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April 17, 2020

Trending: ESG Investing Holds Firm Under COVID-19

A new report from the global financial services firm Morningstar affirms that Blackrock made the right decision when it joined Climate Action 100+, one organization in a network that is aggressively pressuring corporate boards and CEOs to act on climate change. In early April, Bloomberg reported that Environmental, Social, and Governance (ESG) funds were holding more value than the S&P 500, even as the overall stock market took a major downturn. That trend is mirrored in the pattern of cash flow for ESG funds. As companies develop their long-term recovery strategies, internal auditors may bring attention to the potential trend indicated by this remarkable performance.

COVID-19 Small Business Relief Program Dries Up Two Weeks After Launch

The $350 billion small-business relief program that was part of the $2 trillion emergency stimulus package passed by Congress last month has officially run out of money, The New York Post reports. "The SBA is currently unable to accept new applications for the Paycheck Protection Program based on available appropriations funding," a spokesperson said. In total, there were more than 1,637,000 applications totaling more than $339 million, and with Congress adjourned until May, many small businesses are left with limited options other than initiating layoffs. Before the Coronavirus epidemic, the administration processed approximately only $25 billion in loans a year. Facing such circumstances, stakeholders can work with internal audit departments to identify potential cost savings, wasteful spending, and perhaps alternative means of funding in an effort to avoid more drastic measures.

Large Number of Asymptomatic Cases Among Boston Homeless Underscores Need for Testing

After finding a small outbreak of COVID-19 in a Boston homeless shelter, a nonprofit health-care program recently moved quickly to test the rest of the shelter inhabitants, reported WBUR-Boston. Out of 397 people tested, 147 (36%) tested positive for COVID-19, and all of them were asymptomatic. Previously, the health-care program was only testing people showing symptoms and had to put in a request to the state of Massachusetts for additional kits. Government officials and non-profit organizations working with the homeless in many large cities are sounding the alarm that COVID-19 is moving quickly through these populations and universal testing is needed to mitigate the spread. For internal auditors working with the public sector, the question of how to control the coronavirus among the homeless will continue to be a major dilemma for local and state governments. 

OSHA Provides Flexibility in New Temporary Enforcement Plan

The U.S. Occupational Safety and Health Administration has issued a temporary enforcement plan to guide field offices dealing with coronavirus-related workplace safety incidents. The plan directs field offices and compliance safety and health officers to be judicious in their use of in-person inspections when they investigate workplace complaints of severe illnesses that may have been caused by the virus. OSHA said the plan gives compliance officials the "flexibility and discretion" they need to protect workers amid the pandemic. Environmental, Health and Safety internal auditors should assess how the new plan will apply to their organizations.

April 16, 2020

U.S. Executives Warn That Testing Is Needed Before Economy Opens

Business executives said a dramatic increase in coronavirus testing was needed before U.S. residents would be comfortable resuming their normal work and consumer activity, according to CNBC. During a conference call with U.S. President Donald Trump, executives said current testing levels were inadequate to open the economy. Some executives said their companies were trying to acquire test kits to screen their employees for the virus. Internal auditors should follow news about the new presidential task force and advise management about the risks of opening offices and retail locations without adequate screening measures.

Contact-tracing Apps Raise Privacy Concerns

A U.S. senator said Apple and Google will need to show the public that their joint contact-tracing mobile app will protect users' privacy, Reuters reports. Apple and Google are collaborating on technology that would alert mobile users who have come in contact with someone who has the coronavirus. The companies say the technology, due in May, will track user interactions, rather than locations, and that those interactions would be anonymized to protect privacy. Internal auditors should assess the privacy implications of contact-tracing apps used by their organization's employees.

Collaboration is Key to Manage Crises

A crisis cannot be solved by one person alone, but by working as a team, which sometimes goes against the natural styles of CEOs and senior executives, says Eric McNulty, associate director of Harvard's National Preparedness Leadership Initiative, on this week's HBR IdeaCast (podcast) from Harvard Business Review. McNulty studies how managers successfully lead their companies through crises such as the Deepwater Horizon oil disaster and the Boston Marathon terror attack. In the podcast, he talks about common mistakes leaders make during crises and the behaviors of leaders who effectively navigate them. Looking back on the Boston Marathon bombing, those leaders put their egos aside, showed high emotional intelligence, did not take credit or assign blame, and were generous and supportive of each other. 

