Lessons learned: What do auditors do during a recession?

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Auditors play a critical role within their organizations. They are especially vital during economic downturns. More than inspectors of financial records, they help organizations better manage risks and bolster internal controls.

Unfortunately, auditors might not always have the reputation they need to survive in a declining economy. We saw it in the recession of 2008—organizations trimmed auditing departments to cut costs.

We learned some important lessons from 2008. Let’s draw on that experience and examine why internal audit (IA) should be the last place organizations scale back. Additionally, we’ll talk about what auditors can do to establish their value.

Auditing and resiliency

Recession affects many facets of business, including customer demand, cash flow, internal control processes and security. Those all call for an auditor’s keen eye.

Under the watch of internal auditors, organizations can better anticipate and plan for changes on the horizon. More time to plan means better risk mitigation.

Businesses gain flexibility so that they bend but don’t break. They become more agile and better capable of evolving with changing times. In short, organizations with a strong auditing department are more resilient.

Risks without auditors

Organizations need internal auditors to objectively and independently assess ever-increasing risks. They can gauge internal controls and financial performance, identifying potential pitfalls before they become significant problems.

Businesses combat concerns all the time. However, they are more severe during recessions without an auditor to call attention to and reinforce weak spots. These concerns include:

• Credit lending – Borrowing is less probable and more expensive.
• Liquidity – Strapped for easily accessible cash and capital, organizations invest less, resulting in a snowball effect of declined investment, production and sales.
• Market volatility – Erratic stock prices and interest rates put pressure on a company’s financial performance.
• Security breaches – Remote workers on less secure servers and thinned departments with fewer control measures can corrupt systems.
• Operational inefficiencies – Poorly built or executed processes, incompliance and external cyber threats break down a company’s operations.
• External security threats – Ill-intentioned actors looking for easy entry points can worm their way into less secure systems.
• Process design flaws – Weak processes can cause something as unintentional as excess waste or as deliberate as employee fraud.
• Supply chain disruptions – As production and distribution pipelines experience interruptions, delays and shortages can ultimately result in lost revenue for the organization.

Countless benefits

In addition to mitigating risks, auditors can implement and execute many invaluable services to help their organizations thrive in tough financial times. For instance, they can perform target audits on cash management, accounts payable, collections and supply chain management.

They can discover ways to improve cash flow and optimize vendor discounts, like early payment credits. Furthermore, the internal audit department (IAD) can decrease a company’s credit risks with vendors.

Broadcasting value

Auditors must realize their full potential and ensure their leadership does, too. They must insert transparency and proactivity into their daily routines to show themselves as the indispensable department they are.

Let’s look at how IA can be more transparent and proactive so that others see what they can offer.

Communicate to advocate

Organizations tend to silo the internal auditing department. Sadly, sometimes, leaders are unaware of their IAD’s capabilities.

The solution is for auditors to apply themselves. Speak often with senior leadership about helping your organizations in unique ways. Discover what worries your leaders most. Then, tailor your services to meet their needs.

Highlight your unique abilities that make you a stand-out employee. Are you the department’s risk expert? Do you have new certifications or skills that no one else has, like cybersecurity or data analytics? Perhaps your Six Sigma certification is what your organization needs to trim excess spending and reduce waste.

Educate

Educating your colleagues and leaders is a proactive approach to improving your organization’s processes. Additionally, it sheds light on what you do and how you can better serve other departments.

Consider the following ideas to improve your visibility and show your versatility:

• Speak up more during company meetings.
• Create short, educational internal newsletters or webinars on frequently asked questions or interesting facts that could enhance someone’s performance.
• Offer risk assessment interviews.
• Loan team members to thinned-out departments. (Remember, you have specialized knowledge in your organization. You may be capable of assisting other departments, but they may not necessarily be able to return the favor.)

Helping puts you in a prime position to pass along knowledge and wisdom regarding best practices.

Update processes

Take charge of uncovering vulnerable processes, including recession-related risks. Update your organization’s plans to reflect newer, better practices for securing weak areas.

Difficult economic times cause an upturn in deceitful acts. Employees and leadership might feel pressured to fudge numbers to improve the company’s financial outlook. Diminished security measures from staffing shortages create tempting opportunities for internal fraud. Proactively increase monitoring and testing to reduce fraud.

In addition to focusing on fraud, IADs can change the audit risk assessment process to match the changing times. For example, auditors can focus on inspecting the security of remote work employees as they log in to company platforms using less secure private or public networks.

Certifications and CPE learning

Auditors can work towards more than 20 different certifications. If the accreditation adds value to your department and career, go for it.

Take advantage of your accounting membership organization’s continuing education courses. Check out The Ohio Society of CPAs to discover CPA continuing education courses in Ohio. Many courses are online and on-demand, helping you fit education into your busy schedule.