Benchmarking the internal audit profession in 2022

Many internal audit departments have begun to evolve in recent years. Providing assurance remains the function’s primary role, but internal auditors are now increasingly expected to offer insight into emerging risks and help their organisation navigate these challenges by making more informed decisions.

 

Now more than ever, internal audit is seen as a forward-looking function. A value-add department, rather than a cost centre.

 

At Barclay Simpson, we recognise that internal audit teams are changing, as are their resourcing needs. Finding high-quality candidates who are the right fit for your organisation is rarely easy, and it’s only becoming more difficult as the internal audit profession – and the UK more broadly – struggles with ongoing talent shortages.

 

To understand how to better support employers with their internal audit recruitment, it’s important for us to stay informed on the needs of Chief Audit Executives (CAEs) and how they’re currently meeting them.

 

In keeping with this, we were delighted to recently partner with the Chartered Institute of Internal Auditors (Chartered IIA) on its inaugural internal audit benchmarking report. The aim of the report is to provide powerful data, which can be used to compare different audit functions with their peers.

 

Collectively, we surveyed hundreds of CAEs across a range of sectors and organisation sizes in the UK and Ireland to find out more about the state of play of internal audit in 2022.

 

What does a ‘typical’ function look like? How many internal auditors do companies have? Who do CAEs usually report to? And what is the average size of department budgets? The benchmarking report sought to answer all these questions and more.

 

We also wanted to learn more about the current skills and resourcing needs of internal audit functions, as they look to strengthen their teams to face emerging risks and new challenges. Here are some of the findings from the report.

Internal audit teams looking to grow

The benchmarking survey showed that a large majority of internal audit teams are either growing or maintaining current headcounts, with just 4% intending to reduce the number of full-time equivalents (FTEs) within their department in 2022.

 

Roughly a third (35%) were looking to expand their teams this year, and while 61% said their function would stay the same size, it’s possible that constrained budgets – rather than a lack of need – remain the main hurdle to hiring more staff.

 

More than a quarter (26%) of CAEs claimed their budget would have to be increased by at least 10% to be sufficient to deliver the level of service expected by the board, key stakeholders and the function itself. In total, 36% said they needed bigger budgets to fulfil their duties, which the Chartered IIA describes as “concerning”.

 

“If CAEs are not able to secure the budget or staff required, how is this affecting their performance? And what actions are they taking to remedy the situation?” the institute stated.

 

“We would urge audit leaders to regularly communicate their resourcing needs to the audit committee or board to ensure they can be appropriately met.”

 

One of the ways that internal audit teams are currently filling skills gaps is through co-sourcing. Most organisations (40%) spend between 1-10% of the annual audit budget on co-source, but this figure is much higher for some – 7% spend more than half of their entire year’s expenditure on these services.

 

Notably, it is technology-related areas where organisations typically need support. The most commonly cited skills and subject matter expertise utilised from co-source partners were technology audit delivery (27%) and cyber security assistance (27%). Support for ESG activities (10%) and data analytics (10%) was also popular.

Technical skills in high demand

The benchmarking report reinforces a trend that our consultants have been seeing for some time – the realignment of skillsets within internal audit, as demand for technical capabilities rises.

 

To meet rising expectations, internal audit teams must possess a diverse and ever-expanding set of skills, many of which are increasingly technical. Professionals may need to be familiar with sophisticated technologies, including artificial intelligence, data analytics and robotic process automation, as well as numerous consumer-facing digital assets.

 

A respondent to the benchmarking report perhaps summed it up best, saying: “All internal auditors need to be technology literate, as digital and social media are integral to most topics now reviewed.”

 

In our recently published Internal Audit Salary Guide for 2022, we revealed how a growing number of small and medium-sized organisations are starting to hire their first IT auditor, for example. Many other firms are continuing to grow their existing IT audit capabilities even further.

 

With the release of the benchmarking report, we can begin to track this trend in real-time. Today, most internal audit teams (62%) still dedicate 10% or less of their budgeted FTEs to IT audit. However, a sizable minority of 14% focus more than a fifth of all their resources to this area.

 

Even organisations without in-house capabilities recognise the growing importance of having access to IT audit skills.

 

“In my company, we do not have a dedicated IT internal audit team,” one respondent commented. “This is an area that I’m concerned about.”

 

We will be interested to see how these trends develop in subsequent years, with the Chartered IIA intending to release a benchmarking publication annually in the future. As such, we hope this report is just the first of many.

Inclusion and diversity matter

For us, a key positive from the benchmarking findings is that inclusion and diversity (I&D) appear to be valued within internal audit departments, with a clear majority of respondents stating that their department is diverse in terms of race, gender and other protected characteristics.

 

When CAEs were asked to describe the I&D measures or polices in place within their departments, the most frequently cited responses were:

• Hiring practices have been specifically designed to eliminate bias (27% of respondents)
• Pay equity exists across internal audit (26%)
• Minority groups are represented in a way that is proportionally reflective of the UK and Ireland’s wider make-up (17%)

Gender diversity within internal audit is particularly encouraging – nearly three-quarters (74%) of teams maintain a gender balance that does not exceed 59% in favour of any one gender.

 

However, it appears there is room for improvement at the senior level. When it came to the respondents themselves – most of whom were CAEs or equivalent – only 38% identified as female.

 

“We hope this percentage continues to increase in subsequent surveys, as more women are promoted into leadership roles,” the report states.

 

Here at Barclay Simpson, we agree and hope future editions of the report continue to show positive change. Although, we were nevertheless very pleased to see that 1% of the respondents to our benchmarking survey identified as transgender.

 

This suggests that the number of trans people at senior levels of internal audit is broadly representative of the wider community, which is great news to hear.

Internal audit teams in 2022 and beyond

A benchmarking report wouldn’t be a benchmarking report without some comparative data. So, what does a typical internal audit function look like today?

 

A few patterns did emerge from the report’s findings. For example, the financial services sector was the most well represented industry by a wide margin:

• Financial services (33% of respondents)
• Central and local government (10%)
• Education (7%)
• Retail (5%)
• Utilities (5%)

In terms of department size and budget, over half (53%) of internal audit teams had between one and five auditors, with 69% stating that their budget is less than £1 million a year. For seven out of 10 respondents, their budget also represented less than 0.25% of their organisation’s total annual revenue.

 

CAEs most commonly (54%) report to the Chair of the audit committee – which is best practice to uphold the objectivity and independence of the function – while three-quarters of all audit leaders earn a base salary of £150,000 or less.

 

More than a third of CAEs have been in their post for at least seven years, although 16% reported being hired less than a year ago. This is a relatively high number, which we believe reflects heightened recruitment activity at the moment, as organisations ramp up hiring in the post-pandemic period.

 

To summarise, then, internal audits teams are more likely to be relatively small, with six-figure budgets and operating in either financial services or the public sector.

 

Of course, this does not reflect all internal audit teams. We recognise that every organisation is different, with unique priorities and challenges.

 

That’s why defining a ‘typical’ audit function is always going to be difficult, so we aim to help you build teams that are the right fit for your organisation, whatever its requirements are, typical or otherwise.

 

Our consultants will work closely with you to find high-quality candidates from across our broad network, focusing on your specific values and needs.

 

Please get in touch with us today to find out how we can help.