Change in Internal Audit approach in CORONA scenario

Change in IA approach under CORONA scenario

Gloom on economic activities due to Corona Virus is looming large at the horizon. Business activities nay of all activities globally coming to a grinding halt, in other words a scenario of economic shutdown. Under this situation, existence of human being is the biggest challenge. However, considering all positivity; there will of loss of population but not total eradication.

This challenging scenario having at least the following impacts:

a.      Loss of production /service opportunity ( excepting Pharma sector where invention and research in this field can enhance revenue)

b.     Loss of economic activities (lower Revenue across all business segments, profit and profitability, manpower etc.)

c.      Non compromise with Compliance calendar with modification, if any, made by applicable authority

When business is not usual, then how IA and Risk Management function can be?

The greatest shortcoming of Risk Management is again evident here, RM or ERM is only applicable for known and imaginable events. Such virus attack or similar other instances are not in the realm of imagination and hence question of ‘Management’ does not arise. Steps taken by medical society     (companies) in pharmaceutical sector are all knee jerk actions; including trial corona vaccine testing on human cell. Companies in India are planning for ‘work from home’, dispensing bio metric attendance recording system, usage of sanitizers at office entry point etc. are post steps to fight back not pre-emptive ones.

The IA response under this typical scenario to take ‘management’ into confidence for pruning the audit activity on account of such disruption, by keeping compliance requirements in mind. Some additional areas can also be planned for to gauze company activities and related spent are well within the guideline of WHO, Local and Central Government especially with respect to spent management. The performance measurement and monitoring e.g TAT of Transporters, manpower productivity etc. should be considered liberally; since the situation can’t be considered as normal.

The audit areas like attendance monitoring and pay bill also may face a jolt, since many entities may not have that much robustness to measure work from home and dispensing with biometric attendance.

Material Resource planning and adequacy of Inventory area also may report huge gap, specially due to sudden disruption in production, Vendor failure to deliver on time again due to disruption at his end, sluggish market condition may result in discontinuance of some products and/or add on some product, non-reporting of manpower etc.

Travelling sales man, touch base counters even today having greater impact than Meeting over a Long distance Conference call, Video call etc. Lesser travelling by sales staff may save the travelling cost, while Order volume generated may take a hit due to disruption in consumption market/scenario.

Dependency factor in Audit Team and activity is another challenge for the period. Normally audits conducted on team involvement basis. The organization (audit entity’s) database maintenance and electronic storage process of evidences is of paramount importance to perform audit from home and without physical meetings with Auditee. If everything is in place, then hindrance to perform or conduct audit remotely is not a big deal. The process maturity and audit team capability are the two factors, which also having importance to reach perfection.

Adherence to contractual obligations by the Company and that given by the Clients requires to quick look to understand the coverage of ‘supervening impossibility’ or force majeure, with financial implications, if any.

Prior ‘open issues’ may haunt because deadline of compliance and closure may not be kept by operational management. Some may not be due to this pandemic situation but people will try to take shelter under this. The IA function ( internal internal audit and/or outsourced) to take a conscious stand w.r.t open issue and extended time line only once the clarity for delay is reasonable and acceptable to them.

Some suggestive measures like instead of normal reporting of assurance, ‘flash reports’ with high implications and importance can be thought of by IA/ERM Team.