In the early days of the pandemic, many companies thought it would just be a few weeks until COVID-19 was contained, everyone could return to the office, and the world would be back to normal. No one could have imagined what was to transpire over the next two years.
The remote work environment forced everyone to change the way they work, and internal audit departments were no different. Performing walkthroughs, obtaining audit documentation, and meeting with audit clients all needed to take place virtually. Internal audit leaders were faced with how to adequately adjust and complete their audit plans and manage their audit teams remotely.
Fast forward to 2021, and many companies have asked employees to start returning to the office. Audit leaders now have a new challenge to managing their staff talent: staff who may not be motivated to come back to the office or who leave as part of what the media is calling “The Great Resignation.”
This new talent environment puts internal audit functions in a challenging position where employee turnover is an increasing risk to completing audit plans and providing adequate risk coverage. Talent management has been one of the top 10 risks in The IIA’s OnRisk report for two years in a row. The 2021 report discusses the issues that the pandemic has created, such as workforce reductions and furloughs, but also highlights how the pandemic has made remote work more appealing to employees.
Now that auditors have proven they can execute their work from anywhere, they are expecting more options to work from home and have more opportunities to leave their current jobs if they aren’t happy. This raises several new talent management risks for audit leaders.
1. Loss of Expertise
Many internal audit functions rely on the subject matter expertise of their audit teams to provide adequate risk coverage in their audit plans. Sometimes this expertise is specialized and difficult to find. It also can be expensive to both acquire and retain. Loss of key expertise may render completion of audit engagements difficult or impossible with existing staff.
But many risks come with a corresponding opportunity. The expanded market for talent in a remote environment gives audit leaders access to talent pools that were not available before 2020. For organizations in high-cost-of-living areas, this represents an opportunity to find talent with lower compensation requirements. Small internal audit functions that were unable to afford or retain talent because of competition with large, better-funded organizations in their local market may now be able to find people by looking in lower-cost markets.
2. Disruption and Delays in Audit Cycle
The potential for accelerated employee turnover can impact the ability to complete projects timely and can negatively impact audit cycles. That situation results in fewer bodies to complete the work, as well as a steep learning curve to replace the institutional knowledge lost when an employee leaves.
To address this problem, audit leaders could use guest auditors to retain a level of subject matter expertise, or hire short-term, contract auditors who are experienced in a similar industry or business. Alternatively, they could descope certain areas or defer audits.
3. Higher Administrative and Professional Services Costs
Replacing employees results in increased costs associated with acquiring and onboarding new employees. These costs may include recruiting fees, training, background checks, drug testing, and other administrative costs.
Investments in training and other talent development may need to be made all over again when an employee leaves. Also, internal audit may need to bring in consultants or professional services firms to fill the gap when employees leave and cannot be replaced timely, especially for audit work that is required by law or regulation. In such cases, audit leaders need a good network of potential auditors who can fill positions, or they should find a resource inside the organization who could job share or have a temporary assignment to help complete audits.
4. Leadership Distractions
While managing employee turnover is a normal part of audit management’s role, excessive change can be a huge distraction from leaders’ other major responsibilities. With distraction comes the risk that audit quality and conformance with professional standards also could suffer.
The silver lining is that some audit staff with aspirations of pursuing audit management roles could get opportunities to help fill the gap and gain valuable experience. Audit leaders could give small projects or delegate some managerial tasks to prepare existing staff members to fill open positions and advance within the department. They also could suggest that staff members obtain certifications to broaden their skills.
5. Staff Burnout
In an environment of excessive turnover, the demands on audit staff are likely to be greater. Individuals will respond differently to added job stress. In the near term, some will view increased demands as an opportunity to demonstrate their willingness and ability to be a team player and gain new experiences. Others will be less motivated to pitch in extra effort.
In the long term, a protracted environment of turnover may result in audit staff burnout and low morale. While productivity may initially increase because of a “circle the wagons” rally cry from audit leadership, at some point these types of artificial productivity bumps are not sustainable and the audit plan will suffer.
To address morale and burnout, audit leaders should communicate openly with the remaining staff members, acknowledging the situation and showing appreciation for their efforts. This may include offering short-term incentives such as comp time, or holding group events such as team lunches and happy hours. Team building is important to keep the remaining staff intact and motivated.
Being Proactive in a New Paradigm
As The Great Resignation redefines how and where employees work, audit leaders must recognize this new dynamic and its impact on how they manage talent. They also should anticipate how employee mindsets and expectations may have shifted. Those who are reluctant to accept this paradigm shift are likely to experience substantial consequences related to the five talent management risks. Those who are proactive and have the vision to exploit the opportunities this change represents may find exciting and innovative ways to develop their talent and improve their audit services.
Audit leaders should ask their staffs about their preferences and realize how important these new work styles are to job satisfaction. They should understand how the various models of remote work — such as work from home, work from anywhere, and hybrid — factor into completion of audit engagements. Finally, they should calibrate the work style expectations of their staffs with the policy of their organizations, requirements to complete audit engagements, and risks related to talent acquisition and retention. Considering these factors will help audit leaders develop a talent management framework that meets the audit needs of their organization.