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Auditing Executive Compensation and Benefits
Steven E. JamesonCIA, CFSA, CCSA, CPA, CBA, CFE
EVP Chief Internal Audit & Risk OfficerCommunity Trust Bancorp, Inc.
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Logistics
• The audio for this web event should be
streaming through your computer only.
• Go to the Chat Room to download the slides
for the presentation.
• This webinar does not qualify for NASBA
CPEs, but may be self-reported for IIA
Certifications.
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Webinar Participation
• Submitting Questions to the Presenter:
– Type the question into the Q&A panel section.
– Select the “Send” button.
– We will have a dedicated question and answer session at the end
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• Technical Assistance
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Demographic Polling Questions
1. How many viewers are watching the Webinar at your location?
a) 1 – I am the only viewer
b) 2 to 4 viewers
c) 5 to 7 viewers
d) 8 to 10 viewers
e) More than 10 viewers
2. At what level in your internal audit career are you?
a) New to internal audit
b) Staff Auditor
c) Sr. Staff Auditor
d) Audit Manager
e) Audit Director
f) Chief Audit Executive
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Auditing Executive Compensation and
Benefits
IIA Practice Guide
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Learning Objectives
• Executive Compensation and Benefit (ECB)
Risks
• Audit Approach for ECB
• Audit Considerations for ECB
• Audit Program Development for ECB
• Types of ECB
• Real Life Examples of ECB Audit Findings
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• Strong governance systems are needed
for ECB programs
• Management is often responsible for
designing and recommending ECB
• Auditors can provide assurance on ECB
programs
Auditing Executive Compensation
and Benefits
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• Includes salary, bonus, reimbursements,
personal use of assets
• Bonus components can vary significantly
and take on many forms
• Appendix A of the Practice Guide
identifies various forms of ECB
Auditing Executive Compensation
and Benefits
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Risks Related to ECB
• Employment market risk
• Compliance risk
• Financial reporting risk
• Reputation risk
• Operating risk
• External business relationship risk
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Employment Market Risk
• ECB programs should be competitive in
order to attract and retain talent
• Compensation surveys
• Peer comparisons
• Industry practices
• Use of consultants
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Compliance Risk
• Laws and regulations
• Organization policy
• Oversight and governance
• Controls
• Reporting
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Financial Reporting Risk
• Incomplete data
• Inaccurate data
• Valuations and estimates
• Tax considerations
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Reputation Risk
• Inequitable or unreasonable
compensation
• Failure to develop, communicate, and
defend ECB strategies
• Timing
• Failure to recognize the “political” or
“public perception” environment
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Operating Risk
• Complex ECB program designs
• Incenting the wrong behavior
• Not aligned with goals or objectives
• Lack of governance processes
• Poor internal controls
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External Business
Relationship Risk
• Contracts
– Privacy clauses
– Right-to-audit clauses
– Service level agreements
– Fees or penalties for failure to deliver services
• Monitoring relationships
– Vendor management policies
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Audit Approach
• Listing ECB in the “audit universe”
• Separate audit versus part of another
audit (payroll or human resources)
• Comprehensive ECB audit versus
targeted segment of ECB
• Use of a risk assessment to determine
approach
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Audit Considerations
• Access to information
– Audit charter
– Request by executive management
• Privilege
– Legal considerations
• Skills and knowledge
– Special considerations
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Audit Program Development
• Governance considerations
– Board and committee involvement
• Management considerations
– Policies
– Departments involved
– Public reporting, regulatory filings
• External Business Relationships
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Types of ECB
• Refer to Appendix A of practice guide
• Compensation components
• Benefit components
• Incentives versus core or base
compensation
• Discretionary versus non-discretionary
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Questions and Answers
http://www.theiia.org/guidance/standards-and-guidance/ippf/practice-guides/executive-comp/
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Thank You for joining us!
• Next Global Guidance in Action Event
August 17, 2010
Auditing User-developed Applications, GTAG 14
Jeffery S. Rowland , CIA
Vice President, USAA Internal Audit
• This webinar is worth 1 CPE that can be
self-reported for IIA certifications.
– CPE certificates will not be distributed.
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