The risks, and potential rewards, of rotating chief audit executives.

Author:Amato, Neil
 
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Some CAEs gain exposure by taking the role for a short time. That's not always good for the organization.

Chief audit executives (CAEs) are expected to have a keen sense of what is and isn't risky business behavior. They are a key part of the corporate team, focused on, among other topics, providing assurance on the effectiveness of an organization's risk management practices.

One risk that CAEs might be unprepared to mitigate: planned rotation of the CAE's role.

The specifics of the practice vary according to a company's size, structure, and culture, observers of trends in internal audit say. And both sides of the decision to rotate or not rotate present their own set of challenges. On one hand, a desire to groom a developing leader through exposure to internal audit can be helpful to the individual and beneficial to the organization. On the other hand, rotation into and out of internal audit on a set calendar could hurt the internal audit function's independence and objectivity.

The key is to ensure that certain guardrails --such as making sure a CAE isn't auditing the department for which he or she most recently worked--are in place.

Richard Chambers, the president of The Institute of Internal Auditors, has seen a trend emerge of assigning a budding leader, even one with no experience in auditing, to the CAE role and telling that person, "You'll be in the job for three years, gain some experience, then go back into the business." That practice is troubling to him, but not because leaders shouldn't be groomed and not because executives shouldn't get exposure to other functions of an organization.

Telling the CAE that the stint will be short and measured can make it difficult for internal audit to run smoothly, independently, and objectively.

"It's the anticipation that the individual will rotate back into the business where I think you start to run into some potential impairment issues, or the appearance of impairment," Chambers said. "How objective will they be or can they be? How objective can they be if they know that they are fully dependent upon the people they audit for their next assignment?"

Plenty of CAEs have followed that path and had no difficulties doing their jobs well. But some CAEs might be tempted to tread lightly near the end of a planned rotation. "If you know that your tenure in internal audit is short-term and dependent upon those that you potentially are going to be auditing, for your ability to go back into the...

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