The Worst Seems to Be Behind Us

Richard Chambers, CIA, CGAP, CCSA, shares his personal reflections and insights on the internal audit profession.

As I have commented often in recent months, the current economic crisis has not been kind to internal auditing. Granted, we have not seen the level of layoffs or staff reductions that we may have seen in other professions, but there is plenty of evidence that our Sarbanes-Oxley era of prosperity has come to an abrupt halt. Following years of healthy growth, many internal audit activities reported budget and staffing reductions in 2008. This pain was nothing compared to what 2009 would bring. A recent Knowledge Alert (PDF) from The IIA’s Audit Executive Center reports on the results of a North American survey about the impacts of the economy on internal audit activities. The Knowledge Alert notes that 23 percent of all responding organizations — as well as 34 percent of survey respondents working for Fortune 500 companies — report that their internal audit staff levels had been reduced in 2009. This is a far cry from the year-over-year, double-digit increases that were being posted in 2004 and 2005.

While the foregoing statistics confirm the unfortunate reality that internal auditing may not be recession-proof, there is also some encouraging news in the Knowledge Alert. Survey respondents were very clear that they believe the worst of the staffing reductions is behind them. Only 12 percent of overall respondents and 18 percent of Fortune 500 respondents anticipate further internal audit staffing reductions in 2010. In addition, 18 percent of all respondents and 14 percent of Fortune 500 respondents actually predict an increase in staffing next year. The survey did not ask about the degree of expected increases, but the magnitude of decreases for all respondents is expected to drop from an average staffing reduction of 21 percent in 2009 to an average of 15 percent in 2010. And it would appear that the staffing of the profession will begin to show stability in the year ahead, as the average staffing reduction of Fortune 500 internal audit activities is expected to maintain level at 12 percent for both 2009 and 2010.

The Knowledge Alert also included some timely insights into the current skill gaps being identified by chief audit executives. Given the shift in internal auditing’s coverage in the past year, many of the gaps were predictable. Almost 70 percent of Fortune 500 respondents indicate that their staff’s skills in International Financial Reporting Standards were either lacking or insufficient. Other areas of knowledge that were noted as lacking by internal audit staff included data analytics, liquidity risk, fraud/forensics, sustainability, and risk management. The successful internal audit functions will identify the strategies to address these gaps, even as they navigate the overall staffing issues discussed above. Naturally, we will keep a watchful eye on these trends and will keep you posted.

Posted on Oct 16, 2009 by Richard Chambers

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  1. I agree, internal audit functions must bring innovative strategies to address the skill and knowledge gaps they face, specifically, in regard to risk management and governance. I am attending the National Association of Corporate Directors (NACD) Conference in Washington, DC after participating in the IIA Eastern Regional Conference last week.  It is very insightful as I compare my mental notes on the CAE and Director view of Governance.  I am discovering a common theme of challenges with Directors sharing personal values, which are an essential part to establishing the core values of an enterprise. Sharing personal values and ones principle belief system certainly can bring a sense of vulnerability that some people may find discerning, however if the enterprise truly wants to engrain core values into its culture, then the core values of the enterprise need to be a reflection of the personal values of its constituency, and not merely just a written code. While we continue to see the microscope on the corporate transparency of Board and Officer activities, we should also expect to see more focus on personal transparency within and amongst the Board Members and Officers themselves. The internal audit activity should recognize and consider this “Inner” transparency when assessing governance structures and processes, and promoting appropriate ethics and values within the organization. The most important lesson learned from my recent conference experiences is that it can't hurt to have more "humility" and less “pride” in the boardroom to foster an environment that welcomes honest, candid, and constructive dialogue.  Board and Officers must be comfortable drawing and elaborating on their failures, equally if not more so then their successes, to be an effective risk manager and contributor to governance.

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