Reduced budgets and an expanding workload are prompting new challenges for in-house teams, with internal audits set to fall short over the 2021 calendar year, according to new research.
A September 2020 study by global search and advisory firm Gartner surveyed 299 internal audit organisations. The findings, which were released this month, show the COVID-19 pandemic has accelerated organisational risks and urged a need for greater audit oversight. At the same time, however, teams increasingly continue to face greater pressures with a cap on budgets coupled with an expanding workload just two of the headwinds.
“For many heads of audit, it’s not clear where the extra capacity is going to come from,” said Margaret Moore Porter, managing vice-president in the Gartner audit practice. “It’s clear the pandemic has created and heightened risks that need audit oversight, but there is a real danger of the function being overwhelmed unless leaders can find ways to increase capacity without increasing budgets.”
The aforementioned overwhelming nature of the position the function finds itself in is forcing teams to place efforts in a number of audit areas but neglecting the rest.
According to the findings, the top areas where a majority of audit functions planned to spend more time on are: information security risk (64 per cent); information technology risk (52 per cent); unanticipated risk events (41 per cent); vendor/supplier/third-party risk (42 per cent); and, operational risk (37 per cent).
Meanwhile the areas seeing the least amount of attention are financial risk (18 per cent), regulatory compliance risk (24 per cent), culture/conduct risk (27 per cent), fraud risk (28 per cent), and project risk (28 per cent).
“At the moment this is very far from being a balanced equation,” Ms Porter explained. “The obvious implication, if the picture doesn’t become more balanced, is that audit leaders will have to make tough coverage trade-off decisions.”
Going forward, Ms Porter noted Garter expects internal audit function budgets, as well as headcount, to remain flat over 2021. This is a continuing trend from 2020, she said, and represents a gradual decline from when internal audit function budgets saw a period of growth at 5 per cent per year between 2017-2019 and now sits at just 1.5 per cent.
“It doesn’t look like there will be a way to buy more capacity for most internal audit functions in 2021,” Ms Porter said.
“Leaders will have to be creative and find ways to get more out of the resources they have.”