Independence is a term may in #internalaudit like to push the boundaries on, but when we do we can come off as arrogant or self-righteous to others in the organization. In this week’s #jammingwithjason #internalaudit podcast I discuss the difference between independence and objectivity, why objectivity is more important than independence, and you are not really as independent as you may think.
As with all episodes, you will also walk away with some practical tips you can start using today.
This week’s episode is brought to you by the Chief Audit Executive (CAE) Forum.
If you are a CAE that wants to join a community of like-minded CAEs where you can have frank discussions about the challenges and opportunities of being a Chief Audit Executive (CAE), while getting practical advice to increase your executive presence, influence and value as a trusted advisor to your organization, check out what they have to offer and book your no-obligation call to see if it’s right for you: https://jasonmefford.mykajabi.com/caeforum
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Jamming with Jason is the #1 #internalauditpodcast in the world has interviews and discussions (jam sessions) relevant to Chief Audit Executives and professionals in #internalaudit, risk management, and compliance.
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Jason Mefford: Welcome to another episode of jamming with Jason. Hey, welcome back. My friends, today I wanted to talk a little bit more about independence.
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Jason Mefford: So this is one of our jam sessions where it’s really like it’s just me and you talking about a particular topic.
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Jason Mefford: And the reason that I’m you’ve heard me talk about independence before, but we’re going to talk about it again because I just see so many people
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Jason Mefford: You know, focusing on trying to push for this independence and it’s actually hurting you. And so we’re going to go through and talk a little bit about that today. And I’m going to give you some tips on
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Jason Mefford: How I think you need to kind of change your mindset and do things a little different.
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Jason Mefford: Now before we get into our topic today I wanted to let you know that today’s episode is being brought to you by method associates.
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Jason Mefford: And the chief audit executive forum. So if you’re a chief audit executive, you know, you’ve probably experienced some of these things.
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Jason Mefford: You feel like you’re a trusted advisor, but the executives in your organization don’t really treat you that way you know you’re struggling to get resources and budget.
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Jason Mefford: You know, there’s a lot of stress and pressure from it and you’re not really INVITED TO THE BIG KID table.
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Jason Mefford: In your usually excluded from some different executive meetings. Now I know this because I actually experienced a lot of these same things in my own career.
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Jason Mefford: And so, you know, usually chief executives are looking for some help. Well, the chief audit executive forum actually helps you with some of these things.
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Jason Mefford: By providing support throughout the year. There’s 10 to 12 group video calls each year.
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Jason Mefford: You get thought leadership and best practices from others in the group. And it really is an exclusive community.
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Jason Mefford: It’s not a networking group, but it’s actually an online and offline community where you connect and develop lifelong friendships.
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Jason Mefford: You know where you’re actually able to talk authentically with other chief executives, see what they’re doing bounce ideas off of them.
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Jason Mefford: And really get kind of the learning and everything that you need to be able to take you to that level where you are actually viewed as a trusted advisor.
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Jason Mefford: So if you are a chief audit executive, make sure to click on the link below and go out and sign up for your free No Obligation call to be able to
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Jason Mefford: Talk about whether the chief audit executive forum is right for you. You know, I know, for me personally when I was a chief audit executive
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Jason Mefford: This was the type of executive program. I was looking for that I could not find so I’m really excited that the chief audit executive forum is here.
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Jason Mefford: In that through this community really, we can take internal audit to the next level in our organizations and really as a profession.
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Jason Mefford: So again, make sure, click on the link below if you are a chief audit executive go out, take a look at the information and then click on the button on on the website to schedule your call.
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Jason Mefford: Alright, so let’s get back to talking about independence. Now a little bit about myself. One of my favorite movies is The Princess Bride.
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Jason Mefford: So if you’ve ever seen that movie. It’s, it’s one of those kind of cult classics, where there’s a lot of a very quotable lines and people who love this movie, you know, we’ll sit around and just kind of quip off some of these different quotes
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Jason Mefford: And there was a there was a couple of characters in this vicini and indigo that I want. I want to kind of talk about to bring this into it because
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Jason Mefford: You know this character vicini throughout the movie he kept saying inconceivable and conceivable every time something what happened. He would say inconceivable.
