May 15, 2020
As economies begin reopening globally, many countries with major emerging markets are still reporting daily increases in cases of COVID-19. This McKinsey & Company Briefing Note highlights five emerging trends that private-sector leaders need to monitor as an inevitable resurgence looms and businesses begin reopening. Even when faced with the same underlying fact base, countries and companies have very different reopening plans. This article recommends that leaders in the public and private sectors build learning and adaptation into their reopening plans. Internal auditors can add value by monitoring trends among peers, geographies, and sectors, from testing and tracing to data sharing and innovation.
The U.S. Centers for Disease Control and Prevention (CDC) has just issued six pages of recommendations to guide schools, businesses, day-care facilities, and others into the next phase of the coronavirus pandemic, reports The Washington Post. This guidance comes after many states have already begun to relax certain restrictions independently of any federal input. The more detailed guidance, which has long been expected from the White House, has not yet been shared publicly, leaving much of the responsibility in the hands of states and localities. This will place a greater emphasis on internal auditors understanding the guidance issued on the state and local level and ensure necessary compliance within their organizations.
The U.K.'s Lloyd's of London announced that it expects insurance payouts on COVID-19 claims to cost it $3bn to $4.3bn (£2.5bn to £3.5bn). That figure is the largest event-related loss since 9/11 and is equal to the combined costs of hurricanes Harvey, Irma, and Maria in 2017. According to a BBC report, "nearly a third of the losses are expected to come from the cancellation or postponement of major events around the world, including the Tokyo Olympics," while business interruption claims account for another major loss category. As in the U.S., many insurers of small businesses are denying payment for disruption of business. Lloyd's chief executive, John Neal, says it could be two years before the true cost of the pandemic is known. He also points to "harsh lessons," saying the insurance market will need to restructure policies and coverages in the future so that businesses have more protection.
The European Commission has issued guidelines for safe air travel as governments try to revive tourism and aid airlines brought to a halt by the COVID-19 pandemic, Reuters reports. Among the commission's proposals, airlines and airports should insist passengers wear masks, as well as reorganize check-ins, drop-offs, and luggage pickups to avoid crowds. Internal audit can assist organizations in evaluating and addressing travel-related risks as service resumes.
May 14, 2020
The COVID-19 pandemic will shrink the world economy by 3.2% this year, according to a mid-year report released Wednesday from the United Nations. According to this New York Times article, the report says the crisis will slash global economic output by almost $8.5 trillion over the next two years. "We are now facing the grim reality of a severe recession of a magnitude not seen since the Great Depression," U.N. chief economist Elliott Harris said in a news conference. And while the economy will recover, experts disagree on how that will look — with predictions of "V," "U," "W," and "L" rounding out the options. The "V" recovery — a fast drop, quick stop, rapid resumption — was favored early on, but confidence in that model is fading. According to a new working paper from the National Bureau of Economic Research cited in this pymnts.com article, recovery will most likely resemble an "L" — a big drop with a period of depressed and slow economic recovery.
The economic slowdown of COVID-19 is hitting communities across the U.S., and state and local lawmakers are dealing with rapidly declining revenue while trying to meet the needs of the people they serve. During the 2008 recession, The Pew Charitable Trusts introduced the Results First Initiative, a framework with tools that states can use to make smarter budget decisions with reduced revenues. The Initiative pulls together information from nine national clearinghouses, giving those charged with making decisions about which taxpayer-funded programs to expand, or cut, easy access to evidence that supports public health and other critical social programs.
The U.S. government's producer price index (PPI) for final demand fell 1.3% in April, the largest decrease since the Great Recession, Reuters reports. That drove the PPI for the past 12 months down 1.2%. Analysts attribute the falling prices to greatly reduced demand for goods during the coronavirus lockdowns. That was particularly true in the energy sector, where wholesale prices were down 19% in April, following a 6.7% drop in March. Meanwhile, wholesale food prices decreased last month, in sharp contrast to prices for consumers that rose at the highest rate since 1990. Internal auditors should advise management and the board of the risks that falling producer prices and potential deflation may have on the organization's revenues.
