internal audit market intel 2nd quarter 2016

Internal Audit Market Report

1

Second Quarter

2016

• Introduction . . . . . . . . . . . . 3 - 4

• Competitor Chief Auditors . . . . . 5

• Regulatory Climate . . . . . . . . . . 6

• Expanding Headcount at Citi . . . . 7

• Firms Reducing Headcount . . . . . 8

• General Recruitment Challenges . . 9

• Motivators For Internal Auditors . . 10

2

• Hiring Specialized Talent . . . . . . 11

• Compensation . . . . . . . . . . 12 - 13

• Talent Rotation . . . . . . . . . . . . 14

• Location Strategies . . . . . . . . . . 15

• Summary . . . . . . . . . . . . . 16 - 18

• Talent Movement (2016) . . . . . . 19

• Talent Movement (2015) . . . 20 - 22

Proprietary & Confidential -‐ Not for use or disclosure without authorization from Willard Powell, Inc.

IntroductionWillard Powell is a rapidly growing financial services search firm, with core competency in competitive research and talent acquisition. We focus specifically on assisting our clients in building teams so that together we can build a better world. The focus of this report is Willard Powell’s analysis of recruitment trends in the Internal Audit market for the month of June, 2016. Also included (Attachment I and Attachment II), is a list of senior level Internal Audit talent movements.

As we approach mid year, Internal Audit’s mandate continues to expand, as does projected headcount. Talent management and acquisition is a critical component for large banks as they continue to show reliance on co-sourcers and struggle to reduce costs. In addition, in response to regulatory pressure, talent discussions are happening at the Board level. As a result, more cooperation exists among regulators, Chief Auditor and Internal Auditor Leadership. In an effort to ensure that regulators and internal business stakeholders view Audit as a trusted partner, Chief Auditors are focused on hiring leaders committed to building audit culture that fosters effective communication and diplomacy.

3Proprietary & Confidential -‐ Not for use or disclosure without authorization from Willard Powell, Inc.

Introduction (Continued)Audit Manager recruitment efforts are focused on hiring and retaining Auditors with specialized skills,but also the soft skills necessary for effective stakeholder interaction. There is significant demand forInternal Audit talent in the following areas: IT Audit and those auditing the second line of defense(Risk, Compliance).

Competition for IT Auditors with knowledge of banking business processes, data and securityrequirements is significant. Hiring managers are experiencing challenges transferring candidates fromRisk into Audit, both from a compensation perspective and in terms of how they are getting thosetransitioned acclimated to the work and culture within Audit. Internal Audit teams are hiring talentto build Governance, Risk, Control systems to manage the audit plan workflow, work papers, auditdata, and risk taxonomy, for use firm-wide.


Competitor Chief Auditors• At Citi, Mark Carawan has experienced stability amongst his leadership team, excluding

within ICG. Darren Jarvis moved into the business in May 2015, Mary McNiff moved into aLATAM CAO role in Aug 2015, and now for the last 10 months Janet Chapman (formerly ofBank of Tokyo Mitsubishi UFJ) is fulfilling the ICG Chief Auditor role from London.

• At JPMorgan, Jim Vallone is bringing in maturity with regards to professional practices, butrapid change has many unsettled. Things are now moving towards a steady state asmethodology sets in. This methodology has moved them towards 4 year planning, whichhas JPM bringing down co-sourcer costs over time.

• At Barclays, Sally Clark is now two years into her first Chief Auditor role. Many view herapproach to be innovative, but also feel that Sally is less experienced when compared withher industry peers and in terms of how talent decisions are being made.


Regulatory Climate• Demand for experienced CCAR resources continues to increase as the population of CCAR

filers grow and the regulators continue to raise the bar on their expectations for both theanalytical capabilities.

• There is significant demand for IA talent with understanding for emerging regulatory issues,including Volcker and Basel III.

• Regulators are hypersensitive to ensuring that widespread Forex market manipulation doesnot happen again. Citi is aggressively scaling up its ICG Audit team to assist with regulatoryreform efforts focused on the FX trading consent order they received (with Citi’s boardlevel audit committee overseeing this initiative).