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Jason Mefford: And finally, at one point in the in the movie and there in this scene vicini you know says inconceivable again.
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Jason Mefford: And the indigo character turns to him and he says, I do not think that word means what you think it means because you know the Cindy was using this word in a lot of different ways and
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Jason Mefford: A lot of times it was actually inappropriate how he was using it. So the reason that I bring this up is because you know independence.
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Jason Mefford: I do not think that word means what you think it means and why do I say that because I hear all the time when I’m talking to people they will use the word independence.
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Jason Mefford: In the incorrect way. A lot of times when people are talking about independence, they’re actually meaning objectivity.
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Jason Mefford: So I wanted to just before we get into today’s discussion, just step back and talk again about the difference between independence and objectivity.
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Jason Mefford: Now in internal audit. We talked a lot about this because right in the definition of internal auditing. It says we are an independent and objective.
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Jason Mefford: Assurance and consulting function. So it uses both of those terms. Now the easiest way to remember the difference between these two is to substitute those words for other words
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Jason Mefford: When you think independence, think of the word freedom when you think objectivity, think of the word on biased. Okay, so that’ll help you kind of keep keep track on this.
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Jason Mefford: So independence means you are free to put on your audit plan what you think needs to go on there.
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Jason Mefford: You’re free to audit the areas of the of the organization that you believe need to be audited, you’re free to test it in the way that you need to and report on the results in that way.
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Jason Mefford: Because you are independent from management. That’s where this you know reporting relationship to the board comes in. And so that’s really kind of what is meant by independence.
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Jason Mefford: Objectivity means you are unbiased and that you because of that the results of your work and the way in which you report that is unbiased, meaning
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Jason Mefford: You don’t have any conflicts. You’re just saying, or telling and giving the facts that you found
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Jason Mefford: Now in order to provide assurance, we must be objective, but you do not have to have independence in order to provide assurance. You just have to be
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Jason Mefford: Objective now again in our profession. A lot of people, you know, really push for this independence, because they want that direct reporting relationship to the board.
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Jason Mefford: And I get it, I understand, and in certain situations, maybe five or 10% of the time.
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Jason Mefford: It’s important for internal audit to go directly to the board if management is not doing what the board is expecting them to do.
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Jason Mefford: Or if management is misrepresenting to the board. What is actually happening. That’s one of the benefits of our function is to be able to say, well, that’s not quite
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Jason Mefford: What’s going on that’s not quite what we see and be able to have that direct communication. Now again, as I said, that happens very, very infrequently.
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Jason Mefford: In fact, it’s maybe only five or 10% of the time, but as a profession. We’re just pushing so hard for independence that sometimes it ends up actually hurting us
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Jason Mefford: And here’s why. When you push excuse me for independence so hard. Often we come off seeming arrogant and self righteous to other people in the organization.
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Jason Mefford: And here’s the reality. You are not as independent as you think you are. Okay, next time that you get a paycheck that you get paid look down and see who paid
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Jason Mefford: Your salary. It was the company. So because of that, you are not completely independent of the company, you’re not like an external auditor, who is outside of the organization.
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Jason Mefford: We are a part of the organization. And we just have to, you know, realize that admitted come to terms with it. It’s okay.
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Jason Mefford: Because you can still provide good assurance work if you are objective. Okay. Now, how does it come to seem like we are arrogant or self righteous
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Jason Mefford: This is how it often works, we count. We go out, we do our own risk assessment we decide what’s going to be in the audit plan.
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Jason Mefford: We might take some feedback from other people. But we pretend like we know better. Okay. And that’s the way it comes off to a lot of people
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Jason Mefford: Is we say, well, you really don’t understand the risks in this organization. So I’m going to go out at this area instead. Now when you say things like that to people.
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Jason Mefford: Again, most of the time it’s probably not even true, okay, because I would I would put to you that a manager who is responsible for a particular part of your organization.
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Jason Mefford: If they’re a good manager, they understand the risks in their area very well or they would not be a good manager.
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Jason Mefford: They may not use the same language. You do. They may not, you know,
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Jason Mefford: Think the same way that we do, but believe me they understand the risks because the only way for them to achieve their objectives is to overcome those risks.
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Jason Mefford: So first thing that we’ve got to stop doing is making it seem like we are arrogant or self righteous when we’re pushing for independence. Okay.
