Internal auditors optimistic on economy, talent, but risks remain

Internal auditors are less worried about economic uncertainty and talent availability going into 2024, despite ongoing risks in both areas, with most focus going instead into technology-related areas.

Last year, talent shortages ranked as the second most significant risk, followed by changing economic conditions at No. 3. This year, though, talent availability ranked 12, and the economy ranked 10. This indicates a major shift in priorities and focus for internal auditors.

AuditBoard, the risk management solutions provider behind the report, said this could reflect either a feeling of optimism at odds with ongoing uncertainty or professionals becoming accustomed to what it said was a state of "permacrisis," an extended period of instability and insecurity, which has served to throw off their risk perceptions. Regardless of the reasons, though, the report said internal auditors sentiments are not reflecting the ongoing risks in these areas; analysts at the company have ranked the economy as No. 2 and talent as No. 3.

On the economy, AuditBoard said organizations continue to feel the multilayered impacts of the worst global pandemic in 100+ years, the most significant war in Europe in 80 years, the highest inflation rate in 40 years, the most aggressive monetary policies in decades, and banking industry failures that have severely shaken public confidence in the nation's financial institutions. Recent conflicts in the Middle East create further risk. Meanwhile, on talent availability, the report said unemployment overall is still relatively low and the number of open jobs in the U.S. increased in the third quarter of 2023. Despite fears of a recession, 26% of 54,000 workers surveyed globally in PwC's Global Workforce Hopes and Fears Survey 2023 say they're likely to change jobs in the next year.

Internal auditors are similarly sanguine on their own organizations: 38% anticipate their department budgets will increase faster than the rate of inflation, a marked jump from the 20% who believed so last year. Similarly, 31% said they believe headcount will increase this year, versus the 25% who said so last year. AuditBoard feels it is not a good idea to hold such rosy views.

"It's worrying that internal audit leaders continue to predict increasing budgets and stable staffing plans against a backdrop of continuing macroeconomic uncertainty, recessionary fears, and the ongoing transformation of the U.S. workforce ... The truth is that even a minor economic shock could change everything, shifting these sunny 2024 projections back to 2023's reality," said the report. "This reinforces the need for internal audit to be prepared with up-to-date risk assessments, well understood talent strategies, and benchmarking data so leaders are prepared to respond quickly."

Technology-related areas are where internal auditors anticipate most of their focus will go in the coming year. Cybersecurity risk was cited as the No. 1 priority, followed by "IT (not covered in other choices)." Both of these choices, said the report, are understandable considering the technological landscape.

Yet, at the same time, when it comes to internal auditors' priorities in the coming year, technology-related items ranked quite low. While "expand the use of automation and data analytics" was ranked at No. 4, "Implement or expand adoption of cloud-based integrated risk management technology" was No. 8 and "Deploy next-generation technologies within internal audit (e.g., AI, RPA, ML)" was No. 9.

Overall, AuditBoard believes that internal auditors have gotten a little too used to a state of constant crisis, which might be fueling this misalignment of risk perception.

"Permacrisis is no time for overconfidence or complacency," said the report. "The widening risk exposure gap demands that every organization adapt, looking critically at strategy and paving a deliberate path toward the transformations needed to stay viable and relevant. Internal audit must also heed this demand."