The impact of the coronavirus pandemic on internal audit was not nearly as severe as it was for organizations overall, states a new report from the Institute of Internal Auditors (IIA).
In its 2021 North American Pulse of Internal Audit survey, the IIA assessed the pandemic’s effects on internal audit across a broad spectrum of metrics, including budgets, staffing, risk assessments, and audit plans. “The pandemic created an open audition for internal audit to showcase its value, particularly in response to the crisis management and business continuity risks at the onset of the pandemic,” the IIA said in the study, released last month.
“Indeed, responses from [chief audit executives] who reported staffing increases support that, for some, pandemic responses expanded the profession’s scope of work,” the IIA said. “In aggregate, the pandemic’s impacts were less than initially anticipated by internal audit leaders.”
The study garnered 584 total responses. In the healthcare and social assistance industry, 80 percent of respondents rated the pandemic’s impact as “extensive” for the overall organization, while only 37 percent rated it as such for the internal audit function.
Among consumer-facing companies (e.g., retail, food, and travel), 66 percent rated the pandemic’s impact as extensive overall, while only 28 percent rated it as such for internal audit. An additional 52 percent noted “moderate impact” on internal audit.
The gap closes a bit among financial institutions; 22 percent rated the pandemic’s impact as extensive overall, compared to 11 percent for internal audit.
Internal audit budgets
More functions experienced decreases in budgets than increases (36 percent versus 20 percent). On a positive note, while 45 percent of chief audit executives (CAEs) who responded to a IIA survey in June 2020 said they anticipated budget cuts, only 36 percent reported such cuts by November.
The IIA survey also noted internal audit budgets varied by organization type, “at times, significantly.” Financial services fared the best, with 20 percent reporting decreases in their overall budgets offset by 28 percent reporting increases.
On the flip side, 47 percent of respondents from publicly traded companies reported decreases, while only 18 percent reported increases. Among privately held organizations, 45 percent reported budget cuts, with just 4 percent reporting increases.
“How internal audit leaders chose to manage budget cuts also tells an important story,” the IIA stated. For example, only 17 percent said they decreased their internal audit staffing budget, and only 26 percent decreased the external sourcing budget. Not surprisingly, with the pandemic, travel budgets took the biggest hit, cited by 83 percent of respondents.
The IIA survey also found rising levels of risk in most audit areas for both the public and nonprofit sectors. Fewer areas of increasing risk, however, were reported for publicly traded, financial services, and privately held organizations. Additionally, data reflected increases in audit plan allocations for cyber-security and financial reporting and a drop in allocation for operational risks.
“Taken together, these trends suggest stakeholders may place a priority on internal audit providing assurance on financial and compliance risks, which can be perceived as essential in times of crisis,” the IIA said. “The need for internal audit expertise in these areas may have provided a backstop against even more significant reductions of internal audit budget and staffing.”