Internal auditors in a company's risk management function should ideally report to whom?

Internal auditors play a critical role in a company's risk management function by providing independent assessments of risk management processes and internal controls. Ideally, they should report to a designated committee established by the board of directors, such as the audit committee. This structure ensures that the internal auditors operate with a high degree of independence from the management team and that their findings and recommendations are communicated directly to those who oversee the company's governance and risk management strategies.

Reporting to a board committee enhances the objectivity of the internal audit function, as the committee is tasked with overseeing financial reporting, internal controls, and compliance. This allows the internal auditors to focus on identifying and mitigating risks without interference from the company's operational management. Such reporting lines also foster transparency and accountability, which are essential for effective risk management.

In contrast, reporting to the chief financial officer or the chief risk officer could lead to potential conflicts of interest, as these individuals are part of the company's management team and might influence the auditors’ findings. Reporting to an audit manager may not provide the necessary independence that the internal audit function requires to function effectively. Ultimately, a direct line to a board committee is the best practice for maintaining the integrity and effectiveness of internal audits in relation to risk management.