Tips for Sending Emails During the COVID-19 Crisis

Even before the pandemic, email communication could come across as impersonal and too formal. And with face-to-face communication all but gone as most employees are now working from home, email communication is more important than ever. Fast Company outlines six best practices to make your business emails measure up: Offering well wishes, avoiding business-speak phrases, expressing gratitude, accentuating the positive, treading lightly with expressions of empathy, and being cautious spreading wisdom or goodwill. 

April 15, 2020

Best Practices: Lessons From Companies That Navigate Crises and Survive

Markstein, a U.S.-based marketing firm, has compiled research and case studies of crisis events into a white paper that recommends four actions leaders can take to help move their organizations toward recovery. The paper notes that leaders should (1 embrace humility and vulnerability; (2 quickly make the decisions necessary to protect their organizations and adjust along the way; (3 center decision-making on the organization's employees and mission; and (4 focus cost reductions on operational efficiency while continuing to invest in marketing, research and development, and new assets. These research-based insights and perspectives may help internal auditors assist leaders in fine-tuning their decision-making, actions, and communications in response to COVID-19. 

Audit Committee Role in Deterring Fraud in Times of Crisis

The risk of financial reporting fraud can grow in a crisis environment if all parties in the risk management process aren't on the ball. An article from Washington, D.C., law firm Akin Gump Strauss Hauer & Feld addresses what audit committees can do to help prevent such missteps during the COVID-19 pandemic. According to the article, audit committees should maintain appropriate tone at the top, understand changes to internal controls in light of COVID-19, and scrutinize unusual financial reporting items.

Proxy Proposals Focus on Environmental and Social Issues

Shareholders have filed numerous proposals for the 2020 proxy season largely focusing on environmental and social issues, according to an article in Agenda (paywall). Issues such as climate change, gender pay equity, and political spending are cropping up in proxies, although sources say investors may be hesitant to vote for proposals as companies focus efforts on navigating the COVID-19 pandemic. Internal audit can assist management and the C-suite in navigating these issues during and in the aftermath of the COVID-19 pandemic.

The National Law Review Releases Resource for Internal Controls Over Financial Reporting in 2020

As public companies complete the first fiscal quarter of 2020, a variety of unique challenges have arisen in regard to the design and testing of internal controls over financial reporting. In response, The National Law Review has released a brief article citing the various legal frameworks managers and internal auditors should note while navigating the risks that have emerged during this uncertain time. The article also includes recommendations that applicable parties should bear in mind, such as the U.S. Securities and Exchange Commission's guidance on cybersecurity controls and disclosures, which is notably relevant as many companies continue to operate in a telework environment. "In the current environment, public companies of all types should expect to find themselves under heightened scrutiny from the news media, putative whistleblowers, agency inspectors general, consumer watchdog groups, members of Congress, and other political figures," says the article. "The best defense against the prospect of future regulatory inquiries or outright litigation remains a robust control environment."

Fed Stops Alleged Fraudulent Sale of N-95 Masks to U.S. Hospitals

The U.S. Justice Department is investigating a scheme by two foreign entities to defraud U.S. health-care providers out of millions of dollars. The alleged fraudsters were attempting to sell 39 million N-95 respirator masks, asking for 40% of the payment up front. The Justice Department said it does not believe the sellers actually have the masks. The U.S. supplier working as a middleman for the sellers may not have been aware that the foreign suppliers were fraudulent, according to the Justice Department. Internal auditors working with organizations that are attempting to obtain scarce goods need to be vigilant to the increase in opportunistic sellers and fraudulent activity.

April 14, 2020

State and Local Governments Brace for Economic Crunch

The economic crisis spawned by the coronavirus pandemic is likely to hit state and local governments hard and soon, Axios reports. Sales tax-dependent states and municipalities are seeing tax revenues fall sharply because of business closures. States such as Nevada are bracing for immediate shortfalls by cutting fiscal year 2020 budgets now and planning even bigger cuts next year. Meanwhile, cities may not be able to depend on state governments to bail them out.

