Internal audit departments having trouble recruiting candidates with the requisite skills
"Companies are really struggling to find people with the skill set required for today's internal auditor," says Sandy Pundmann, U.S. internal audit practice lead at Deloitte.
In fact, according to a new Deloitte study the internal audit talent gap is worse than anyone expected. A paltry 13 percent of chief audit executives say they are satisfied with the skills their audit teams possess to meet the needs of the department. The rest say they are understaffed or that the personnel they have lack the proper expertise to get the job done.
"When I talk to my peers, most either have openings or are filling positions, and they are finding that it's taking longer than expected," says Michael Lewis, vice president of internal audit with Hologic, a Marlborough, Massachusetts-based developer of diagnostic imaging systems and surgical products.
The Deloitte study is hardly an outlier. Attracting and retaining talent was a high or critical priority for forty percent of those responding to an Institute of Internal Auditors 2015 survey. More than half of survey respondents—54 percent—attributed the knowledge gaps to the limited pool of skilled auditors.
Several drivers appear to be behind the imbalance between the supply and demand for good internal auditors. As a career, internal audit often hasn't held the same appeal as opportunities in other areas of finance and accounting. "Internal audit traditionally is known as a policing area," says Sean Torcasi, partner in PwC's Internal Audit Solutions Practice. This perception, whether accurate or not, may turn off some prospective candidates, he says.
One of the problems, say recruiters, lies in the lack academic training available to college students. Few universities have programs—or even classes—in internal audit, says Terry Thompson, assistant general manager of internal audit with the Metropolitan Atlanta Rapid Transit Authority (MARTA). As a result, many students gravitate toward general or public accounting.
The passage of Sarbanes Oxley in 2002, with its emphasis on financial controls and compliance, was an initial boon for internal auditors, Lewis says. Not surprisingly, however, it created auditors with a focus on compliance. While this expertise remains critical, companies increasingly are looking for auditors who can add value by conducting strategic and operational audits.
Often, the most difficult positions to fill are those for auditors with about five to ten years of experience, says Thomas Murphy, vice president of internal audit with TopLine Federal Credit Union in Maple Grove, Minnesota. "The employer wants the experience, but few internal auditors are sticking with it." Instead, many auditors use the skills they gained during their first few years on the job to move into other areas of an organization
Moreover, some of the talented individuals who remain in internal audit can command inflated salaries and titles, Lewis says. That's leading to a mismatch between internal audit and other areas of the business, he adds, and could make it more difficult for an auditor to later move into a business or operational role.
Only Going to Get Worse
The talent shortage is hitting just as organizations are demanding more of their internal audit functions. "Internal auditors are gaining a wider scope of responsibility" says Kym Bailey, practice director, accounting, finance, and nonprofit management with the Rochester, New York-based recruiting firm Cochran, Cochran & Yale. Along with their traditional focus on controls, many internal auditors are being asked to identify risks in other areas.
Industry recruiters and consultants say the need for auditors with the ability to analyze business processes and assess IT capabilities continues to grow. These auditors not only need to know how to check actions that already have occurred, they have to provide forward-looking insight and action. Respondents to the IIA survey listed IT, cybersecurity and privacy, and data mining as among the top areas in which they were having the most difficulty recruiting.
That's not to suggest internal auditors can fix or prescribe remedies; the function needs to remain independent. However, auditors can provide "an independent, objective assessment of risks and controls in the organization. They have a broad picture of what's going on that they can share with the board and the audit committee," Pundmann says.
The Well-Rounded Auditor
Given the array of talents that are required of the modern internal auditor, it may come as no surprise that companies are having a difficult time finding individuals with all the necessary skills. The audit team also has to know the company's strategy, determine whether its actions are consistent with the strategy, and then help the organization understand the risks they're taking on. In the IIA survey, nearly all—96 percent—of respondents ranked analytical, critical thinking, and communication skills as very or extremely essential.
Few chief audit executives can simply wait for the talent shortage to improve. For starters, inadequate staffing may mean risks are going unidentified. Chief audit executives responding to PwC's 2016 State of the Internal Audit Profession study said talent shortages were the most significant barriers to increasing their contributions as leaders.
In addition, many boards of directors are asking chief audit executives for assurance that their teams possess the audit skills they need, Pundmann says. "Chief audit executives are getting pushback. They're being asked, 'What does your team know about this?"
Be Our Guest
Organizations are addressing the internal audit talent shortage in a variety of ways. Some are developing "guest auditor" programs, in which they'll bring in an employee from a business line for a stint in internal audit, Torcasi says. This not only helps with staffing, but can mitigate concerns that internal audit too often lacks deep knowledge of the business operations, and so may not identify emerging risks. Nineteen percent of respondents to the IIA survey offer internal audit employee rotation programs.
Also in the IIA survey, 56 percent of respondents said they recruited candidates from outside internal audit. Just under a quarter were boosting their salaries.
Some companies are using technology to identify risks in a more targeted way, Torcasi says. That can make the audit process more efficient. An added benefit: it can cut the travel required of auditors. To reduce time on the road, some internal audit organizations are establishing regional audit groups. They also might offer auditors flex time or the ability to work from home when they're not traveling.
Outsourcing also has become a common way of meeting the talent need in internal audit. MARTA, for instance, has hired contract auditors, Thompson says.
While the expanding role of internal audit is contributing to the current shortage of candidates with all the skills organizations need, it also carries a bright side, Bailey says. It can make the positions more attractive. Many internal auditors are gaining a wider scope of responsibility and larger teams—attributes that can be attractive to driven, ambitious candidates.
Internal auditors "really get to see all aspects of the business," Pundemann says, making it a great field for candidates who like variety. In addition, internal audit positions offer numerous opportunities to meet and build relationships with senior management, she adds.
The image of the internal audit profession has been improving for some time. "I love internal audit and haven't seen a negative perception," says Jami Shine, corporate audit manager with Tulsa, Oklahoma-based QuikTrip Corporation. In her experience, internal audit collaborates regularly with the business units, Shine says. "We're seen as trusted advisors, versus a police force." When new projects come up, business units increasingly bring internal audit into the process earlier, rather than later, she adds.
PwC's 2016 State of the Internal Audit Profession study also offers another reason for optimism. More than half of internal audit's stakeholder respondents say internal audit adds value. That's up from 48 percent in 2015. And while just 16 percent of respondents said internal audit currently was a trusted advisor, nearly two-thirds thought it would be in five years.
"The technological advancement and the increase in stakeholders' expectations is a blessing in disguise for the internal audit profession," says Wa'el Bibi of the internal audit and risk management firm, Bibi Consulting, in Ottawa, Ontario. It will attract "energized, relevant auditors." While a short-term talent shortage exists, "my prediction is that more talented professionals will make internal audit their career of choice."