With the Recession Officially “Over” – How Has Internal Auditing Fared?

I am sure you were as relieved as I was to learn the recession in the Un​ited States officially ended in June 2009. If we had only known, we could have all rested so much easier for the past 15 months. I am being facetious, of course. As an old student (and teacher) of macroeconomics theory, I realize that the technical end of a recession can take a while to become obvious. However, the official declaration of the “end” of the recession presents a perfect opportunity to review exactly how extensive the impact has been on the profession in this country.

As I have mentioned before in this blog, The IIA has been carefully monitoring trends in the internal audit profession throughout the current global economic crisis. We have surveyed North American and global IIA members at least semi-annually on key trends such as impacts on internal audit resources, the changing focus in internal audit coverage, and skills being recruited by chief audit executives (CAEs) in the face of a changing landscape.

The most revealing answer from this past August’s survey came in response to a question on the total impact the recession has had on internal audit resources since it began. Fifty-one percent of Fortune 500 internal audit respondents indicated their budgets were smaller in 2010 than in 2007. Forty-one percent reported smaller staffing, as well. For the total North American population, the numbers were only slightly better at 37 percent and 28 percent, respectively. When asked about the outlook for 2011, stability appears to be the “order of the day.” Seventy percent of all internal audit respondents and 59 percent of Fortune 500 respondents anticipate little or no change in their staffing in 2011.

This means that — as is said about the markets — internal auditing has undergone a major “correction.” Given the cautious economic outlook for the coming years, it is unlikely that internal audit resources will be restored at a rate faster than the overall economic recovery. For that reason alone, it’s time for CAEs to fundamentally reexamine key elements of their delivery models and how they communicate their value proposition to key stakeholders. Specifically:

• Expectations of key stakeholders are not likely to shrink as much as budgets and staffing have. It is once again time to evaluate our core processes and drive efficiency in the delivery of internal audit services. If we audit smarter, better, faster, and quicker, then we will likely free up resources to address key risks that otherwise will not be addressed.
• Almost one out of six internal audit functions anticipates further reductions in budgets in 2011. With many internal audit functions anticipating a fourth year of budget reductions, we should help our stakeholders understand not only the risks this imposes, but also to understand the value we can bring to such complexities as assurance on the effectiveness of risk management. If we continue to “bang away” on the same risks and controls, we are likely to find that our value to stakeholders will decline over time. The consequences are likely to be more reductions and what could become a “vicious cycle” of declining resources and unmet expectations.

Both of these imperatives are far more complex than can be dealt with in a brief written exchange. However, I encourage other perspectives on this important topic and look forward to expanding on these thoughts in the weeks ahead.​