Final answer:
The independence of an internal auditor could be compromised by their prior involvement in the setup of a risk management process. This conflict of interest parallels difficulties faced in bureaucratic oversight, where reporting mismanagement comes with personal risks. Both situations underscore the importance of maintaining independence and objectivity in roles tasked with oversight.
Step-by-step explanation:
The independence of an internal auditor may be threatened when they have participated in the establishment of a risk management process because their subsequent audits could be biased or influenced by their own previous work. Being involved in the initial setup may impair the auditor's objectivity as they might unconsciously seek to protect their prior decisions and assessments.
Furthermore, if the auditor's performance is evaluated based on the success of the risk management process they helped to create, this creates a conflict of interest, which can compromise the independence and objectivity essential in internal auditing.
This situation is akin to a bureaucratic oversight issue where individuals within a bureaucracy may face ethical dilemmas when reporting on mismanagement or wrongdoing due to potential backlash, including the risk of job termination.
A similar example is the pressure bank supervisors might feel when their actions to safeguard the bank's financial soundness are met with political opposition from bank owners and politicians, urging them to back off. In both scenarios, internal auditors and supervisors must withstand external pressures to maintain their independence and fulfill their responsibilities objectively.