Question

You have met with a potential client, who informs you that all the employees and officers of his company are bonded. For this reason, he is requesting that under these conditions that you not look at his company's system of internal control so his company may reduce the cost of an audit.

Prepare a letter to the potential client explaining the following:

• Why you can or cannot honor his request.
• The reasoning for your decision.
• The potential ramifications of your decision.
• Based on your choice of action, what the perceived corporate governance of the company would be to the public.

Answer 1

As a prospective Internal Auditor of a potential client , we need to examine the conditions , given in the question , carefully and in detail to understand and conclude on all the aspects and conditions mentioned therein.

To a prospective client, who is having all his Employees and Officers , bonded , is not interested in carrying the Internal Audit as he things that it is wasteful to have the cost of an audit , in the given circumstances.

I would write to the prospective client , in following words.

Dear Mr xyz,

Thanks for your reply on our enquiry.

I would like to explain certain points here so that you can understand and conclude at your end as it is my duty to update you and caution you on certain parameters , considering the prevailing business cultures around us.

First of all , since it is an Internal Audit matter, it is solely the discretion of the client , whether to appoint or not appoint certain agency or person as his Internal Auditor.

Secondly, as far as your limitation on cost of audit is concerned , I would like to have following views to you , of course, it is not any binding on any of us , till we both agree to continue together.

I regret to inform you that with the given case, I shall not be able to work for you , with the given conditions as I feel that freedom of expression is the key to success for any person or organization.

Still , I would like to express in few words about the reasons for such decision so that you could understand the consequences , in the Interest of your organization.

Sir , as you mentioned that your Employees and Officers are bonded and they are bound by the bonds , executed between them and you . You are also knowing that you have employed certain persons, on the conditions of bond and they have willingly accepted and agreed to be employed under you.

I can here explain the importance of Internal Audit only and it is upto you to decide and conclude , at your will.

Internal Audit is such an important function for an organization, which helps the organization to know where the weakness are and the areas of improvement . Internal Audit covers the entire organization right from the functioning of business, management of Finance, management of Employees and overall functioning of the Organization.

For improvement of the organization, you need to have honest and frank feedbacks from your Employees as they are one of the stakeholders , who contribute to the success or failure of the organization.

Not allowing the Internal Auditor to interact with the Employees and Officers, indicates that you are not willing to know about your own, weakness or the bad practices. You must also keep in mind that once the bond period is not for life and the day any of them leaves and joins other organization, He is going to share his entire experience , good or bad and your character shall be displayed among the Business Community . In these cases, you won't be able hire further Employees as they might carry the impression from the Employees and Officers, who have left you , one day.

Now a days , when the openness is the most popular fundamental for the growth of an organization, participative Management is the best way of management , where both employee as well as the employer shares his or her experience so that the orgainization and the Employees as well can learn from them and make it a better organization.

In the modern world of business, an organization needs to learn new things , grow in concurrence with other organizations and make an impression for others to follow as Internet has made this world very small and until "Sharing" is there , no one can grow. Learning from the experience of Employees and giving freedom to an Employees is the way out to success as no owner , can himself, afford to run the business ,himself. You can see all the big organizations and that is how they work and growing and growing.

The potential ramifications have also been discussed above for your understanding.

As I have informed in the beginning that I shall not be Interested in your Organization, might save you some money , which you might have saved but the impact can be much more.

I have been Internal Auditor to the many of the organizations, in business circle and your approach to work may have to be shared with other clients and Internal Auditors.

Corporate governance is always linked with Public and Public sees every action of the Corporate Governance and if they come across , such organizations, who are so orthodox and having limited mindset , they might feel unsafe in business with you. Public is the God of the business and they have also grown up and now cannot be taken at granted.

Public , before getting into any Organization , enquires in business circles and also rate them based on certain parameters and certainly , your organization, shall be negatively or less rated when Openness is evaluated.

Once the faith of Public is gone , a business can't survive for long and Public is very much aware about the Corporate Governance , now a days.

Hence, it is up to you to decide and move further.

I wish you all the best , even if I am not joining your organization as Internal Auditor

With best regards

ACB