7 minute read 18 Jun 2020
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How chief audit executives are responding to COVID-19 in the now

By Esi Akinosho

Houston Office Managing Partner, Ernst & Young LLP

Global Leader in value-driven Internal Audit innovation, Passionate about diversity in business. Travel enthusiast. Avid mystery fiction reader. Wife. Mother.

7 minute read 18 Jun 2020

By taking a dynamic and innovative approach, internal audit functions are helping their organizations to manage new and escalating risks.

In brief
  • The results of a global survey of chief audit executives or equivalents reveals how internal audit functions are adapting to the COVID-19 disruption.
  • There are three core challenges: pushback from the business; a lack of technology or access to data; and managing talent and the workplace.
  • However, there are many aspects of the pandemic that present an opportunity to overcome those challenges and emerge in the “beyond” stage.

COVID-19 has caused significant disruption for organizations throughout the world. To find out how the internal audit profession is responding to the challenges and pressures presented by the pandemic, we conducted a global survey of more than 430 chief audit executives or equivalents. When we asked respondents to sum up the current tone in their companies using one word, the most popular responses included “cautious,” “focused,” “optimistic,” “resilient” and “transformation.” 

Dynamic and innovative approach

The survey revealed that internal audit functions across the globe are adapting to the COVID-19 disruption by focusing on innovation and taking a dynamic approach to their work. Almost half (46%) of functions are reprioritizing their internal audit plans to address new risks that have been identified as a result of the pandemic. For example, they may be focusing on risks that relate to employee health and wellbeing, supply chain and global trade, or technology and information security.

Another way in which internal audit functions are demonstrating their agility is by performing audits through remote procedures rather than site visits or in-person interactions. Over 40% of audit functions are continuing to execute their full audit plan in this way. Having the right technology and tools in place has been key to enabling remote audit procedures. For instance, 83% of respondents indicated they were using videoconferencing to perform audits.

Tools and technology enabling remote audit procedures

83%

of respondents indicated they were using videoconferencing to perform audits.

Conversely, less than half (49%) of respondents cited analytics as an innovative approach they are using to deliver the internal audit proposition. This indicates that internal audit functions may have an opportunity to embrace innovative technologies to move away from the traditional audit model and drive efficiency while decreasing disruption to the business.

Over a quarter (27%) of internal audit functions are redeploying resources to support the business in the first and second lines of defense. This finding is testament to internal audit’s comprehensive understanding of the business and established relationships with stakeholders. During this crisis, internal audit professionals are well placed to help other departments manage disruption and provide real-time advice in areas such as business continuity and crisis response. 

Internal audit functions helping other departments

27%

of internal audit functions are redeploying resources to support the business in the first and second lines of defense.

Many internal audit functions are experiencing delays in their audit plan due to the COVID-19 disruption. Some (14%) chief audit executives responded that they are using this downtime to focus on internal initiatives such as learning and development, transforming methodology and approach, planning future audits and developing analytics.

By training their people to learn new skills, enhancing their methods to be more dynamic, and capitalizing on technology, internal audit functions will be better positioned to deliver on their mandate in the future. Downtime activities that drive innovation, such as developing analytics or implementing robotic process automation, will transform the way internal audit operates going forward and drive more efficient and impactful audit execution.

Key challenges

Internal audit functions are facing three core challenges as a result of COVID-19: pushback from the business; a lack of technology or access to data; and managing talent and the workplace.

Pushback from the business is the greatest challenge, cited by more than half (54%) of respondents. To conduct audits, internal audit needs to engage with other departments across the business – for example, IT in the case of cybersecurity. In this period of crisis, however, some departments are severely constrained in terms of time and resources, which limits their capacity to engage with internal audit.

Pushback from the business is the greatest challenge, cited by 54% of respondents. To conduct audits, internal audit needs to engage with other departments across the business.

Internal audit functions can respond to pushback by adjusting their approach. For example, they can lessen the burden on management by conducting short audit cycles and focusing on real-time reporting, rather than traditional reporting, to provide key insights. They can also make greater use of analytics to enable remote auditing and continuous monitoring, and offer to redeploy staff to areas of the business where extra resources are needed.

