W A Wijewardena: The internal auditor in banking institutions – challenges and his new role Keynote address by Mr W A Wijewardena, Deputy Governor of the Central Bank of Sri Lanka, at a seminar by the Institute of Internal Auditors, Colombo, 30 November 2007. *  *  *  The precise role which an auditor should play in an organization has always been subject to much debate. Different schools of thought had held different views on the subject based on their personal feelings and ideologies. When we were studying auditing at the university some four decades ago, an adage which was firmly planted in our heads was that “an auditor was a watch dog and not a blood hound”. This principle which had ruled the sphere of auditing for decades had been established in many legal cases that had been judged in the United Kingdom and elsewhere by reference to the common practice of auditing. This simple expression amply described what role an auditor was expected to play in an organization. He was simply to keep a watchful eye on the operations of a business and alert his masters of any irregularity that was happening. Once this was done, it was the responsibility of the masters to take necessary corrective action. An ambitious audit officer may be tempted to go beyond the bound of this adage and take upon himself the responsibility of passing penal judgments on those whom he finds as miscreants of financial responsibility.
But, the auditor’s role is simply to function as a pointer and not a financial crusader. If he chooses to function as a financial crusader, he may not only embarrass his masters, but also endanger his own position as well. Without any penal power vested in the auditor, it is also practically impossible for him to act as a penal authority. The auditor is a watchdog and not a blood hound Businesses today, specifically those involving banking institutions, are very much complex in nature. Hence, one may rightly question whether the old adage relating to auditing could still serve a purpose. Though the complexity of the businesses has grown tremendously, I feel that the old adage relating to auditing is still valid and relevant. It has demarcated the boundary within which an auditor has to operate. If he steps outside this boundary, the most likely consequence would be the creation of a hostile atmosphere for the auditor to perform his duties. No organization, whether big or small, could function effectively and efficiently in that scenario. This caution is equally valid for both external auditors and internal auditors. The role of the internal auditor Internal audit, as against the external audit, is the first safeguard available to the management and owners to run their business free from financial irregularities and misbehaviour. Internal auditor is available on site throughout the period and, therefore, can play his role as an effective watchdog continuously.