The Failure of Internal Audit: Monitoring Gaps and a Case for a New Focus

Abstract

Within the management and organization field, the internal audit function (IAF) plays an important role in enhancing good governance. Given the spate of corporate collapses over the last 20 years, this article draws on a multitheoretical approach to governance and a critical review of the published literature to identify where IAFs have failed, and to provide a new focus to strengthen their role. Common themes regarding monitoring gaps by IAFs were identified as occurring across three governance levels. A contributory cause for these gaps is the poor structural and functional arrangements of the IAF, arising from the considerable flexibility afforded in its setup and delivery of services. A negative consequence of this flexibility is the ability of the board and management to manipulate the role of the IAF to the extent that it is not aligned with the intention of its setup as encapsulated in its definition.