Vacancies Sharply Down
| Internal Audit |
Jun 2007 |
Dec 2007 |
Jun 2008 |
Dec 2008 |
Jun 2009 |
| New vacancies |
89 |
84 |
79 |
58 |
29 |
| Closing vacancies |
52 |
39 |
37 |
23 |
17 |
| Candidates registering |
322 |
312 |
356 |
242 |
226 |
| Defensive registrations |
16% |
17% |
19% |
28% |
23% |
| Overall salary increase |
13% |
12% |
12% |
11% |
11% |
- The number of new vacancies in the last six months fell to 29. Compared with the same period a year ago, the rate at which vacancies are being created has fallen by 65%.
- The closing number of vacancies, at 17, which is a snapshot of the number of vacancies at the end of June 2009, is over 50% down on the previous year.
- Candidate registrations, although broadly consistent with the previous six months, were down on the comparable period in 2008.
- Defensive registrations were also down on the previous six months but up on the comparable period in 2008.
- The average salary increase achieved by internal auditors changing jobs was 11%. This is the same as the previous six months and only slightly lower when compared to previous years.
Market Commentary
The global economy is in recession and the path to sustainable growth in the UK remains uncertain. Whilst green shoots may have been spotted, the financial crisis has a long way to go before we have a clear view of what the future holds. Employment is a lagging indicator and for many it will no doubt feel like a recession until unemployment starts to fall. However, given the uncertain economic backdrop and the unprecedented contraction in the economy, the internal auditing profession is having a relatively good recession.
As the statistics show, the rate at which new vacancies are being created is down by 65%. For every three new vacancies in internal auditing last year, there is currently only one. The pattern is broadly consistent across all business sectors and is replicated not only throughout the UK, but in the three international areas that Barclay Simpson covers: Europe, Middle East and Asia Pacific. Anecdotally, we understand that North America is no better.
The number of outstanding vacancies compared with the same date in 2008 has fallen by 54%. Whilst this may seem a little more favourable, it includes difficult to fill vacancies that may have been open for several months. Stripping these out, the number of outstanding vacancies is consistent with the fall in vacancy creation. The demand for internal auditors is the weakest it has been since 1991.
However, against this, redundancies are lower than we would have expected and are principally the result of either business failure or merger. Whilst we would have every expectation that redundancies would be lower than in the last major recession in 1991, redundancies in the last six months are in fact lower than in any of the economic slowdowns that have punctuated the last dozen years. Based on our survey data, internal audit employment is holding up surprisingly well.
| |
June 2008 |
Jun 2009 |
Change |
| Budgeted numbers employed |
682 |
661 |
-3% |
| Actual numbers employed |
645 |
644 |
0% |
Not surprisingly, the budgeted number of internal auditors has fallen. Some departments have become smaller as a result of business closures. However, as outstanding vacancies have been filled, the number of internal auditors employed has stayed the same, which is not what might be expected in a deep recession. It is clear that companies are loath to make redundancies in internal auditing and, wherever possible, have been filling outstanding vacancies. For many internal audit departments, the recession is throwing up new opportunities as they become more involved in risk and cost reduction programmes.
In the present market, for those who have been made redundant, the major obstacle in finding another job is not competition from other internal auditors, but the lack of vacancies. In fact, those companies with vacancies are not necessarily finding it easy to fill them. This is partly due to inflated expectations. There is a recession and, not unreasonably, internal audit managers believe that after years of candidate shortages, they now have the opportunity to recruit their ideal candidates.
They are also working in a corporate environment where any external recruitment is being conducted on a highly selective basis. The authority to recruit externally has to go through higher levels of ratification and is required to demonstrate to a wider audience that they are recruiting people who closely meet the requirements of the job specification. Even though the standards of internal audit recruitment have been increasing for a number of years, it was not uncommon for compromises against the ideal specification to be part of the recruitment process. Those compromises are currently less forthcoming.
Whilst there is competition, it is heavily made up of people who are being forced through redundancy, or its threat, into the recruitment market. Their interest is simply to secure another position. Understandably, many good internal auditors believe it is too risky to change job and are staying with their existing employer. This view is a triumph of perception over reality. Any internal audit department that is recruiting is doing so in the knowledge that the economy is in recession. Unlike last year, when changing jobs was considered safe, any potential damage to a company’s business prospects are already clearly visible.
One major difference with previous slowdowns has been the behaviour of the Big 4 and other internal audit service providers. As we have regularly written, the number of internal auditors they now employ and the ubiquitous nature of their work throughout the economy, results in them having huge influence in the overall tone of the recruitment market. For example, as a service provider, given present economic conditions, a 10% reduction in staff, which would be comfortably within the bounds of their previous staff cut backs, would flood the recruitment market with internal auditors. To date, redundancies from the sector have been comparatively low.
