New AuditBoard Report Offers Rare Glimpse Into Internal Audit Mid-year Progress and Priorities

Regular readers of my blogs will know that I frequently share highlights from new research or thought leadership that sheds light on the trends and outlook for internal audit. Such reports from the ECIIA, Protiviti, IIA Global, and others tend to be published near the end of the year or early in the new year. They provide valuable insight into the results from the year that’s ending or the outlook for the year ahead.

Given the dynamic nature of risks and corresponding priorities that we are experiencing in the 2020s, I believe the profession needs more timely insights to enable benchmarking and course corrections throughout the year. To this end, AuditBoard just published a report I authored titled 2022 Mid-Year Snapshot: Internal Audit Bracing for More Disruption. The report was based on a recent survey of more than 170 internal audit leaders who were asked about a range of trends and priorities as the calendar turns to the second half of 2022. I believe we packed a lot of valuable information into the report, and I would encourage every internal auditor to read it.

In the report, we offer a lot of data and a number of interesting observations:

• The internal audit profession is remaining resilient in the face of continuous disruption. Given the outlook for budgets and staffing levels, most internal audit departments remain optimistic about their department’s continuing value and growth. 86% of departments are enjoying budgets at or above last year’s levels, with 24% having been authorized additional staff positions in 2022 and 33% anticipating adding staff in 2023.

• The great resignation has made hiring and retaining internal audit talent far more challenging. Just like so many industries, the internal audit profession has seen a significant shake-up in the wake of the great resignation. Despite open positions, hiring in the current market remains challenging. The talent shortage and salary wars have taken competition to a new level and traditional recruitment and retention strategies are no longer sufficient. Today, internal audit leaders report that they are leveraging a variety of recruitment and retention approaches, with remote work (35%) and flexible working conditions (22%) cited as the most successful strategies for attracting and retaining auditors.

• Internal auditors need to keep their eyes on the horizon to proactively identify emerging risks. Since AuditBoard’s last survey, conducted in October 2021, the risks identified as a high priority have remained largely unchanged. Internal audit leaders now report the top five risks facing their organizations as cybersecurity, attracting, and retaining talent, economic conditions, third-party risk management, and regulatory changes. In our last survey, internal audit leaders identified four out of the same five top risks, with changing economic conditions being the only new risk named. 

However, as inflation started rising in 2021, this change indicates a reactive audit planning approach relative to risks — as does the fact that the other risks have remained constant. For organizations to better anticipate rapidly emerging and evolving risks, auditors must keep their eyes on the horizon, leveraging key risk indicators (KRIs) like economic forecasts, company strategy performance, and competition. In addition, with only 27% of internal audit leaders reporting extensive collaboration with risk management, stronger collaboration with risk and compliance teams will prove essential going forward.

• Management’s role in administrative oversight is undermining the appearance of internal audit’s independence. The functional reporting line — the audit committee for 83% of internal auditors surveyed — has oversight over internal audit but isn’t exercising much authority over the budget and priorities. On the other hand, the administrative reporting line — the CEO, CFO, or another C-suite executive for 91% of internal auditors — has a greater degree of influence on the department budget and which audits are undertaken. 52% of audit leaders say their budget is highly impacted by the administrative line, while only 27% are highly impacted by the functional reporting line. This underscores a need to clearly define reporting lines and oversight of resource requirements to ensure internal audit’s independence and support throughout the organization.

Internal audit leaders today are being pulled in so many different directions. They’re optimistic about their ability to tackle a myriad of challenges, yet they’ll have to address any gaps within their department and their organization to successfully anticipate and manage the risks ahead. Going forward, only the most proactive internal auditors will be able to keep up with coming disruptions — and they’ll need the proper resources and tight organizational alignment to do so.

I welcome your thoughts on the report and any trends you are observing as we enter the second half of 2022.