From Scandals to Serious Setbacks: How a Poor Company Culture Can Impact the Bottom Line JUNE 26, 2018

Transcription

1 From Scandals to Serious Setbacks: How a Poor Company Culture Can Impact the Bottom Line JUNE 26, 2018 Janet Smith Managing Director, Risk Advisory Services Dawn Williford Partner and South Region Leader, Risk Advisory Services

2 CPE and Support CPE Participation Requirements To receive CPE credit for this webcast: You ll need to actively participate throughout the program. Be responsive to at least 75% of the polling questions. Please refer the CPE & Support Handout in the Handouts section for more information about group participation and CPE certificates. Q&A Submit all questions using the Q&A feature on the lower right corner of the screen. Presenters will review and answer questions submitted as time allows. *Please note that questions and answers submitted/provided via the Q&A feature are visible to all participants as well as the presenters. Technical Support If you should have technical issues, please contact LearnLive: Click on the Live Chat icon under the Support tab, OR call: Audio Audio will be streamed through your computer speakers. If you experience audio issues during today s presentation, please dial into the teleconference: , and use teleconference code: # 2

3 Test Polling Question On a hot day, which of the following is your preference? A. Iced Tea B. Lemonade C. An Arnold Palmer (Iced tea/lemonade mix) D. All of the Above E. None of the Above 3

4 Janet Smith Managing Director Risk Advisory Services Janet has more than 25 years of financial audit, internal audit, SOX compliance and other consulting experience. She has identified major control weaknesses, recommended and implemented appropriate action plans to strengthen internal controls and has been actively engaged in helping clients assess their risk, identify significant controls and develop test plans to comply with Sarbanes-Oxley. PROFESSIONAL AFFILIATIONS Certified Internal Auditor (CIA) Institute of Internal Auditors Licensed CPA in the State of Texas EDUCATION B.B.A. in Accounting Texas Tech University, Lubbock Janet has successfully managed out-sourced, co-sourced and one-off internal audit projects for multiple clients in a variety of industries including chemical, energy, retail and government. Janet is a licensed CPA in the state of Texas, as well as a Certified Internal Auditor. 4

5 Dawn Williford Partner and South Region Leader Risk Advisory Services Dawn Williford has more than 18 years of experience in delivering internal audit, compliance and consulting solutions to Fortune 500 and middle market companies. She has also assisted newly public companies successfully achieve year one SOX compliance. PROFESSIONAL AFFILIATIONS Association of Certified Fraud Examiners Certified Internal Auditor (CIA) Certification in Risk Management Assurance (CRMA) Institute of Internal Auditors EDUCATION B.B.A., Finance, University of Texas, Austin Dawn has been heavily involved in all aspects of business process evaluation and documentation, corporate governance, SOX readiness and ongoing SOX compliance, risk assessments, root-cause analysis and internal audit outsourcing and cosourcing. Dawn has managed large scale internal audit, internal controls consulting and SOX engagements, with teams ranging in size from 3 to 15 resources. She has assisted clients with design and implementation of their internal controls framework, and led the team that developed the firm s COSO 2013 methodology. Dawn assists clients with the development of their internal audit department and serves as the Chief Audit Executive for her outsourced Internal Audit clients. 5

6 Today s Learning Objectives At the conclusion of this course, participants will be able to: Describe the elements of an organization s culture Discuss the internal controls designed to mitigate risk associated with poor corporate culture Describe how to assess and report on an organization s culture 6

7 What Goes Into An Organization s Culture? 7

8 Key Risks Reputation Regulatory Disruptive Technology Supply Chain 8

9 Key Findings: Top 3 Challenges Over 10 Years Disruptive Technologies Reputational Risk Cyber Attacks 9

10 Key Risk: Reputation A COMPANY S CULTURE IS REFLECTED IN THEIR REPUTATION 10

11 Does Culture Matter? Emissions Scandal Fake Accounts Sexual Harassment 11

12 Polling Question 1 Have you been personally impacted by a poor company culture during your career? A. No B. Yes, I m living that now C. Yes, I either left the company or saw it change 12

13 Culture: The Moral Fabric of an Organization Organizational culture encompasses values and behaviors that "contribute to the unique social and psychological environment of an organization". 13

14 Culture Organization Formal policies, systems and practices Information practices and symbolic actions Beliefs, values & attitudes Only 4% of problems are known to top managers 9% of problems are known to middle management 74% of problems are known to supervisors 100% of problems are known to front-line employees 14

15 Culture Organization Pick 2-3 Promote role models Leaders informal and formal support Assess current state culture Change behaviors 15

16 Culture Organization Monitor Behaviors tie to objectives Drive and communicate wins Promote Promote Promote Align rewards with behavior 16

17 A Tale of Two Cultures Company A Clear values High morale Honesty Ethical tone at the top Transparency Accountability Collaboration Encourages a long-term focus Promotes healthy risk-taking Incubates new, challenging ideas Affords quick resolution of differences Company B Intense focus on bottom line results Unjust practices Limited communication Defensiveness Blame Poor employee morale The talk isn t walked! 17

18 Polling Question 2 What method do you think is most effective for addressing a toxic culture? A. Anonymous reporting mechanism B. Raise as topic with the board or audit committee C. Raise as topic with management D. Focus on organizational culture in audit reports 18

19 How Do Internal Controls Impact An Organization s Culture? 19

20 Where Do Internal Controls Come In? Culture problems start here and filter through the organization Much of Internal Audit efforts are focused here 20