For many internal audit departments looking to recruit internal auditors who meet all their expectations, recruitment remains a frustrating experience. Unfortunately it is even more frustrating for those internal auditors who do not meet their expectations. They are finding little interest from the far lower number of internal audit departments that are actively looking to recruit.
Analysis By Sector
Here are some observations and conclusions by market sector:
Multi-National Groups
We include a section on the internal audit departments of multi-national groups based in the UK as they are not dependent on the prospects of the UK economy.
Outside of the US car industry and unlike financial services, there have been no major corporate collapses and certainly none that have impacted the internal audit recruitment market. Unfortunately, as these multinational groups adapt to a smaller world economy, they have been steadily reducing their external recruitment. Multi-national groups almost by definition have a broad spread of interests and deep human resources. They are more able to transfer resources internally than smaller groups and can therefore more easily withdraw from the recruitment market.
Demand for internal auditors from multi-national groups is currently at levels that are without precedent. If there is an upside it is clear that they are not forcing internal auditors into the recruitment market. Redundancies are at surprisingly low levels.
No doubt as they complete their corporate reorganisations and adjust to a low growth environment they will return to external recruitment. However, that is unlikely to be before our next market report in six months time.
The City and Financial Services
The City represents the epicentre of the current economic travails. Within banking, redundancies as in other sectors, have been primarily limited to those institutions that have failed or been reduced by events. There are pockets of rationalisation and clearly some banks have been using the present environment as a pretext to dispense with underperforming staff. Vacancies remain at historically depressed levels with little evidence of any improvement. The main bulk of the vacancies in the sector are concentrated in a small number of large banks. There are limited numbers of senior roles appearing, primarily in private client and fund management. There are also vacancies requiring both strong internal audit and regulatory experience that remain difficult to fill.
Demand from the insurance sector, although subdued against recent historic measures, remains comparatively strong. Demand has been notable from the Lloyds market where companies are continuing to develop their governance structures. Solvency II is becoming a common requirement and, with an October 2012 deadline, it has the potential to increase demand in the same way that Basel II did in banking.
Demand from mortgage lenders and building societies remains subdued.
Commerce
Commerce covers a broad swathe of companies operating in the UK outside of financial services. Corporate failures and significant rationalisations have resulted in redundancies. However, given the scale of the economic contraction, to date they are lower than we would have anticipated.
The sectors that have been worst hit are non food retailing, media, transport, distribution, construction and leisure. Demand has come from telecoms, technology, energy and FMCG. Some companies in food retailing and the FMCG sector are growing their corporate governance functions and have been actively recruiting internal auditors. Even in recessions, some companies benefit not only in relative but also absolute terms.
There is little doubt, given a six month time horizon, that demand for internal auditors from commerce will remain subdued and there will be further redundancies. Equally, however, companies have aggressively cut costs and the reduced internal audit head counts that over time occur naturally ultimately need to be replaced. The capacity for commercial companies to do this internally remains limited. If they wish to retain a viable internal audit department, they will need to recruit externally.
Public Practice
As we have reported earlier, the Big 4 and practice firms more generally have not made the redundancies we might otherwise have expected. It is clear they have learnt from their experiences of downturns during the last ten years. Previously they have reacted by making redundancies, only for demand for their services to quickly recover. They have then needed to recruit internal auditors within a very short period, incurring both the real and opportunity cost of redundancy and recruitment. By contrast, on this occasion, when demand for their services has no doubt fallen, they are broadly seeking to retain staff. Their clients are benefiting from lower effective charge out rates either directly or by using more qualified staff than they would have otherwise.
There has been limited public sector recruitment by the Big 4 and specialist roles by mid tier practices. Smaller practices and audit consortia have sought to benefit from the downturn by recruiting staff with skills and experience they might not otherwise have been able to attract.
Any form of broadly based recruitment is unlikely during the remainder of 2009 and redundancies will continue to remain a threat. Whilst there is likely to be a seasonal bounce in demand from NHS consortia this will be predominantly for contract rather than permanent staff.
Public Sector
The public sector is not proving to be recession proof. Despite additional demands from management, mainly for their existing internal audit departments to devote time to risk management, project assurance and cost saving exercises, budget cuts are now resulting in lower levels of external recruitment, restructuring and more reliance on outsourced or co-sourced arrangements.
In local government, advertised positions are 50% down on 2009 and a number of larger departments are consolidating and restructuring rather than recruiting. In central government, which is in the process of taking on new internal audit standards, the culture of cost savings is resulting in greater reliance on co-sourcing arrangements. However, this proposed review of best practice and quality during the next twelve months may produce additional recruitment.
Growth in internal audit and risk management in the charity sector has stalled in response to lower revenue. Both housing and higher education are undertaking limited recruitment and are relying on their established outsourcing arrangements.
