As the COVID-19 pandemic extends further into the second half of the year, many of us have fallen into a grudging acceptance that disruptions to our home and work routines, once viewed as temporary, could continue indefinitely. It is safe to say that reactions to the global health and economic crisis have unsettled lifestyles, stretched resources, and tested patience and process.
Efforts to manage health and business risks associated with the pandemic have seen varying levels of success. There are differing opinions as to which impacts may permanently change our lives and which are temporary and will disappear as the deadly virus fades in the wake of a vaccine. However, one thing the tumult of this historic disturbance has reaffirmed for me professionally is the value of building strong relationships with our stakeholders.
There is evidence — anecdotal and statistical — that points to a correlation between the strength of stakeholder relationships and the level of involvement internal audit functions had in responding to the pandemic. I believe those who invested in establishing and nurturing relationships with management and boards before the pandemic were more likely to be actively involved, while those that didn't sat on the sidelines.
Part of this conclusion is grounded in common sense. Particularly in times of crisis, leaders are more likely to turn to those they trust. If audit leaders do not invest the time and energy to build those trusting relationships, there is little chance their assurance and advice will be heeded when catastrophe strikes.
Building strong relationships also requires a commitment to understanding the organization's mission, strategies, and goals. Internal audit leaders who grasp the complexities of management also are more likely to be viewed as valuable and reliable allies in a crisis.
Finally, understanding and responding to stakeholder expectations is critical to building relationships, as well as fundamental to doing our jobs well. What's more, those healthy relationships with stakeholders position internal audit to know how those expectations change and evolve over time. In my book, The Speed of Risk, I offered readers four keys to managing a stakeholder expectations lifecycle:
I mentioned evidence to support my premise earlier, so let's look at what we've learned from chief audit executive (CAE) Quick Polls conducted by The IIA's Audit Executive Center (AEC) since the pandemic's outbreak.
Quick Poll No. 2, which reflected responses from North American CAEs from mid-April, suggests stakeholders welcomed input from internal audit and looked for new ways to leverage the skills and insights it offered. The survey results provided an in-depth look at how internal audit functions modified audit plans to identify and mitigate pandemic-related risks. From the report:
"Overall, internal audit leaders are demonstrating flexibility and agility in response to the dynamic risk environment caused by COVID-19. Three-quarters of internal audit functions have updated their audit plans. Two-thirds are identifying emerging risks, and over half have already updated their risk assessment."
The survey also looked in detail at the kind of work internal audit functions were doing in the immediate aftermath of COVID-19 reaching pandemic status in mid-March. Results show many internal audit functions were operating nimbly, with the flexibility needed for an "all hands on deck" approach. From the report:
"Where internal audit leaders are demonstrating agility is noted in the fact that nearly 4 in 10 respondents have added new engagements due to COVID-19 and 4 in 10 have redirected staff to put aside their normal audit work to assist their organizations in this time of crisis by doing non-audit work."
The survey reflects an impressive level of stakeholder trust in internal audit early on, as organizations scrambled to manage myriad risks heightened by the pandemic. However, as the initial response gave way to a focus on returning to some level of normalcy, internal audit's involvement appeared to wane.
Results from Quick Poll No. 3, which was conducted in early May, show a disturbing lack of involvement for many audit functions as organizations weighed the pros and cons of getting employees back into the workplace. In a May 11 blog post, I wrote:
"I find it troubling that too many respondents could not provide an opinion on the readiness of their organization for about a third of the factors examined. This signals that a large number of internal audit functions are on the outside looking in on some of the biggest risks facing their organizations. This is unacceptably high, considering risk assessments should have been updated to cope with the pandemic crisis.
"This is not to say internal audit is doing nothing. Nearly three-quarters of respondents noted that they are identifying emerging risks and updating risk assessments. Two-thirds are performing consulting activities in preparation for organizations returning to the workplace. However, few internal auditors are performing reviews of certain critical risk areas."
In the post, I also addressed the potential long-term implications of failing to provide timely assurance in this key risk area:
"There may be times in the coming months and years when consequences of the pandemic — foreseen and unforeseen — will lead to organizational failures and enhanced litigation risks. Invariably, the question will be asked about internal audit's involvement. We cannot answer, 'We didn't know' or 'We weren't involved.'"
Quick Poll No. 4, conducted in early June, offered additional evidence to support the benefits of strong stakeholder relationships. That survey found anticipated cuts in internal audit budgets were meaningful but could have been worse, considering the lingering effects of the pandemic and related economic downturn. What's more, those cuts in budget were not expected to translate to significant cuts in staffing. I wrote in a June 15 blog post:
"A deeper dive into the latest AEC survey data shows anticipated budget cuts will be focused largely in three areas: travel, training, and outsourcing. Sixty-five percent of survey respondents expect significant decreases in travel budgets, and 87% expect at least some cuts. This reflects not only the opportunity to reduce expenses during the dramatic economic slowdown, but also that internal audit practitioners are learning to operate remotely."
Well more than half of the CAEs who responded to the survey said they anticipated more frequent risk assessments and audit plan reviews over the ensuing 12 months, as well as more flexible audit plans. However, the same survey found only 34% of respondents expected to increase audit committee communication. I wrote then:
"We are squandering a valuable opportunity if two-thirds of respondents expect to go back to the status quo on speaking to our stakeholders post COVID-19. Internal auditing's response to the pandemic has showcased its ability to provide great value to organizations in times of crisis, not only in its core competencies but also as a trusted advisor. We must leverage this opportunity by expanding the conversation with audit committees and management to strengthen our newfound and well-earned seat at the table."
Overall, results of the surveys paint a decidedly mixed picture of how internal audit has fared thus far in response to the pandemic. During more than 15 years as a CAE, I found that my stakeholders were much more apt to reach out to me in crisis if I had built strong relationships rooted in trust before the onset of the crisis. However, it's never too late to cultivate trust in any relationship. If your phones, texts, and emails are silent, that's a call-to-action to reach out from your end.
As always, I look forward to your comments.