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Analysis On How Audit Will Change More In Coming Years?
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The audit of the future will bear little resemblance to the traditional audit CFO’s are accustomed to receiving today. In fact, the way organisations conduct audits will change more in the next 5-10 years given the evolution of technology and analytics.
Let’s talk about the recent trends to see how it is affecting the demography of the audit industry as a whole. In this article, we tried to summarise and analyse recruitment trends in the internal audit recruitment market, compensation, and trends of internal auditors, experience in demand and various other related factors. We are presenting the analysis on the basis of our experience of the market, candidates, client interaction and expectations.
We tried to cover the audit market, especially Internal and IT audit. The things we mainly covered are:
• Recruit budgets
• Current recruitment needs
• Skills, qualities, and experience most in demand
• Views on availability and salary expectations of candidates
• Key recruitment drivers
• Recruitment intentions
Financial Services Is Dominant
Recruitment is ultimately based on confidence and when there are questions over the sustainability of India’s economic recovery, there is little doubt about its effect on the internal audit recruitment market. Demand for internal auditors is mirroring demand for people in the wider economy.
In big companies, internal audit departments are adequately staffed. The financial services industry is the dominant employer of internal auditors followed by sectors like retail, manufacturing, telecom, along with multinational groups. Technology is also coupled with more sophisticated audit approaches, improved audit productivity.
Vacancies Are Increasing
According to the hiring trend of companies and our observation, the number of vacancies in internal auditing is rising. In 2015, 72% of internal audit departments reported they had recruited, or attempted to recruit, in the previous six months. In 2016 the figure was 77%, with the consultancy,banking and insurance sectors leading the way. The comparable number for the recruitment of IT auditors across all sectors was almost identical at 78%.
Business growth and investment are driving internal auditors to demand to result in the creation of new positions. Outstanding vacancies have increased more than the number of overall vacancies, indicating that vacancies are remaining open for longer and proving harder to fill.
Rate Of Placements Is Slow
The recovery in the rate of placements is slower than might be expected. Due to this, there is the increase in the number of vacancies and overall recruitment activity. According to our experience, while candidate salary expectations have moderated, the availability of candidates with the skills companies require is becoming more problematic.
Candidates Are Unwilling To Travel
The other problem comes in sourcing the right candidate is more travel is required from them. Female candidates and candidates having family, health or any other issues are unwilling to travel and thus in spite of having required skills, it is difficult to source them.
Experience Is Less, Earning Is More
In internal audit department, the recent trend is seen as the candidate with the lesser year of experience say, 2 -3 years is drawing a decent package, say, 11-13 LPA. This situation is problematic for the organizations (especially banks) who wants to hire candidates with more experience and less budget.
Banking & Financial Services
We have already discussed the demand from the financial services sector and reported that it remains particularly strong within banking. This demand shows no sign of abating in the immediate future.
The recent changes in the audit leadership of a number of major banks have continued to repeat around the banking recruitment market at more senior levels. Furthermore, regulatory pressures, which manifest in publicized fines and a tougher regime of senior management accountability, ensure recruitment budgets are continuing to grow.
Statistics show that 76% of banking internal audit departments report their recruitment budgets have increased and 92% report they have attempted to recruit in the last six months. Only 8% reported they were unlikely to recruit in 2016. Currently the principal internal audit skills and experience in demand includes capital markets product knowledge, specialist lending, capital, liquidity and funding knowledge, compliance and financial crime, specialist risk areas such as model / quant risk, credit risk and specialist knowledge in relation to areas such as strategy, third parties, security, business continuity and corporate real estate. There is a huge shortage of internal auditors with these skills. As a consequence, banks are becoming increasingly open in their recruitment practices. There is increased interest in more junior candidates requiring formal training and development, together with a relatively new phenomenon, the direct promotion of graduates from the bank in- house training schemes into internal audit.
Salary pressures are growing. Internal auditors with both strong technical and interpersonal skills are commonly offered 20% salary increases to move, only to be counter offered. These offers frequently involve bigger roles.
While asset managers remain active in the recruitment market, our survey indicates that only 11% have benefited from an increased recruitment budget and a relatively high 90% believe that departments are adequately resourced. Given the recent regulatory scrutiny on the sector and the “vast and growing” costs of compliance, there are complaints that excessive regulation is choking the development of smaller companies and putting off start-ups. Recruitment of internal auditors in this sector is currently biased towards replacement hires. However, some departments, as a result of organic growth and increased regulatory burdens, are increasing audit numbers. Highly publicized changes to the pensions industry are in some instances resulting in improved inflows into the retail and indirectly the wholesale funds market. Wealth management and private banks continue to expand their teams in response to increased regulation and economically inspired growth.