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Jason Mefford: Now, how does that end up showing up. Well, it shows up in a couple of different ways. And I’m just going to give you a couple of scenarios.
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Jason Mefford: You know facts may have been changed slightly to protect the innocent or guilty but I work a lot with Chief on an executive, so I’m talking with them a lot.
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Jason Mefford: And in one conversation. You know, it was discussing about, you know, developing the audit plan. And what do I do about our Enterprise Risk Management assessment because
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Jason Mefford: You know what they do is really kind of at a higher strategic level and it doesn’t really meet my needs. That was what I what I was told.
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Jason Mefford: And so I said, well, what do you mean it doesn’t meet your needs. And this person said, well, I need to be auditing these lower level operational risks.
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Jason Mefford: And they’re more concerned about the strategic risks. Okay, now when I said that, ding, ding, ding, the light bulb should have been going off in your head.
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Jason Mefford: Because, first off, what do you mean, we think that the lower level operational risks are more important than the strategic risks.
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Jason Mefford: That’s a misalignment if you go to your CEO or other C level executives, which ones are they most concerned with the strategic level, not the low level operational risks. Right.
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Jason Mefford: So my question back was do you really believe those lower level operational risks truly represent the highest risks to your organization.
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Jason Mefford: And of course the answer is no. So then the next question is, if you don’t believe they’re the highest risks. Why is that what’s on your audit plan.
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Jason Mefford: Well, that’s always kind of what we’ve done. That’s kind of what we’ve been expected to do right
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Jason Mefford: And so again, at that point, if we, if we take that sort of a position, then what we end up doing is we look like, or we appear to others, like we know better.
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Jason Mefford: Okay, we would be much better served if we would actually take that feedback and focus more on those strategic risks. That’s where we should be spending our time.
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Jason Mefford: Now again I realize there’s other things that we have expectations to do, but we should be focusing more and more of our attention on the strategic level risks.
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Jason Mefford: Another conversation that I had kind of started off, similar to this, you know. But again, it kind of got back to this. Well, but I need to
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Jason Mefford: You know, say what’s on my audit plan. It has to be what I say, I can’t really take the feedback from the executives and just kind of do what they want me to do.
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Jason Mefford: And my question back was, why not, if those executives feel like these are the most important things where they would like you to spend your time why
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Jason Mefford: Can you not do that. And the concern was independence. If I do what they’re asking me to do, then I’m not independent.
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Jason Mefford: And okay that is just totally wrong. First off, and it also sets up that arrogant and self righteous kind of feeling of I know better than you do.
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Jason Mefford: And I can’t, you know, accept or do or you take your feedback because I have to decide, independent of everything that you’re doing.
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Jason Mefford: Now, do you realize how ludicrous that actually sounds because really what it means is if you have that mindset and you are focused so much on independence.
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Jason Mefford: You’re going through the motions of doing a risk assessment for something that probably doesn’t really matter to the to the total organization, you know, at the high strategic key level objective standpoint.
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Jason Mefford: And instead you’re focusing on, you’re getting feedback from people, but then you’re ignoring it.
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Jason Mefford: Well, if you ask somebody for their input and then you ignore them and you ignore their feedback. How do you think they’re going to perceive you.
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Jason Mefford: They’re going to perceive you as being arrogant and self righteous and why did I just waste my time talking to that person.
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Jason Mefford: So again, if we are doing these lower level things we go off, we do a great audit. We think it’s wonderful. We come back and give them the audit report and the executives go, yeah, big deal.
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Jason Mefford: Then we get all offended. Okay. But we shouldn’t be on its offended, we should realize we’re actually the cause of that problem.
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Jason Mefford: If instead if we had focused more on actually listening to their feedback taking those suggestions and including more of that in our audit plan that’s what they want.
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Jason Mefford: But again, if you’re focused on this independence and we know better your audit plan is going to be out of alignment with what management is concerned with
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Jason Mefford: And again, as I said at the top of the podcast. This is hurting. A lot of you because what ends up happening is the more of that work you do.
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Jason Mefford: That the executives don’t really value they start to wonder why we even have internal audit.
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Jason Mefford: And what I will tell you is standing up and saying, well, we have to because you know there’s these standards and every company needs to have internal audit and here’s the value of internal auditing.
