Internal Audit and Reputational Risk: Evidence from the College Admissions Scandal

• In Event: 2.02 Government Research Concurrent Session: Governance/Audit

Abstract

Internal auditors plan auditing and consulting activities based on their systematic assessment of risk. Prior anecdotal evidence suggests that internal auditors in higher education express greater concern on reputational risk than those working in other industries (Zemaitis 2008). In this study, I empirically investigate how internal auditors in large U.S. public universities respond to reputational risk, specifically the reputational risk associated with the 2019 college admissions scandal. Analyzing the hand-collected internal audit plans, I find that, after the scandal, internal auditors increased the number of projects related to admissions. The results suggest that internal audit organizational structure (centralized vs. decentralized vs. hybrid) plays a significant role in how internal auditors respond to the scandal. The study demonstrates the importance of organizational structure match and contributes to our understanding of the internal audit risk assessment and management practices.

Author

• Han Yan, Washington State University