Expanding Headcount at Citi• Citi will grow from 1500 earlier this year to ~2000 by the end of 2016. Rough estimates on

the forecast (by team): the two largest Internal Audit teams are lines of business aligned Wholesale Audit and Consumer Audit teams with roughly 350 to 400 in each; ~300 in IT Audit; ~200 in Risk Audit; ~200 in Corporate Functions Audit; ~100 in Compliance Audit; and the remainder across Professional Practices (QA, IA Ops) and Audit Reporting.

• Citi’s Risk Team has aggressively grown over the last three years. In 2013, Paul Ricci joined from JPMorgan and the team was 15 individuals who were brought into Audit from Risk. Since then they have scaled the team to 150 (with plans to grow to 200 by 2016 year end).


Firms Reducing Headcount• Bank of America is quietly downsizing Internal Audit. As people are leaving, their roles are

not backfilled. Their general approach is to keep headcount from expanding, and as newregulatory requests come up to look for skills within.

• As RBS has scaled back their business in the US, Tony Borg’s organization has been reducedby 60% in the last year and a half (from early 2015 to mind 2016) from 42 auditors nowdownsized to 16 in total.

• After joining the firm last year, Deutsche-Boerse CEO Carsten Kengeter decided to focus thebusiness in Europe. As a result, they will sell ISE to NASDAQ this summer. Communicationsunderway between NASDAQ and ISE Audit leadership have disclosed internally thatreductions will occur and many employees will be asked to relocate.


General Recruitment Challenges• There is a significant demand for junior and mid level auditors. Big 4 is doing a better job

of retaining talent as candidates are invested in the internal track. Public accountingprofessionals are more motivated to consider a move into industry for opportunities withinbusiness from the start.

• There is a shortage of specialist Internal Auditors, especially in Risk Audit and CorporateFunctions Audit.

• There is a significant need to increase headcount tied to regulatory initiatives and thestress of work in this capacity is driving turnover.

• Many firms are only considering Visa sponsorship for candidates that bring along with thema team or specialized skills.


Motivators For Internal Auditors• Auditor leadership are looking for the ability to influence Chief Auditor decisions and ideally

have some Board level exposure/interaction.

• Managers are not able to hire fast enough to keep up with regulatory requests. SeniorAuditors today are accustomed to taking on more work load, supported by co-sourcers, butthey are looking to see that the Chief Auditor has a clear talent model and strategy whichallows for organic growth or the hiring of junior auditors.

• Junior level auditors are attracted to firms that provide opportunities allowing them tolearn and in some cases move into the business through rotational opportunities. Firms arefocused on doing this in a way that presents talent with new challenges and opportunitiesfor development while still getting through the audit plan. Wells Fargo and Morgan Stanleyhave historically done a better job than most competitors in this regard.


Hiring Specialized Talent• Many firms are experiencing challenges hiring Risk Audit talent. Banks are hiring candidates

from Risk, but are also experiencing higher attrition when doing so. Specifically, hiring forModel Risk Audit candidates at the VP level has been a challenge. Most candidates thatwould consider transferring from Risk, don't fit in the compensation bands within definedfor Audit.

• Most recruiting teams attempt to strike a balance of hiring candidates from both Risk andAudit, but also focus on identifying candidates that can work together in a good way.

• Citi is making strides in building a small Model Risk Audit team in India.

• Banks are picking up candidates who possess specialized knowledge from RegulatoryAgencies. These candidates are also often making less.


Compensation• As Internal Auditors change employers, the average rate of salary increase in Audit have

slightly exceeds those in most other corporate functions (excluding Risk). Significant churnhowever, creates the perception that increases are well beyond market averages.

• The perception of those who work for JPMorgan within Audit is that the firm tends to paybetter than its peers, but that the constant regulator requests create for a highlystressed environment and this negatively impacts the quality of work. On average, from2014 to 2015, total compensation for Internal Auditors at JPMorgan remained flat.

