Are internal auditors prepared for a no-deal Brexit?

Last night, prime minister Theresa May and the other 27 EU leaders agreed a plan for the UK’s exit from the bloc. After months of negotiations, a deal is in place with which May and the EU are both largely happy.

UK Parliament is a different story, however, as MPs from across the political spectrum must now back the deal before the Brexit deadline on March 29th. Early indications suggest May will have an uphill struggle, even among her own party, with rebel backbenchers recently launching a failed attempt to oust the PM.

Even excluding naysayers within her own party, May is unlikely to receive essential support from Labour, the Lib Dems, the SNP and the DUP. All have claimed they will vote down the agreement. The PM is now embarking on a two-week mission to sway wayward MPs to her side, with a final vote likely to be on December 11th.

— UK Prime Minister (@10DowningStreet) 23 November 2018

How will this affect internal audit departments?

Brexit preparedness among internal auditors is perhaps less far along than many businesses would have hoped as we approach the final few months before the split.

In fact, 37 per cent of chief audit executives (CAEs) claimed their organisation has performed no Brexit scenario planning, according to an October survey from the Chartered Institute of Internal Auditors (IIA). This is despite 82% admitting they believe Brexit-related risks will impact their business.

The IIA’s results match our own research in this area. Our latest Internal Audit Market Report, which will be released early next year, also found 37% of firms were yet to start planning. We were surprised by the result this close to deadline and believe smaller businesses may not be as well prepared for the potential fallout of Brexit as larger firms.

Dr Ian Peters, chief executive of the IIA, said organisations must start preparations immediately, both for ‘deal or no-deal’ scenarios.

“We urge senior management and boards to make sure they are working closely with their internal audit function to ensure their organisation is adequately managing and mitigating the high level of risk associated with Brexit,” he said.

What difficulties are businesses facing with preparations?

Respondents to the IIA survey cited a number of challenges regarding scenario planning for Brexit. These included:

• Lack of clarity from the government on a deal (79 per cent);
• The number of potential scenarios to prepare for (68 per cent); and
• A lack of information about Brexit (55 per cent). 

Only 15 per cent of CAEs believe their firm has received an appropriate level of engagement from the government to help them prepare for the UK’s separation from the EU.

Brexit is also having a cross-organisational impact, with 59 per cent of respondents saying other key risk areas of their company are affected. Regulatory uncertainty was the primary area (69 per cent), but more than six in 10 CAEs said they are also experiencing recruitment difficulties.

This doesn’t surprise us. Our own survey results show 43 per cent of candidates are feeing less secure in their jobs due to Brexit, which may make them hesitant to move unless a new role offers reliable job security.

Meanwhile, the number of non-British citizens across internal audit departments slumped from 37.5 per cent to 27 per cent between 2017 and 2018, respectively. This is a clear indication that UK businesses have become less attractive to candidates on the continent, exacerbating skills gaps.

Preparing for every scenario

A no-deal Brexit is still very much on the cards. May faces overwhelming opposition to the proposed agreement, with many of her political opponents manoeuvring for either a second referendum or even a general election. We’ll know more next month, but if MPs shoot down the deal, the UK faces several more months of uncertainty as politicians scramble to avoid a hard split.

Our research has shown a growing number of internal audit departments are turning to interim resource to fill skills gaps in the meantime. Finding subject matter expertise was the main reason for using contractors among 36 per cent of teams in 2018, although project work (18 per cent) and extra BAU support (10 per cent) were also popular.

Ultimately, Brexit continues to have an impact on recruitment, which is why internal audit hiring managers should seek support if they are struggling to source the right candidates. Whether you need supplement permanent headcounts or secure interim staff for temporary tasks, please get in touch with me today on 020 7936 2601 or via email at dh@barclaysimpson.com.

Image credit: Ed Robertson via Unsplash