IIA highlights governance shortfalls at energy firms

The Chartered Institute of Internal Auditors (Chartered IIA) has raised concerns on serious audit and corporate governance shortfalls at regulated energy suppliers.

It accuses the UK energy regulator Ofgem of failing to put in place a requirement for all energy suppliers to have an internal audit function, despite dozens of its regulated firms going into administration in the UK.

It is now urging that Ofgem make it a requirement for energy providers to have an internal audit capability. Arguing this will help strengthen their financial resilience and ensure they are better equipped to weather economic shocks in the future.

Need for stronger governance

In an open letter to the energy regulator’s chief executive Jonathan Brearley, the Chartered IIA’s chief executive John Wood says:

“With several energy suppliers going bankrupt, it is possible that they weren’t receiving adequate and effective independent assurance on their business-critical risks, such as energy market exposures, financial and liquidity concerns, and so on”.

“Ofgem should consider a more stringent regulatory approach to the audit and corporate governance arrangements for these firms.”

The letter ends by saying: “it is crucial for Ofgem as a regulator to require energy suppliers to have an internal audit capability as this is essential to strengthening their corporate governance and enhancing their prospects for long-term sustainability.”

While energy suppliers are providing an essential public utility, there is still no requirement for them to have an internal audit function, which is vital when it comes to mitigating risks for organisations, points out the IIA.

Its research suggests that none of the energy providers that have recently been placed into administration had any internal audit capabilities.

“We are in no way claiming that the absence of an internal audit function was the primary cause of these suppliers going into administration,” continued IIA.

“However, we do think it is in the public interest that Ofgem are made aware how important internal audit is when it comes to reducing risks for organisations and helping them preserve their assets, reputation, and long-term sustainability.”