Companies Devoting More Money to Internal Audits

The majority of chief audit executives anticipate that the resources and budgets for their internal audit departments will either increase or stabilize next year, according to a new survey.

The latest Pulse of the Profession report from the Institute of Internal Auditors surveyed 545 chief audit executives and internal audit directors at companies and found that 41 percent anticipate an increase in their resources in the coming year, the highest percentage of internal audit departments since 2008. Fifty percent said they expect their budgets will remain stable, and only 9 percent expect their budgets to drop, the lowest decrease percentage since 2008.

Chief audit executives are not witnessing significant changes in employee whistleblowing in light of the announcement by the Securities and Exchange Commission of its first Dodd-Frank whistleblower program payment. The program allows an informant to receive 10 percent to 30 percent of the financial recovery, as long as the informant provides original information that leads to a successful prosecution resulting in monetary penalties exceeding $1 million. According to the survey, less than 5 percent of CAEs are concerned that employees could bypass their organization’s whistleblowing process to report incidents directly to external parties.

“The internal audit profession has played a crucial role helping organizations identify instances of unethical employee behavior as well as providing recommendations that have enhanced detective and preventive controls,” said IIA president and CEO Richard Chambers in a statement. “Given the visibility of the post Dodd-Frank whistle-blower provisions, we were surprised to learn that employee whistle-blowing remains virtually unchanged since 2011.”

The IIA also asked survey participants to identify whether hotline claims had increased in their organizations. The majority of all survey respondents (84 percent; 78 percent of which are Fortune 500 companies) stated that the number of claims has stayed the same since August 2011.

“This could well mean that for most organizations, internal hotline practices have been working successfully and the advent of the whistle-blower provisions from Dodd-Frank simply helped to remind organizations to continue ensuring their internal processes are adequately robust,” said Chambers. “However, with the number of cases the SEC has self-reported, and with only the first of an expected volume of future financial payouts, only time will tell if internal audit’s general lack of concern is warranted.”

Audit coverage in 2013 might still lag in two key areas, risk management effectiveness and strategic/business risks, according to the survey. In addition, the IIA found more chief audit executives will concentrate on recruiting skills aligned with areas of emerging audit coverage. In turn, the top two skills sought for new audit staff in 2013 are analytical/critical thinking and communication.

Consistent with the current concerns of boards of directors and audit committees, the survey also found that internal auditors are balancing their coverage to a diverse portfolio that aligns with the risks most companies are dealing with. A majority of the coverage in 2013 will be focused on nonfinancial areas of the organization such as operations, compliance and IT, outpacing coverage of financial risks three to one, according to the report.

“While 2013 is promising to bring about positive opportunities for internal audit, CAEs need to take advantage of this period to ensure their teams are positioned for ongoing success,” said Chambers. “Doing so will help to make sure the internal audit profession continues to enhance its relevancy in the face of the increasing velocity of change.”

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