Where was Internal Audit? Professional Misconduct and the Wells Fargo Scandal

Abstract

How can we explain the unresponsiveness of Internal Audit (IA) amid signs that fraud is arising and spreading within an organization? Internal auditors are entrusted with the formal responsibility of sounding the alarm about the risk of fraud and organizational wrongdoing. However, internal auditors failed to respond as the cross-sell fraud at Wells Fargo’s Community Bank (CB) Division unfolded over more than a decade, growing into a massive, full-fledged scandal. We examine IA as a profession and explore how the interpretation of three classic tenets of auditing (scope, compliance and materiality) may enable organizational wrongdoing to fester unattended until it erupts into yet another scandal. We conclude with implications for the socialization and practice of internal auditors, emphasizing the need for reflexivity and moral judgment in the interpretation and application of tenets so deeply ingrained in the IA profession.

Citation

Antonacopoulou, E., Bento, R.F. and White, L.F. (2023), "Where was Internal Audit? Professional Misconduct and the Wells Fargo Scandal", Gabbioneta, C., Clemente, M. and Greenwood, R. (Ed.) Organizational Wrongdoing as the “Foundational” Grand Challenge: Definitions and Antecedents (Research in the Sociology of Organizations, Vol. 84), Emerald Publishing Limited, Leeds, pp. 227-244. https://doi.org/10.1108/S0733-558X20230000084012