AASCIF - july-august-september

Scott McConnell
Internal Audit Manager
Kentucky Employers Mutual Insurance

When you think about professionals in the insurance industry, internal auditors are not at the top of your list.

This is not surprising since we make up a small percentage of the insurance workforce and do not occupy what I call “frontline” positions such as claims examiners or underwriters.

It has also been my experience, after nine years as an internal auditor, that there is great variation in the roles and responsibilities of internal auditors employed at AASCIF funds. Many organizations, unlike KEMI, may not realize how internal auditors should be utilized or managed. I hope here to bring a greater understanding of the internal auditing profession and an increased awareness of the contributions we can make.

Role variability
Based on a survey in October 2001, a great deal of variation exists among AASCIF funds with respect to the employment, utilization and positioning of internal auditors in the organizational structure.

The survey indicated several funds did not employ auditors, and the majority that did had small staffs of one to three people. Three of the larger funds—California, Texas and Ohio—maintained staffs of nine or more.

Staff utilization varied in the types of audits performed and included operational, financial, compliance and management information system reviews.

Reporting relationships also varied. Some auditors were directly responsible to management. Others reported to the board of directors.

Independence
Independence is the hallmark of the auditing profession. It enables us to effectively evaluate organizational risk for policyholders, the board of directors, management and staff.

To promote independence, internal auditors are often positioned in an organization so they have direct reporting relationships to the board of directors or to executive management. This can be intimidating but really should be viewed as an organizational strength because it allows for honest appraisals of company operations.

Generalist versus specialist
The most overlooked strength of the auditing profession is that we are generalists in the industry but specialists in the field of auditing. Our job responsibilities can require us to review any aspect of company operations, which in turn allows for a broad knowledge of insurance to be developed.

But these same efforts also allow detailed understandings to be developed of particular procedures and job descriptions of other insurance professionals.

Except for some executive positions, I can think of no other positions in the organization that require such a wide variety of company operations to be understood.

Why the apprehension?
A common issue auditors deal with is that some degree of apprehension always exists between themselves and those being audited. But this does not have to be. There are two causes for apprehension. One has to do with how the board of directors and management react to audit findings. The second is based on how auditors conduct themselves.

Audit findings should be viewed as opportunities for organizational improvement. If they are perceived as a source of punitive action, internal auditors will always be viewed as a problem creator versus a problem solver.

Auditors also contribute to their own demise or success by the attitude they display. Unfortunately, some approach their jobs with an arrogance that is counterproductive.

Summary
There is no better friend an organization, staff, management or board of directors can have than their internal auditor. An internal auditor serves the organization and thus policyholders by helping to ensure that solvency is maintained. Auditors serve their respective boards by ensuring the board’s interests are represented. Internal auditors assist staff and management by helping each fulfill their daily responsibilities.

Believe it or not, auditors generally do not intend to cast a fellow employee or manager in a negative light by reporting about activities that need correction. To the contrary, auditors take a great deal of satisfaction when acting as and recognized as problem-solvers.

Scott McConnell can be reached at (859) 425-7800, email smcconnell@kemi.com

Internal auditors can be vital in identifying and solving problems in your organization