Speaking to a gathering of more than 2,000 internal auditors from around the world at The Institute of Internal Auditors’ (IIA’s) international conference held in mid-May in Johannesburg, South Africa, IIA President Richard Chambers, CIA, shared key results from the survey which reflected responses from 1,665 internal auditors in 57 countries.
“This survey data gives us a global snapshot of how internal auditors view what has happened and how they are dealing with it,” said Chambers. “It also tells The IIA what we should look at closer for more in-depth analysis and development of new guidance.”
Three major areas of realization emerged from the survey results.
- Internal auditors’ views are split on whether risk management could have played a mitigating role in the financial crisis, and a majority felt there were more things internal audit activities could have done soften its impact.
- Organizations are redirecting their internal audit resources to cover recession-related risks. And within organizations receiving stimulus or rescue funds, more than a third of internal audit activities have not addressed risks related to the funding.
- The recession has had a trickle-down effect that has impacted the resources of internal audit functions.
Views on the crisis’ prevention
Some of the views on how the financial crisis might have been prevented are somewhat evenly split. A slightly higher number of respondents disagreed (36 percent) than agreed (34 percent) that their organization’s current financial situation could have been prevented with better risk management. However, a much higher number of respondents agreed (53 percent) than disagreed (23 percent) that internal auditing could have helped identify key risks to mitigate some of the current economic impacts their organization is facing. Possible reasons why risk management and internal auditing did not prevent the financial crisis were discussed at a recent roundtable meeting of chief audit executives (CAEs) from Fortune 100 companies in the U.S.
“Some CAEs said many of the risks in their specific organizations were rated with extremely low probability, and they were triggered by circumstances that could not have been anticipated – calling the crisis comparable to a 100-year-flood,” stated Chambers in referencing the roundtable discussion held with U.S. Fortune 100 companies. “Many are now contemplating new approaches to risk assessment, and looking closer at factors such as probability, possible impacts of risks, and their organization’s preparedness for these risks.”
The changing environment
In response to the recession over the past year, 46 percent of the respondents have increased their focus on cost containment and expense reduction, 46 percent have increased their coverage of operational risks, and 41 percent have increased their coverage of the assessment of the effectiveness of risk management. Compliance and credit risks have also experienced additional scrutiny, as well as liquidity risks and risks associated with third parties in financial distress. The survey confirmed that internal auditors will continue to focus on almost all of these risk areas over the next 12 months while giving even more attention to operational risks, the effectiveness of risk management, and compliance.
“The fact that organizations have been shifting their internal audit resources to cover these emerging risks is certainly good news,” commented Chambers. “And it’s better news that they’ll devote even more resources to these risks in the coming year. This tells us that organizations are becoming keenly aware of the value risk-based internal auditing.”
Internal auditing and the stimulus/rescue funds
Of the small percentage of respondents (7 percent) whose organizations had received stimulus or rescue money from the government, 34 percent of the internal audit activities have not addressed related risks. Of those organizations that have addressed risks related to this type of funding, 28 percent are focusing on the related compliance risks.
Impact of the economy on internal audit capabilities
The recession has had a trickle-down effect on many business functions, including internal audit capabilities. Eighty-three percent of the respondents reported their companies have been negatively impacted by the economy. As a result, a significant percentage the respondents’ internal audit activities (43 percent) have experienced a decrease in their internal audit budgets. The most common ways to accommodate those budget cuts have been to limit travel and training, as well as freezing or reducing compensation expenses.
Survey participation
A total of 1,665 IIA members from 57 countries responded to the survey, with almost half (45 percent) being in a CAE role. Almost a quarter of the respondents (34 percent) work for companies with annual revenues greater than US $1 Billion. The respondents were from Europe (30 percent), Asia (27 percent), North America (23 percent), South America (9 percent), and Africa (7 percent). The survey was part of the second phase of an initiative of global headquarters of The Institute of Internal Auditors
To read see the full survey results, as well as regional survey report summaries, visit The IIA's web portal to financial crisis resources at http://www.theiia.org/guidance/global-financial-crisis/.
