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 aud​it activities reported budge​​t 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 (available to Audit Executive Center​ members) 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 audit’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.​​