A recent Gallup Poll found that 56 percent of Americans invest in the stock market, which is consistent with historical trends. The statistic varies in other countries, but the fact is, hundreds of millions of individuals around the world, directly or indirectly, are risking their retirement income and financial well-being based on how well the companies they invest in are run.

As more investors seek to benefit from a growing marketplace, they should be cautious when deciding which companies are worthy of their hard-earned dollars. Not only should they understand an organization’s business model and the risks facing the economy, industry, and company, they should also understand how well a company is managed. But in doing so, the tendency is for investors to look mostly at the quality of the board of directors, as well as the track record of the CEO and management team.

That can prove deceiving. After all, many iconic companies that have failed had a great track record – until they didn’t. The lesson from many of the 21st century corporate failures is that investors often overlooked a company’s tone at the top because they were too enamored with short-term financial performance. How effectively are risks managed? How ethical is the culture? How strong is the control environment?

Finding answers to those questions can be difficult without direct evidence. However, one red flag that should cause an investor’s antenna to go up is the absence of an internal audit function. While the presence of the function does not guarantee any degree of success for a company, not having one says something about the way the organization’s leadership views strong, effective risk management, internal control, and governance. When a publicly traded company does not have an internal audit function, one must ask: Who is providing the board with independent and objective assurance and insight on how well risk and the mitigating controls are being managed? If it is only management, the board may be operating at a disadvantage.

Almost two decades ago, the New York Stock Exchange recognized the value of an internal audit function and an equally important direct line of reporting to the organization’s audit committee. It required all listed companies to have an internal audit function in place, upon or within the first year of listing, depending on the circumstances.

Several years ago, NASDAQ considered adopting a similar requirement. At the time, research by Navigant estimated that 40 percent of NASDAQ-listed companies with market capitalizations between $75 million and $250 million lacked an internal audit function. Unfortunately, a small but loud chorus of misguided views from some sectors prompted NASDAQ to withdraw the proposed rule and, at least to this date, not come back to it.

Over the years, I have written about my great disappointment in that decision. I continue to believe that a properly structured internal audit function can provide independent, objective assurance and advice that not only protects but also creates value for the organization’s operations. And it can do so in a cost-effective manner while providing some level of assuring comfort to the investment community.

What’s more, investors should appreciate that an adequately staffed and resourced internal audit function helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluating and improving the effectiveness of risk management, control, and governance processes. Indeed, internal audit’s mission is to enhance and protect organizational value by providing risk-based and objective assurance, advice, and insight. Who would not see the value in that?

Recognizing the value of internal audit is not restricted to U.S. stock exchanges. Leading exchanges around the world mandate that listing companies have an internal audit function.

Many of the world’s leading exchanges understand the value that internal audit brings to listed companies, and prospective investors should assign some additional degree of confidence to exchanges that mandate internal audit functions. But, even under the best circumstances, investing carries risks, and individuals would do well to learn the basics of sound investment strategy before jumping into the deep end of the investment pool. The U.S. Securities and Exchange Commission provides great guidance on this in its brochure, “Financial Navigating in the Current Economy: Ten Things to Consider Before You Make Investing Decisions.”

Now, I realize that many of you would like to see exchanges not only require internal audit but further mandate that the function be held to mandatory conformance to a set of globally recognized standards, such as The IIA’s Standards. I would, too. But as they say, one step at a time.

Further, I would be remiss if I did not say that organizations also should take this counsel to heart. Just as individuals should investigate potential investment targets for sound internal control, so should organizations consider the same when it comes to entering into potential business relationships, partnerships, or third-party service contracts. Third-party risks are among the most significant on the radar of internal auditors who are currently compiling their 2022 audit plans. Third-party risks are further exacerbated at all levels when a good internal audit function is not in place to offer assurance.

I urge internal auditors to share the messages in this blog widely as part of a grassroots advocacy initiative around the world. Occasionally, when a company fails and shareholder investments have been squandered, someone asks, “Where were the internal auditors?” In reality, a better question might be, “Why weren’t there internal auditors?” Let’s work together to enhance awareness about the risks that accompany the absence of internal audit in publicly traded companies.

I’d like to hear your thoughts about how organizations’ commitment to good governance, risk management, and internal control processes can be made more transparent to investors and how internal audit is central to that.