Employment in the public sector is becoming more popular due to its perceived security. As a consequence, the reduced number of vacancies are receiving greater interest. Employers are currently able to recruit candidates that closely meet their recruitment specifications.
After many years of significant budgetary increases, spending in the public sector may now fall in real terms. Risk management, once the preserve of larger public sector organisations, is likely to become more prevalent across the sector as will efficiency reviews. An extended period of subdued recruitment is likely. However, demand from stakeholders will enable governance across the public and not-for-profit sectors to grow.
Other Observations
Salaries
Salary increases achieved by internal auditors changing jobs was 11% during the first six months of 2009. Whilst this has trended slightly lower during the course of the last 18 months, the percentage is higher than might be expected in the middle of a severe recession.
- Although many of those internal auditors who have been made redundant or face the threat of redundancy will accept the same or lower salaries, many potential employers are not attracted by the proposition. There is an established perception, most often wrong, that taking a pay cut will compromise an internal auditor’s motivation.
- Another factor is that the majority of people accepting new positions are doing so from secure employment. They wish to be compensated for the risk they perceive they are taking particularly in relation to the loss of their existing bonus entitlements.
It is clear, however, that as internal auditors weigh up potential opportunities, security of employment is currently of principal concern. Whilst obviously important, salary considerations only matter once job security is assured.
Interim Internal Auditors
| |
June 2008 |
Jun 2009 |
Change |
| Number of contractors |
7 |
7 |
5 |
| Departments using contractors |
10% |
10% |
8% |
The number of contractors working in internal auditing is at an historic low and a significant number of established contractors are currently redundant. They are finding the established flow of work significantly reduced, particularly in the financial services sector. In the past, economic slowdowns and the resultant recruitment freezes have been circumvented by using contractors. However, there are two factors currently working against contractors:
- There are a number of outright corporate bans on any additional staff expenditure
- Internal audit providers are currently offering deeply discounted rates to maintain their staff utilisation.
Furthermore, the ranks of existing contractors are being swollen by the recently redundant. Not surprisingly, the disconnect between supply and demand is pushing rates down and the contract internal audit recruitment market is a sombre place to be. Whilst the market will ultimately recover, new governance initiatives are what will likely drive the market forward. In the insurance sector, Solvency II is a potential start.
Computer Audit Demand
After the recovery in demand for computer auditors during 2008, demand fell back in the first six months of 2009. Demand for computer auditors is at the very least loosely correlated to business investment and particularly investment in new systems. As companies have pared back on non essential investment, new computer systems that would have required input from IT audit have not been sanctioned.
A surprising development which has spurred recruitment has been the decision by a number of smaller financial services groups to bring previously outsourced computer audit services back in-house.
Outside of the usual broadly based requirements, more specific current demands include network and technical database security, business continuity, resiliency and physical security skills.
Heads of Audit
Demand for Heads of Audit is low. Whilst this may be of little surprise, historically demand has borne little correlation with developments in the wider internal audit recruitment market. Perhaps of greater surprise is the limited number of experienced Heads of Audit who are currently redundant. This has persisted for some time and is currently lower than the average for the previous five years.
Business Investment
Whilst the rate of growth in business investment had been declining throughout 2007 and 2008, it is now falling in absolute terms, as a natural result of tight credit conditions and a tough business environment.
Business investment indirectly underpins the internal audit recruitment market: it provides work for internal audit departments; it drives staff movements within companies; and ultimately it requires them to recruit externally.
Recruitment might be seen as a form of investment and the fact that both physical and human investment are falling together is perhaps not surprising. Any significant upturn in the employment market will be dependent on business investment increasing.
Summary/ Predictions
Given the unprecedented contraction in the UK economy, far fewer jobs have been lost in internal auditing than might otherwise have been anticipated. That said, the fall in demand for internal auditors has been acute.
It is likely that there will be further redundancies as the corporate sector consolidates and any rebound in the economy will take time to filter through to employment.
Notwithstanding the considerable difficulty we know some internal auditors are experiencing in finding new positions, the internal audit recruitment market does not contain significant amounts of slack and certainly far less than might have been expected. Any upturn in demand will quickly come up against the historic shortages of internal auditors that have become a regular feature of the recruitment market. Given also that many internal auditors have deferred seeking new positions, there is potentially significant latent demand.
We would take the view that by many measures the internal audit recruitment market is at or possibly past its nadir. However, it is also necessary to appreciate the unprecedented fiscal and monetary stimulus applied not only to the UK economy but others around the world. The cost of this has not even begun to be recognised or met and the way ahead remains uncertain.
Other sections
To view further sections of this report, please visit
- Executive summary
- Internal Audit – salaries
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