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Jason Mefford: That’s not going to go very far when those when those executives have to make decisions about where to invest their money. And so this is why we’re seeing
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Jason Mefford: You know, certain internal audit shops downsized outsourced. You know, people losing their jobs because we’re not providing the value that’s expected by management.
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Jason Mefford: Now as long as the the expectations of management are the same as the board, we should be doing that.
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Jason Mefford: If there’s a significant disconnect between what the board wants you to do and what management wants to do.
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Jason Mefford: Then we need to have a three way discussion between management, the board and us and actually figure out what the hell it is that we’re supposed to be doing.
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Jason Mefford: Okay, that’s the discussion we should have that’s you know what a chief audit executive should do stepping into that executive presence.
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Jason Mefford: And actually having those difficult conversations when they need to happen instead of trying to hide behind this word that we call independence and saying, No, no, no, no, no. I know better than you do. I’m going to do it my way. It’s not going to go over well in the long term. So,
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Jason Mefford: Hopefully that’s helpful. My friends, so let me let me kind of wrap up by by kind of giving you some suggestions for how to improve or start making some changes to this.
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Jason Mefford: And again, I’m telling you this because I just see over and over again people getting themselves in trouble hurting themselves individually in their career.
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Jason Mefford: And really hurting the profession by focusing and pushing so much for this independence that we appear to be arrogant and self righteous
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Jason Mefford: So here’s some things to think about focus more on objectivity than independence.
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Jason Mefford: Okay, we need to be objective in the work that we do. We need to be objective in the conclusions that we give, we don’t have to be independent.
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Jason Mefford: And in fact, you’re much less independent than you think you are. Anyway, and it’s okay if your objective, you can still provide good assurance. So that’s the first one.
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Jason Mefford: Second one is, get rid of this. I’m better than you, and I know better than you kind of attitude. Okay, just get rid of it. Because like I said before,
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Jason Mefford: In our profession we feel like we understand some things better than others. And sometimes we do depending on the domain.
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Jason Mefford: But we need to be much more humble and much more open to feedback and and and input from other people in the organization or else we’re going to continue to have this this view of being arrogant and self righteous
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Jason Mefford: Third one, we need to ask for more feedback. So, you know, instead, next time that you’re doing a risk assessment or you’re starting starting a project.
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Jason Mefford: Actually taking the time to really sit down and authentically ask for feedback from management in that area. Now they already know some of the things that are going wrong and they would probably like your help.
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Jason Mefford: But if you come in with this arrogant kind of an attitude of, we’re here to audit you and we’re going to find these sayings, you know, that’s not going to go over very well, they’re going to withhold things from you.
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Jason Mefford: If instead if you’re much more collaborative and the way that you’re doing it, you know, hey, what are some areas that are, you know, giving you grief.
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Jason Mefford: You know, what are some things you’d like to see changed. Would you like some help with that. That kind of an attitude is going to go much, much further.
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Jason Mefford: And when you get that feedback. The fourth one is we actually need to start doing work in some of those areas.
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Jason Mefford: Move up the risk ladder. If you will stop worrying about so many of the low level operational risks that honestly a second or first line of defense group is probably already looking at
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Jason Mefford: And raise our sights up more to the strategic issues that management is concerned about and management is trying to fix.
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Jason Mefford: The more we do that, the more value, people are actually going to see in what we do. Okay.
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Jason Mefford: By what we do and how we act that is going to give you the credibility and the trust and respect of other people, way, way more than trying to say I’m independent I’m certified. I’m a member of blah, blah, blah. So you must listen to me.
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Jason Mefford: What you do and how you do it is much more important. So again, my friends. That’s why I wanted to talk to you again today about independence.
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Jason Mefford: You know, make sure go out there, focus more on objectivity than independence and realize it’s okay to give up some independence.
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Jason Mefford: Get rid of this. I’m better than you kind of attitude that appears to others to be arrogant and self righteous
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Jason Mefford: Ask for more feedback and then actually take that feedback and move up the chain so that we’re dealing more with the strategic, risk, risk issues in our organization.
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Jason Mefford: So with that, my friends, I’m signing off this week and I’ll catch you on a future episode of jamming with Jason. Have a great week.