Slow Tech Adoption in Audit Blamed on Leadership
The slow adoption of new technology within internal audit functions is often a leadership and change management issue, rather than a technological one. This perspective, shared by risk management software provider Onspring, suggests that a failure to embrace innovation can hinder the department's effectiveness. The critique implies that audit leaders must champion technological transformation to keep pace with evolving business risks.
The new Global Internal Audit Standards, effective January 2025, now obligate Chief Audit Executives (CAEs) to ensure their departments have the necessary technology for the audit process. This shifts technology from a mere consideration to a mandated requirement, compelling leaders to regularly evaluate and enhance their tech stack to improve effectiveness and efficiency. Despite this mandate, a significant capabilities gap persists. A recent Protiviti survey revealed that 74% of North American CAEs admit their departments are not undertaking transformation initiatives, with the largest talent gap being in technology-enabling skills like AI and advanced analytics. This internal shortfall exists even as audit leaders frequently identify technology gaps in other parts of their organizations. This hesitation is often rooted in a risk-averse culture, where leaders fear that new tools could compromise internal controls or introduce new liabilities. An accountability gap also exists; errors from new technologies are perceived as harder to defend, increasing professional risk for auditors. This cautious leadership mindset can unintentionally stifle innovation by treating technology as a mandate rather than a capability and expecting immediate ROI without accounting for a learning curve. To bridge this gap, many internal audit functions are turning to co-sourcing. This model allows departments to access specialized IT, cybersecurity, and data analytics skills on-demand, without the high cost of hiring and retaining full-time specialists. Co-sourcing provides the flexibility to scale resources up or down, enhancing capabilities while retaining strategic control over the audit plan. For manufacturing clients, this internal audit evolution is set against a backdrop of significant external pressures. Reshoring is a major trend, with 244,000 manufacturing jobs announced in the U.S. in 2024, driven by geopolitical risk and supply chain vulnerabilities. Companies are diversifying away from China to mitigate the impacts of tariffs and export controls, which have disrupted the technology and manufacturing sectors. This supply chain realignment creates new compliance burdens. The EU's Corporate Sustainability Due Diligence Directive (CSDDD) and Corporate Sustainability Reporting Directive (CSRD), effective in 2024, mandate extensive ESG reporting and due diligence across the entire supply chain for large companies. Simultaneously, U.S. Customs and Border Protection is increasing enforcement of the Uyghur Forced Labor Prevention Act (UFLPA), which has led to the detention of billions of dollars in goods, particularly in the electronics and textiles sectors. Sourcing critical materials presents another major challenge, with intensifying competition for resources like lithium, tin, and molybdenum essential for electronics, EVs, and renewable energy. China's dominance in processing around 80% of critical minerals and its use of export controls on materials like gallium and germanium create significant vulnerabilities for manufacturers. This forces companies to secure alternative sources and invest in recycling and other circular economy strategies.