Asset managers continue to attract investment bankers with trading experience who are seeking a ‘softer culture’ and sector will see the steady demand for it.
The insurance sector, like banking, appears to be benefiting from increased recruitment budgets. We are able to confirm widespread demand from the insurance sector, with senior positions being rather easier to the resource than junior ones.
Companies are specific in their requirements and there is currently a significant shortage of junior internal auditors with sector experience. There is also a mismatch between the salary expectations of insurance experienced internal auditors coming out of the Big 4 and what companies are prepared to offer. Those companies prepared to consider internal auditors without specific sector experience are able to recruit from a deeper, more intrinsically talented pool of auditors.
Demand from commercial companies strengthened during the course of 2015. In spite of internal auditors becoming more confident and willing to move, commercial companies experienced difficulties recruiting, which outside of the public sector, is the highest of all the sectors covered by the survey.
Audit seniors with 1-2 years PQE are in highest demand and particularly those who are qualified accountants who can fit into relatively flat structures and operate independently with minimal management oversight. These vacancies are the most difficult to fill.
IT Audit now represents a significant part of the wider internal audit recruitment market. Demand for IT auditors is currently being led by the banks and their need for business focused IT auditors who understand business processes as well as the technology involved. These IT auditors are commonly required to work on integrated audits and need well developed interpersonal and business skills to enable them to deal with non-IT stakeholders. There is also a greater demand for, or at least willingness to consider recruiting, IT practitioners who do not have an audit background but have the right technical and product skills.
Demand from the wider commercial market remains strong but is being swamped by the financial services and specifically the banking sector. The consistently higher salaries on offer in banking are resulting in an increasing number of IT auditors moving from commerce into larger and better-paid departments in financial services. The Big 4 and smaller consultancies are both keen to recruit and retain IT, auditors. More of their graduate intake is employed in IT audit and they are also recruiting from overseas. Retention bonuses are becoming common.
We anticipate that automated auditing/data analysis will be a key focus of demand. This will most likely provide a route for internal auditing for people currently working in data analytics or MI analysis.
The demand from the consultancy sector is currently stronger than it has been for a number of years. Lack of staff would appear to be compromising the sector’s ability to deliver services, which puts pressure on existing staff, who then become more likely to look beyond the consultancy sector. The Big 4, in particular, are working hard to retain their existing staff by offering retention bonuses, internal secondments and enhanced salary increases on promotion. Within the Big 4 demand stretches across all levels, while the mid tier consultancies are currently concentrating their recruitment at Executive / Assistant Manager level. In spite of the recruitment and retention challenges, consultancy sector is facing the lack of qualified and skilled candidates.
The Contract Market
26% of internal audit departments either significantly or routinely used external resources to achieve their audit plan. Demand for contract internal audit staff grew during 2015 and is at a current high. Demand is coming from all financial sectors, including banking, asset management (in particular governance, front office, and compliance areas) and insurance. Demand is being driven by the need to back-fill permanent headcount, particularly where departments are struggling to recruit permanent staff. Demand is also coming from the need to up-skill under-performing functions where good quality contractors are often used for quick fixes. This can be an efficient way to reshape a department and provide time to recruit permanently.
As might be expected, there is also an upturn in demand for contractors with specialist skill-sets, particularly treasury experience from the financial services sector. This increase is most likely the result of increased capital and liquidity reporting requirements/regulation being imposed on the banks by the CA.
Economic Growth To Be Reflected In The Recruitment Market
The Indian economy is growing strongly and remains a bright spot in the global landscape. There are positive indications that business investment, is now making a healthy contribution to the growth of the economy.
The growth in employment in the wider economy is being fully reflected in the internal audit recruitment market where the total number of internal auditors employed rose. This mirrors the growth in recruitment budgets of internal audit departments. Looking ahead, internal audit departments anticipate that they will need to recruit in 2017-18. This is up from 2014-15. Business growth and development and the need to replace internal auditors are the anticipated key drivers.
While the internal audit recruitment market is becoming increasingly biased towards the needs of the financial services sector, it is fuelling more widespread demand for internal auditors. Standards are rising and the majority of Heads of Audit are experiencing in securing the quality of audit expertise they require.
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