• Internal Auditors at Bank of America are not being compensated for the additional workloadand this is creating a very poor mood.


Compensation (Continued)• On average, bonuses at large banks remain flat and at the European banks bonuses are

insignificant.

• UBS is paying under market on salary and not much in the way of bonuses, which isconsistent with most European banks pulling back from the US.

• Deutsche Bank is paying out annual bonuses within Internal Audit in very limited instances.


Talent Rotation• Most junior to mid-level Internal Auditors are focused on career development as their

primary reason for changing employers. Big 4 firms are able to retain talent better thanprior years as they rotate their talent more often.

• Barclays is attempting to rotate talent in a better way, but the Internal Audit function thereis not mature enough to do this well; Auditors are rotated without basic understanding forthe new area of discipline.

• Bank of America is not rotating talent or providing mobility for Internal Auditors and arelosing many mid-level Auditors. The sentiment internally is that there are too many peopleat the VP level and there are limited promotional opportunities.


Location Strategies• The JPMorgan Audit team in NYC is experiencing higher turnover recently. This team is in

the process of relocating from midtown (245 Park Avenue) to downtown (4 New YorkPlaza). Those who commute from Westchester and Connecticut could be good candidatesto target.

• Wells Fargo is hiring Auditors across the country, but has a preference to hire inMinneapolis, San Francisco, and Charlotte. The Internal Audit headcount in Charlotte is thelargest. The Minneapolis team has grown to about half of the Charlotte headcount and theyhave built a sizable Risk Audit group. The San Francisco Internal Audit is about half thesize of Minneapolis and is growing.

• Firms are employing flexible work arrangements as a recruiting strategy (especially on theWest Coast in cities with high traffic, i.e. Los Angeles).


16

SummaryGiven the continued increase in demand for Internal Audit talent and the shortage of candidates with the skills required to keep up with work resulting from regulatory requests, Chief Auditors have many challenges in the way of attaining their ideal culture, achieving their future state talent model and subsequently meeting audit plan goals.

As these challenges increase, so do the opportunities for Big 4 firms who are doing a better job retaining talent and are more willing to sponsor Visas for specialized skills. Without a clear talent plan, a constant pulse on the Internal Audit talent market, consistent review of competitive intelligence, knowledge of competitor vulnerabilities and swift execution on recruitment strategies, banking organization run the risk of continually increasing their co-sourcing costs.


17

Summary(Continued)Over the past month, our research leads us to make the following recommendations to support recruitment efforts into the third quarter:

• Target Citi Internal Audit given the current turbulence tied to significant hiring, increased attrition and given the fact that in most cases Citi is not counter offering to retain talent.

• Aggressively recruit mid-level Auditors at Bank of America as they have limited upward mobility.

• Headhunt Internal Audit leaders at European banks with an eye towards lifting entire teams (as they are scaling back from the US and have paid bonuses well below market).


18

Summary(Continued)• Actively recruit the remaining Auditors at Royal Bank of Scotland.

• Target JPMorgan’s Internal Audit team located at 4 New York Plaza and with change in IT Auditleadership at (John Roberts’ departure), capitalize on this group’s current stress by courting juniorand mid level IT Auditors.

• Consider Internal Auditors at Big 4 firm with experience outside of financial services and InternalAuditors from mid-tier consulting firms for Associate level openings.

• As the NASDAQ acquisition of ISE begins this summer, target both entities for IT Auditors.

• Take advantage of the immature state of Internal Audit at Barclays by marketing the existence andstructure of rotational opportunities.


Talent Movement: Wins and Loses – 2016 (Attachment I)


Talent Movement: Wins and Loses – 2015 (Attachment II)


Talent Movement: Wins and Loses – 2015 (Attachment II Continued)


For Additional Information, Contact:

David C. McInnisFounding Partner

[email protected]

175 Atlantic Street, Suite 300, Stamford, CT 06901

23

internal audit market intel 2nd quarter 2016

Business