As businesses reopen their offices, the spotlight is on employee health and safety, Triple Pundit reports. The Culture of Health for Business Framework, developed last year by a group of companies, nonprofits, and academics, lays out 16 best practices to protect employee health. In particular, organizations should pay attention to their supply chain, where health issues from the coronavirus could impact their manufacturing facilities. The framework, which is endorsed by the Global Reporting Initiative, can be used as a basis for reporting to stakeholders on how health issues may affect the business' materiality, internal auditors should note.
May 13, 2020
PwC's latest poll of chief financial officers (CFOs) finds the majority, 63%, estimate it will take three to six months for their organizations to "get back to business as usual" were the pandemic to end today. The finding reflects the first time since the CFO surveys began in March that a majority expect recovery to take a minimum of three months. The survey, the fifth COVID-19-related poll conducted by PwC, also finds two-thirds of respondents are "very confident" their organizations can create safe workplaces for returning employees. The survey also looked at cost containment, supply chain strategies, lingering COVID-19 effects on business, and impacts on revenue/profits. The latter finds that one in five respondents expect their organizations' revenues/profits to drop by more than 50% because of the pandemic.
The World Health Organization (WHO) has published new guidance for opening schools and workplaces. This comes in the wake of some countries, such as Switzerland and Vietnam, restarting their school system. According to Maria Van Kerkhove, the WHO's technical lead for COVID-19, the attack rate in children seems to be low, but policies such as social distancing at least 1 meter apart and strict hygiene regimens should remain in place for the time being. The new workplace guidance recommends that all employers conduct a risk assessment for workers' potential exposure to COVID-19 and develop plans for preventing and mitigating the virus as part of their overall business strategy.
The latest survey from the National Federation of Independent Business found that stay-at-home orders and non-essential business closures have had a "devastating impact on the small business economy." Despite the near-term pain, more small-business owners expect the economy to improve over the next six months and expect the recession to be short-lived. The optimism is counter to that of many economic experts, who are predicting a slower recovery. Internal audit can assist businesses in evaluating and navigating the risks during the uncertainties of the pandemic.
According to an article in Bloomberg, there are numerous parallels between environmental, social, and governance (ESG) risks and risks at play in a pandemic. In multiple areas — business continuity, governance, and social issues relating to employee and community impact and health — ESG risk considerations strongly align to risks that companies are focused on and that investors and other stakeholders are evaluating. Organizations that have built ESG risk preparedness and reporting into their corporate strategies will likely be better prepared for the ongoing effects of the pandemic — and better prepared to disclose to stakeholders the risks posed by the pandemic and recession. Internal auditors may want to look to ESG risk planning to inform risk assessments during the pandemic.
ZDNet surveyed earnings conference calls to hear what business leaders across multiple industries expect as business re-opens following the COVID-19 pandemic. This article highlights comments from CEOs and CFOs discussing the phases of recovery, long-term structural changes, increasing automation and digital transformation, network flexibility, and technology-enabled solutions. Other topics included supply chain changes, social distancing and new safety practices in the workplace, and the future of the customer experience in dining and flying. Internal auditors can add to their understanding of top risks and opportunities and access links to more articles about innovations being made in some of the world's largest companies.
May 12, 2020
Recent corporate earnings calls have revealed a sharp divide between those publicly traded companies that have been resilient throughout the pandemic and those that have been hurt badly, CNN reports. Drug companies, grocers, and big technology companies are among those that have succeeded during this time, while airlines, hotels, live entertainment, restaurants, and retailers have suffered. Among S&P 500 companies that have reported results, only 10% have raised estimates for second quarter earnings — the lowest proportion since the 2008 recession. Internal auditors for companies in the "resilient" industries should advise management about how to seize opportunities, while those working in negatively impacted industries should look for ways to help their companies recover.
An MIT Sloan School of Management Report provides data-driven guidance on which industries should open up first in the U.S., Associations Now reports. The first category includes financial institutions and general merchandise stores, which "offer the best balance of economic and social value compared to risk to the public." Next are auto dealers, churches, colleges, repair shops, and retailers such as electronics and furniture stores. The report recommends that cafes, gyms, and juice bars should open last because their value is low compared to the risk they pose. The report considers restaurants to be the highest risk, but they also are of high importance. As their businesses prepare to reopen, internal auditors can use the report for insights into risks and opportunities.