Offices May Change Following the Pandemic

Prepare for more telecommuting and a significant rethink of the workplace, according to a Vox Recode report. About one-third of U.S. workers who previously worked from an office are now telecommuting, up from 4% before the virus — that's roughly the percentage of workers whose jobs can be performed remotely. Those workers may be working from home more often as companies look to cut office costs by downsizing their spaces and opting for more flexible leases. Employees returning to the office may notice changes such as more cleaning, better ventilation, well-spaced desks, and automated doors and elevators.

Coalitions of Governors Announce Plans for Reopening

As health data suggests the U.S. is nearing a plateau of the spread of the coronavirus, two sets of governors — one on each coast — are partnering to coordinate the gradual easing of restrictions on business and travel, Bloomberg reports. California Governor Gavin Newsom, partnering with Oregon and Washington, will unveil a framework on Tuesday for lifting California's stay-home order, including the metrics that will guide that process. The East Coast initiative — New York, New Jersey, Connecticut, Pennsylvania, Delaware, Massachusetts, and Rhode Island — is in its early stages, and has provided few details about what criteria might be used. In a series of tweets on Monday, President Trump said only he can make the decision about when and how the country will reopen. 

Factory Production Pivots, Saving Businesses 

Businesses that have managed to switch their products or focus during the COVID-19 crisis are likely to survive, according to a BBC article. Take, for example, London-based boutique liquor brand 58 Gin. In early March, when the U.K.'s short-notice lockdown caused its primary market to disappear, it switched gears and decided to make hand sanitizers. This kept the business running and saved jobs, while also aiding in the battle against the coronavirus. The gin maker is just one of the companies worldwide that has shifted its focus to aid the battle, also scoring points for reputation and collaboration. Other companies repurposing their production lines include vacuum maker Dyson, electronics giant Sharp, and even the U.K.'s Royal Mint. Such changes don't come without hurdles, such as sourcing and regulatory requirements, to name just a few.

April 13, 2020

Enterprise Risk Managers: COVID-19 Resulting in Less Engagement With Board

ContinuityCentral.com reported the results of a March 27 Gartner survey of more than 900 audit and risk leaders regarding the tactical measures that enterprise risk management (ERM) teams took in immediate response to COVID-19. Most ERM leaders reported updating risk assessments to account for changes in risks related to third-party relationships, supply chain, cybersecurity, and the ability to execute remotely. Many reported working with senior leaders to ensure the organization did not adopt a disproportionately risk averse posture and to ensure cost optimization decisions sufficiently accounted for potential risks and impact. ERM leaders also updated communications to the board and management with specific risk-based insights surrounding near-term COVID-19 impact and recommended actions steps. The survey results indicated that internal auditors and ERM leaders worked to update and execute audit plans based on the new risk assessments.

HBR Offers Advice on Strategy and a Downloadable Tool

As organizations of all types consider how to navigate the uncertainty in the wake of Covid-19, the Harvard Business Review suggests using a simple framework, based on the work of Henry Mintzberg, to help develop a strategy. Mintzberg is famous for defining business strategy in terms of the 5 Ps: plan, ploy, pattern, position, and perspective. HBR offers advice related to the 5 Ps, as well as a downloadable worksheet businesses can use. Practical advice – such as avoiding launching so many projects that it results in a war over resources (e.g., IT, top managers) may help internal auditors as they provide assurance to their organizations.

Auto Industry Develops COVID-19 Guidelines As It Works to Reopen Factories

The auto industry is sharing detailed return-to-work guides on how to shield employees from the coronavirus as it prepares to reopen its factories. Automakers and their suppliers could reopen factories in North America as early as next month. The preparations include lengthy playbooks with guidelines and best practices — including this manual from parts supplier Lear Corp. — and sharing them online. Internal auditors, especially Environmental, Health and Safety auditors, can work with management in the adoption and practice of these guidelines at their companies.

A New Risk Emerges in Education in the Form of Suspended SAT and ACT Testing

According to a report by The Washington Post, over 1 million high school juniors will be missing the chance to take the SAT and ACT. With the next testing dates in June currently in doubt, there is now far-reaching uncertainty for both students and colleges, alike. Some colleges have already suspended test-score requirements for applicants, while others have implemented more unusual measures such as a three-year-test-optional experiment. This presents a risk not only for admissions departments around the country, but also for students who some experts fear may be placed off the college track amid the chaos. Especially for internal auditors in the university system, this will be a risk that reverberates for years to come and bears noting.

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