Audit Urged to Ditch Checklists for Risk-Based Plans
A session preview from Diligent highlights a push for internal audit to move beyond checklist-based plans toward more dynamic, risk-driven planning. The firm notes that only 14% of audit functions currently feel their planning process is fully optimized to address emerging threats.
The shift from traditional, static audit plans to a dynamic, risk-based model reflects a broader transformation in manufacturing. Companies are navigating a landscape of escalating geopolitical risks, including trade conflicts and disruptions to the availability of critical materials. This environment elevates the internal audit function from a compliance role to a strategic advisor, essential for building resilience. Regulatory pressures are intensifying, with new SEC climate disclosure rules requiring manufacturers to report on climate-related risks and greenhouse gas emissions. Concurrently, OSHA is implementing significant updates for 2025, including a new heat stress prevention rule and expanded requirements for electronic injury reporting. These changes demand proactive compliance monitoring that a checklist approach may not adequately cover. U.S.-China trade relations remain a primary concern, with tariffs impacting sourcing strategies and input costs. In response, a significant trend of reshoring manufacturing has emerged, with 244,000 jobs announced in 2024 through reshoring and foreign direct investment. This shift, however, introduces its own set of risks, including the need to secure new supply chains and navigate a shortage of skilled domestic labor. The sourcing of critical minerals presents a significant vulnerability, with geopolitical concentration and export controls creating potential bottlenecks for industries like electronics and automotive. China's dominance in the processing of rare earth elements, for example, gives it considerable strategic leverage. This elevates the importance of supply chain audits that can assess and quantify dependencies on single-source or geopolitically sensitive materials. To meet these challenges, internal audit methodologies are evolving. Agile auditing, continuous monitoring, and the use of AI and data analytics are becoming more prevalent, allowing for more real-time risk assessment. This technological integration enables audit functions to move beyond historical data and provide predictive insights on emerging threats. Manufacturing executives are increasingly focused on building supply chain resilience and investing in digital transformation to guard against volatility. The conversation has shifted to creating "anti-fragile" supply chains that can adapt and strengthen when faced with disruptions. Internal audit's role is to provide assurance that the controls and strategies underlying these initiatives are sound.