21 Where Do Internal Controls Come In? Commitment to integrity and ethical values Exercises oversight Established structure, authority and responsibility Demonstrates competence Establishes accountability 21

22 Polling Question 3 What factor do you think most influences and organization s culture? A. Establishment of a code of conduct B. Behavior of executive management C. Direct communication from executive management D. Enforcement of a code of conduct through disciplinary measures 22

23 Where Do Internal Controls Come In? Code of Conduct Policies and Procedures Job Descriptions Hiring Practices Delegation of Authority Board of Directors Oversight Whistle Blower Hotline 23

24 Where Do Internal Controls Come In? Code of Conduct Policies and Procedures Job Descriptions Hiring Practices Delegation of Authority Board of Directors Oversight Whistle Blower Hotline 24

25 Polling Question 4 Does your organization consider culture when testing the entity level controls? A. Yes B. No C. Unsure 25

26 Where Do Internal Controls Come In? Ethical Standards of Management Values of Management / BOD Leadership Competence Trust 26

27 What Is Internal Audit s Role In Assessing Culture? 27

28 Polling Question 5 Is a culture audit part of your company s internal audit plan? A. Yes B. No, but it should be C. No, I do not believe this is an area that should be part of the plan 28

29 What Is Internal Audit s Role? Is a culture audit part of your internal audit plan? 58% of respondents say NO What are the barriers to auditing culture? Lack of management/board support Lack of internal audit s ability to measure organizational culture What are the factors influencing culture? Behavior modeled by executive management Direct communication from executive management Source: North American Pulse of Internal Audit, Time to Move Out of the Comfort Zone 29

30 Do As I Say, Not As I Do As officers and employees of Enron Corp., its subsidiaries, and its affiliated companies, we are responsible for conducting the business affairs of the companies IN ACCORDANCE WITH ALL APPLICABLE LAWS AND IN A MORAL AND HONEST MANNER. Code of Ethics July

31 Auditing Culture Holistic Audit of Culture 31

32 Auditing Culture Cultural auditing embedded in every audit project 32

33 Auditing Culture a. Risk culture b. Employee Relations culture c. Fraud culture d. Safety culture e. Compensation culture f. Information Technology culture 33

34 Auditing Culture: Audit Techniques Structured Interviews Employee Surveys Facilitated Workshops Root Cause Analysis Evaluation of Metrics Customer complaints Turnover Sick time Repeat audit findings Warranty claims Hotline reports Exit interview results 34

35 Auditing Culture: Questions to Ask What s the communication style? How are decisions made? How are employees treated? What s the approach to getting work done? How freely is money spent? What s the tolerance for risk? How is customer service done? What is the company s vision? What are the company s stated and implicit values? What structures are in place? How are desirable actions rewarded? How do customers talk about the company? What is the competition like? In which countries is the company operating? 35

36 Auditing Culture: Reporting Format (written, verbal) Style Tone Audience A culture audit sheds light on a company s core DNA, that which guides decision-making, problem-solving, and cross functional communication processes. Forbes magazine, September

37 Polling Question 6 In your organization, what do you think would be an effective method of communicating issues with culture? A. Written report with the normal distribution B. Written report to a select group C. Verbal update the senior management and/or the audit committee D. All of the above 37

38 Story Time: A CEO in Crisis Lessons Learned Internal Audit Plan Survey on Culture Tips Appearance doesn t always equal truth Culture impacts can be felt everywhere Corporate Office Unhappy employees Lack of talent Interviews / Surveys Secrecy Paranoia Evaluation of ELCs Significant Pressure Half Truths Review of key metrics Controlling Overly Critical International Divisions Lies Cover - Ups Bullying doesn t just take place on the playground Errors/Mistakes Restatements Internal Control Breakdowns CEO Alteration of Audit Evidence Finger Pointing Code of Conduct Policies and Procedures Proper Oversight Hotline 38

39 Connecting the Dots CULTURE 39

40 Internal Audit To Dos Gain Support - Build the relationships, respect and support necessary to discuss difficult concerns about culture Communicate - Discuss the importance of auditing culture with management, the audit committee and throughout the organization Build an Approach - Be it small, focused audit areas or an overall, holistic review, decide how your department will undertake a culture assessment Fact Find - Over time, gather information that can used to evaluate an organization s culture look outside the traditional objective methods that are comfortable to us as auditors 40

41 Polling Question 7 Has your organization experienced missteps that can be tied to an issue with culture? A. Definitely yes, more than once B. Probably yes, it may not be proven but seems likely C. No, not that I m aware 41

42 It s A Journey A strong culture can take a long time to establish An organization s culture takes a long time to change But it takes very little time for elements of a toxic culture to take over. 42

43 Questions Janet Smith Dawn Williford

44 Coming Soon Please watch your for invitations! 2018 REPORT IS COMING SOON! Global Risk Landscape Report September 25, 2018 Course 4 of 2018 Webinar Series The Emergence of the Cloud and How It Impacts Your Internal Audit Plan 3 PM ET / 2 PM CST Please watch your for an invite to register in late August 44

45 Conclusion Thank you for participating! Certificate Availability If you participated the entire time and responded to at least 75% of the polling questions, you may click the Participation tab to access the print certificate button. Exit Please exit the interface by clicking the red X in the upper-righthand corner of your screen. 45