Lack of technology or access to data

37%

of respondents indicated that a lack of technology or access to data was a challenge being experienced by their internal audit function.

More than a third (37%) of respondents indicated that a lack of technology or access to data was a challenge being experienced by their internal audit function. This is not a unique challenge to the current environment – it is commonly faced by functions that implement new digital processes such as data analytics. Where functions did not have the right processes, tools and technologies in place prior to the pandemic, however, the recent disruption has magnified those challenges. It is by making these investments upfront and focusing on continuous improvement that internal audit functions will be better prepared to weather unexpected crises and more strategically positioned for the future.

Talent and workforce issues

26%

of internal audit functions are experiencing talent and workforce issues.

Over a quarter (26%) of internal audit functions are experiencing talent and workforce issues. Understandably, some team members may be struggling psychologically with the switch to remote working while others might be less productive because they are juggling work with home schooling or other commitments. Additionally, with areas such as cybersecurity requiring auditors with specialized knowledge, internal audit functions may find they do not possess the right skillsets within their teams to address emerging risks. This reinforces the need to invest in learning and develop a team with diverse backgrounds and skillsets.

Over two-thirds (69%) of respondents indicated that the internal audit budget had not been cut at the time of the survey. This highlights the criticality of internal audit functions and their perceived value to the business. Nevertheless, an extended economic downturn could mean that internal audit functions face additional budget cuts and are forced to do more with less. Thus, functions should consider allocating budget now to enhance the function with the right subject-matter talent, tools and technology so that they are better positioned to withstand potential budget cuts or workforce reductions.

Interactions with the audit committee

The chief audit executives that we surveyed said the number one priority for audit committees in light of the COVID-19 disruption is to reprioritize the audit plan to cover emerging and escalating risks. Understandably, the most common emerging risk cited was employee health and wellbeing, selected by almost half (49%) of respondents. Supply chain and global trade (45%) was close behind, followed by technology and information security (34%) and liquidity and working capital (34%).

Surprisingly, considering the rapidly changing risk landscape, nearly three-quarters of respondents indicated that there had been either no change or a decrease in the frequency of their interactions with the audit committee. So, there is an opportunity for chief audit executives to consider how they can better engage with the audit committee and the board to highlight the unique perspectives and insights that internal audit can bring.

There is an opportunity for chief audit executives to consider how they can better engage with the audit committee and the board to highlight the unique perspectives and insights that internal audit can bring.

Reflecting on the now, preparing for the next and beyond

The results of the survey indicate that internal audit functions are in varying stages of the now, next and beyond. However, there is a clear desire to take positive strides into the new normal and support their businesses out of the crisis. Internal audit functions are using a dynamic approach to execute their mandate in a time of disruption and rapid change, while audit committees are encouraging internal audit to reprioritize audit plans to cover emerging risks.

While internal audit functions may face certain current challenges in executing their current plans, many aspects of the pandemic present them with an opportunity to overcome those challenges and emerge in the “beyond” stage. For example, internal audit functions can use any available budget and downtime resources to better leverage data and technology to enhance the internal audit brand, approach and operating model to give better risk insights to the business. Functions can also leverage relationships developed from working alongside the business during the crisis to develop flexible resource structures (for example, offshore, business rotations, guest auditors, third-party resources) that give access to the right subject-matter skills, in the right place, at the right time.

There is no one size that fits all. That said, all internal audit functions should work with the business to determine and deliver value as defined by their stakeholders and in accordance with their culture.

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Summary

EY research has found that internal audit functions are taking a dynamic and innovative approach to audit planning amid the COVID-19 crisis. At the same time, they face three major challenges in the form of pushback from the business, lack of technology and access to data, and talent and workforce issues.

About this article

By Esi Akinosho

Houston Office Managing Partner, Ernst & Young LLP

Global Leader in value-driven Internal Audit innovation, Passionate about diversity in business. Travel enthusiast. Avid mystery fiction reader. Wife. Mother.