Build a bridge to the internal audit department.

While the audit committee must oversee dealings with the outside auditor, it should also have a strong sense of the challenges facing the internal auditors. "Contact with the internal audit department is crucial," says Patricia Carbine, chairwoman of the audit committee of New York Life Insurance Co. Carbine believes that regular and open communication with the internal auditors is critical for an audit committee to develop a meaningful understanding of a company's financial reporting systems and processes. Her own experience and initiatives at New York Life offer a road map other boards of directors can follow to foster stronger relationships between the audit committee and internal auditor.

Maintain regularly scheduled contact. "When the audit committee meets four times a year, we have at the table the general auditor, the deputy general auditor (members of internal audit), the head of compliance and other staff members as needed," Carbine says. One of the cofounders of Ms. magazine and the president of the Ms. Foundation for Education and Communication, Inc., as well as cofounder of the Ms. Foundation for Women, Inc., and a veteran of many not-for-profit boards, Carbine joined New York Life's audit committee in 1987 and became chairwoman in 1989. At that time the committee met briefly only during the morning of the board of directors' meeting, but today it convenes for three hours the afternoon before those board meetings. Each of these afternoons ends with executive sessions that include both internal and outside auditors but no other company management representatives. Carbine calls the company CEO after her committee's executive sessions to discuss salient points.

The time involved is "an indication of how complex the audit universe has become for audit committees," she says. "It's also an indication of the care and attention we feel we must give to the issues."

Keep in touch between meetings. Carbine also has frequent, unscheduled contact with Thomas Warga, the company's general auditor and head of internal audit. "We talk about the agendas of upcoming meetings and have informal discussions about issues such as regulatory and legal concerns."

The committee also holds an annual reception for internal audit staff. "We have actually visited the audit department as a committee, wearing nametags, to say hello and have a cup of coffee together," Carbine reports. "The members of the audit department get to meet us and we get to move around and give the people who labor so intensely a sense of what we're like and how much we appreciate their work."

Such informal follow-up to the usual committee business makes an important difference in the working relationship between the internal audit staff and the committee, she believes. Otherwise, Carbine says, the head of internal audit might be less likely to speak his or her mind on challenging issues or may hesitate to bother a committee chairperson with information that could ultimately prove important.

Ask questions. Carbine works actively to stay informed of audit issues. The internal audit staff gives her an annual presentation on the audit plan after it is finalized. "I come in mid-morning and each senior department member presents his or her plan for the year, including scope, staffing, travel plans and other considerations. I get a very good grasp of the individuals and how they're addressing their responsibilities." The outside auditors then are invited in for a working lunch, which gives Carbine a chance to discuss issues with them as well.

Don't work in a vacuum. Carbine recommends the Institute of Internal Auditors' Audit Committee Effectiveness--What Works Best (2nd edition). The first edition's self-assessment survey allowed her committee to compare its performance to best practices. Carbine encourages the general auditor to suggest material--books, articles or reports--of which she and the committee should be aware. "We're always looking for ways in which we can measure our performance," Carbine says.

Use the COSO model. New York Life's internal auditor reports follow the recommendations of the Committee of Sponsoring Organizations of the Treadway Commission. Carbine says the department has created "an extraordinarily effective format, based on the COSO model, for analyzing and assessing its internal audit report." The company's internal control evaluations focus on the achievement of objectives in three categories: effectiveness and efficiency of operations, reliability of financial reporting and compliance with applicable laws and regulations. The reports contain a summary on each area, then a rating on a scale of 1 to 4. The ratings are color coded, with green for the best ratings, yellow for those in the middle and red for problem areas. These color codes are displayed in the table of contents, "so we know right away where the trouble is," Carbine says.

Know which issues will be raised. "As chair, I have gotten to know what areas are of greatest concern to each committee member," Carbine says. "I will call the general auditor beforehand if I know we're covering a subject that could be problematic, so he's prepared. If the chair of the committee can articulate in advance what the questions will be, we'll do a better job of addressing them."

Carbine often appears on conference panels with Warga, and their description of their level of communication leaves some internal auditors looking dazed, she says. As a first step for those who would like to have greater audit committee involvement, she recommends scheduling an annual presentation of the audit plan to the committee chairperson. Alerting the chairperson to articles or other items of interest is another way of initiating more regular contact. "The internal auditor knows the committee chair is a busy person and doesn't want to bother him or her," Carbine says. "That's a very understandable attitude, but it doesn't make it any easier when you have to call with bad news."

Because of the strong relationship between the audit committee and the internal audit department, "each side has benefited greatly," Carbine says. "We push each other to see if we're doing everything the best way it can be done."

ANITA DENNIS is a JofA contributing editor.