The International Federation of Accountants (IFAC) has issued business continuity guidance for small companies. IFAC notes that small companies have been disproportionately impacted by the COVID-19 crisis. The Small Business Continuity Checklist covers financial and strategic management tasks, and can help businesses identify essential information to remain resilient. For internal auditors working at small companies, the IFAC checklist may provide insights into how their organizations can survive the current crisis and chart a path to recovery.
Just-published guidance from the U.K. on how to cautiously reopen its economy reiterates that employees should continue to work from home when possible, and includes advice on redesigned workspaces and staggered shift systems for businesses that are currently open or that plan to reopen in a phased manner beginning June 1. Guidance for other sectors will be published later, according to this New York Timesarticle. The U.K. government also encourages businesses to conduct risk assessments to determine what measures were needed, and expects firms with more than 50 employees to publish those results.
Last week, the French Data Protection Authority (CNIL) updated guidance for employers relating to the processing of employee and visitor personal data in the context of lifting COVID-19 containment measures, according to The National Law Review. The Updated Guidance (French) reminds employees that they have an obligation to report internally or to public health authorities if they have, or suspect they have, been infected with COVID-19. In such cases, employers may only process 1) the date and identity of the employee; 2) that the employee reported the infection; and 3) organizational measures taken by the employer. For employers that implement body temperature checks at work, they must be manual and there can be no data recorded or reported, or they would be subject to the European Union's General Data Protection Regulation. The Updated Guidance also delves into serology tests, health questionnaires, and business continuity plans.
May 11, 2020
The U.S. federal government's Paycheck Protection Program, intended to support small businesses, may become a financial burden, according to a report issued by the Small Business Administration's (SBA's) inspector general (IG). The report states that SBA's spending rules require 75% of most PPP loans to cover payroll, even though this was not required by the CARES Act. The IG determined that "tens of thousands of borrowers" have used more than 25% of their loans to cover costs such as rent and utilities and that they may be required to repay "the amount of non-payroll costs in excess of 25%" within two years. Furthermore, the report points out that the SBA failed to provide guidance to lenders about prioritizing rural businesses and those owned by women or minorities, which meant many of those businesses failed to receive PPP funds as intended by the CARES Act. The IG report recommends the SBA take several actions to correct the issues.
Businesses are racing to deploy new health-tracking technologies, such as symptom-checking apps and fever-screening cameras, to make it safer for tens of millions of Americans to return to work. But public health experts and bioethicists told The New York Times there is little evidence to suggest that the new tools, which enable employers to amass private health data about their employees, can accurately determine employees' health status or contain virus outbreaks. Internal audit can assist organizations in understanding the risks associated with the introduction of such technology.
In a pre-recorded televised statement, Prime Minister Boris Johnson unveiled a general road map to resuming activity in the U.K. According to CNN, he characterized his plan as a cautious balance between keeping new infections down while easing the economic burden placed on the U.K. The main touchpoints of Johnson's broadcast included 1) a recommendation that people returning to work should avoid public transport where possible; 2) a statement that quarantine protocols for people entering the country by air would come into place "soon;" 3) the introduction of a new five-tier alert system; 4) the replacement of the "Stay at Home" slogan with "Stay Alert;" 5) an announcement that primary schools could potentially open June 1; and 6) an announcement that shops and businesses in the hospitality sector could reopen in July, depending on circumstances.
Worldwide, the tourism industry has been understandably damaged by widespread illness, national lockdowns, flight restrictions, and fear. According to an article in CNN Travel, some countries are looking at creating "travel bubbles," in which governments pair up with one or more nearby countries to allow selective travel between only their locales. Australia and New Zealand have agreed to just such an arrangement once it is deemed safe to do so, and Estonia, Latvia, and Lithuania will open their borders to each other only on May 15. Vietnam and Thailand may follow suit, and Thailand is also considering opening travel to areas that are effectively contained — such as an island. Other countries are looking at opening back up to students or people with so-called immunity passports, which is controversial. According to experts, many travelers may only feel comfortable traveling a short distance, and a recent study of Chinese tourists backs this up. Geopolitical tensions in the wake of the pandemic may also affect travel choices.