate the control environment, which includes the policies, procedures, and practices that ensure ethical behaviour is upheld. They review the adequacy and effectiveness of internal controls in preventing and detecting unethical behaviour. 

As an independent function, the Internal Audit function can also investigate breaches when unethical behaviour is suspected or reported. This involves gathering and analysing evidence, interviewing relevant parties, and working closely with other departments to determine the extent of the breach and recommend corrective actions. The Internal Audit function can also take a consulting role, promoting the ethical culture by conducting ethics training and awareness programs. While ethical guidelines are a key starting point, education is critical to create an ethical corporate culture. The Internal Audit function can assist in developing workshops, seminars, or any other type of educational product that can better articulate the organisation's ethical guidelines. 

The Internal Audit function not only promotes transparency but also leads by example. It sets positive examples for the entire organisation to follow, demonstrating objectivity, high integrity, and professionalism in all of its work. Moreover, the Internal Audit function leads by example by maintaining a dialogue with senior management. This dialogue fosters trust and ensures that senior management is held accountable for its actions. 

Upholding the Highest Ethical Standards
When effectively integrated, the Internal Audit can significantly enhance an organisation's ethical culture. It provides an independent and objective perspective on the state of ethics within the organisation, helping to identify gaps and areas for improvement. Through promoting transparency and accountability, the Internal Audit function nurtures an environment where ethical conduct is prized and unethical behaviour is promptly dealt with.

Despite the difficulties, the impact of Internal Audit on ethical culture is profound, contributing to the overall prosperity and sustainability of the organisation. As businesses continue to manoeuvre through intricate ethical landscapes, the role of Internal Audit in promoting an ethical culture will remain essential.

How can BDO help?

Our experienced internal audit professionals can provide a critical external perspective, helping to uncover blind spots and enhance the effectiveness of existing plans. By tapping into our expertise, organisations gain access to tailored solutions that align with best practices and regulatory requirements. Our independence ensures objective evaluations, akin to having a trusted advisor offering unbiased insights.

Partnering with BDO Malta for internal audit services not only strengthens crisis management and business continuity plans but also fosters resilience and preparedness in the face of uncertainty. It's an investment in stability and success, ensuring that organisations are equipped to face challenges effectively and emerge stronger.
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