Introduction
It is important to note that auditors’ negligence is among the internal control weaknesses, which are often enabled by managers who should be thinking about the organization’s future. The given analysis will focus on Star Entertainment Group, an entertainment and gambling company based in Australia. The case reveals how even a delayed response to internal auditors’ warnings can cause severe harm to a company, so internal control procedures must be quick and responsive.
The Situation
The company failed to adequately address the concerns raised by its internal auditors, and such problems are not singular to Star. Companies tend to “ignore or water down negative reports by these teams despite the ‘serious’ risks of doing so” (Wootton, 2022, para. 1). Recently, NSW found that Star was unsuitable to hold a casino license due to significant corporate governance and cultural failures.
The key issue was that the company faced criticism for rejecting and attempting to conceal a critical report by KPMG, which evaluated the firm’s anti-money laundering measures. The report was initiated by Star’s internal audit team, which revealed considerable issues. Peter Jones – the Institute of Internal Auditors (IIA) CEO – also stated that how Star’s management dealt with the internal audit process demonstrated apparent failings (Wootton, 2022). Matt Bekier, the CEO, had a negative attitude towards the KPMG report, challenging its accuracy.
The internal audit team faced central pressure for producing a report that the company’s directors disapproved of. A recent IIA survey revealed that 45% of its members felt their audit report recommendations were not quickly and adequately addressed, and 10% of these professionals reported facing repercussions after presenting unfavorable reports to management (Wootton, 2022). Star best showcases the significance of not overlooking internal audit findings because it reveals what happens when companies do so. There are legal consequences for neglecting such recommendations; hence, the delay still caused massive damage to the organization despite the Star’s board eventually acting on the KPMG report’s suggestions.
My Opinion
I think that the Star Entertainment Group should have addressed the internal auditors’ concerns as quickly as possible because ignoring the warnings led to a significant reputational hit for the company. The first specific IIA’s Code of Ethics Rule of Conduct is 1.1. it states that the internal auditors “shall perform their work with honesty, diligence, and responsibility” (IIA, n.d., p. 1). However, Star’s case is not a violation of the code by internal auditors – they did their jobs correctly – but the demonstration of how not carrying out their diligence and responsible approach can lead to problems (Anderson et al., 2017). The management should have respected their internal auditors and not neglected their warnings.
However, the managers ignored the auditors and actively tried to suppress them, which indicated ethical bankruptcy at the top management level. This adverse action backfired massively on them, which could have caused the organization’s end. In other words, they were fortunate to keep the company safe from total collapse. In this case, there are no major complaints against the auditors because they did all they could while they were pressured to keep silent.
Conclusion
In conclusion, swift action is necessary when internal auditors identify potential issues, especially those as significant as anti-money laundering concerns. Star’s management made a major mistake in hiding the KPMG report. All companies must have a proper response system to review and act on audit findings immediately. In addition, there must be policies and procedures that would prevent the management from lashing back at their auditors.
References
Anderson, U. L., Head, M. J., Ramamoorti, S., Riddle, C., Salamasick, M., & Sobel, P. J. (2017). Internal auditing: Assurance & advisory services (4th ed.). The Internal Audit Foundation.
IIA. (n.d.). Code of Ethics [PDF document]. Web.
Wootton, H. (2022). The Star’s failures show directors ignore internal audits ‘at their peril’. Financial Review. Web.