We have a critical piece of advice for CFOs: Never underestimate the invaluable contributions of your internal audit team. Not only do these professionals operate as a safeguard to ensure that your organization is consistently in compliance with regulatory requirements, but they also possess a distinct skillset in accounting, internal control and risk management that can guide you through difficult economic periods.

In today's global world, where all aspects of a business are interconnected, even the slightest economic shift can impact operations, from processes to customer demand, creating uncertainties and risks that can be challenging to manage. Having a watchful eye is critical to preparing your organization for the unexpected and making key decisions on the fly.

With their unique ability to anticipate changes in your organization’s risk profile and the severity of those changes, remain agile and adapt to swiftly evolving circumstances, your internal audit team can offer important insights to keep your organization resilient. Ensure your internal auditor is making strides to continuously collaborate with you and other senior leadership. By doing so, the company can identify innovative risk management and capital optimization solutions in a timely manner, positioning your organization for success during economic volatility by staying ahead of the competition and avoiding succumbing to panic.

How an Internal Audit Can Help During a Recession

During a recession, organizations face many risks that CFOs must be acutely aware of to ensure the smooth operation of their business.

These risks include:

• Liquidity: Access to cash and capital may become increasingly challenging, leading to a decline in investment, production and sales.
• Credit: Credit ratings may be downgraded, and the cost of borrowing may increase, making it difficult to secure financing.
• Market: Volatility in stock prices and interest rates can pressure an organization's financial performance.
• Supply chain: The disruption of production and distribution channels may arise due to shortages or delays in raw materials, components and finished products, leading to significant losses.
• Operational: Operational risks, including process inefficiencies, cyber threats and compliance issues, can exacerbate the challenges faced by organizations during a recession.
• Fraud:  Without proper controls and effective process design, the risk of fraud or malfeasance greatly increases, especially in difficult financial times.

Internal auditors can play a critical role in assisting organizations during a recession by providing independent and objective assessments of the above risks, as well as controls and financial performance and identifying potential issues before they become significant problems.

One unique way internal auditors can help your organization is by conducting targeted audits. By narrowing in on specific areas — such as accounts payable, cash management, supply chain management, or credit and collections — internal auditors can uncover opportunities to improve cash flows, take advantage of early payment discounts and better manage credit risk.

Some other specific ways in which internal auditors can contribute include:

• Review financial statements and accounting processes to identify and address any weaknesses or areas of concern.
• Conduct risk assessments to help management identify and prioritize risks and develop strategies to manage those risks.
• Assist with developing financial and operational models to help the organization anticipate the impact of a recession on business and plan accordingly.
• Analyze the organization's supply chain to identify potential disruptions and develop contingency plans as well as identify opportunities to improve efficiencies and reduce costs.
• Review contract management activities and look for financial opportunities to exercise service level agreements in contracts with key vendors including instigating key performance indicators (KPIs) with your suppliers and vendors.
• Review internal controls and make recommendations for improvement, particularly in cash management, expense management, and credit and collections.
• Provide ongoing support to management and the board of directors in monitoring the organization's financial performance, identifying emerging risks and making informed decisions.

Often undervalued, internal auditors can play a critical role in helping organizations navigate the uncertainties and challenges of difficult economic times. By leveraging their expertise, companies can not only survive in the downturns but emerge stronger and more agile in the recovery.

How CFOs Can Help Internal Auditors

As CFO, you can play an essential role in supporting internal auditors during their audit.

One best practice to support an internal audit is to provide timely access to information and data, such as financial reports, transaction records and other relevant documents. It would also help if you encouraged communication between your internal audit team and other departments to ensure everyone is on the same page and that any issues and concerns are addressed swiftly. And don't be afraid to engage in regular review and feedback. Fostering a cooperative relationship with your internal audit team, emphasizing the shared goal of improving company processes for the benefit of all, will help ensure your company successfully anticipates and reacts to changes in risk.

You might also want to look into investing in automation for routine tasks. Automation can help auditors perform their work more efficiently by allowing them to focus more on analysis, risk assessment and identifying opportunities for improvement. It can also improve accuracy, deliver faster audit results and enable auditors to cover a broader range of audit areas. Data analytics tools, specifically, can help internal auditors identify patterns, trends and anomalies than manual processes alone.

By taking the time to help their organization's internal auditor during an audit, CFOs can help ensure that the audit is successful, the recommendations are implemented effectively and the organization is better prepared to navigate the challenges of the global economy.

Copyright © 2023, CBIZ, Inc. All rights reserved. Contents of this publication may not be reproduced without the express written consent of CBIZ. This publication is distributed with the understanding that CBIZ is not rendering legal, accounting or other professional advice. The reader is advised to contact a tax professional prior to taking any action based upon this information. CBIZ assumes no liability whatsoever in connection with the use of this information and assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.

CBIZ MHM is the brand name for CBIZ MHM, LLC, a national professional services company providing tax, financial advisory and consulting services to individuals, tax-exempt organizations and a wide range of publicly-traded and privately-held companies. CBIZ MHM, LLC is a fully owned subsidiary of CBIZ, Inc. (NYSE: CBZ).