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Nov 04, 2012

Natural, economic and political disasters top list of risks for companies in 2013, CEB says

Corporate contingency planning, strategic planning and corruption to face increased scrutiny by internal corporate auditors in coming year

Preparation for major environmental, political or macroeconomic disasters has come into the corporate risk spotlight and will be the top priority of executives in internal audit departments in the coming year, according to a survey by the Corporate Executive Board Company (CEB).

Contingency planning, or preparation for so-called black-swan events ‒ such as superstorm Sandy, which swept through the northeastern US last week ‒ is at the top of the list of ‘hot spots’ for large corporate internal audit departments in 2013, according to the CEB’s 2013 Audit Plan Hot Spots report.

More than four fifths (84 percent) of chief auditors now consider the risk of such events to be ‘significant’, according to the CEB. At the same time, 47 percent of chief auditors say recent control audits of their company’s contingency planning processes found important deficiencies.

‘With business volatility shifting from an emerging risk to an accepted norm, contingency planning, crisis management and disaster recovery have become increasingly important business processes,’ the CEB writes. ‘Persistent macroeconomic problems dominate the headlines with estimates of up to 85 countries susceptible to sovereign non-payments (defaulting on financial obligations), while 61 countries are prone to serious supply chain disruptions and companies struggle to respond effectively, if they have plans in place at all for this level of business discontinuity.’

The CEB identifies macroeconomic crises, catastrophic system failures and massive data breaches as being among the chief subjects of effective contingency planning. Current macroeconomic risks, the CEB says, include a eurozone collapse forcing the global economy into recession, while massive data breaches make the list after such breaches increased 10-fold in the UK over the past five years, according to the study.

In second place among the hot spots for internal auditors in 2013 is strategy creation and execution, according to the report. The CEB says 90 percent of chief auditors feel this is an area of ‘important or very important risk.’

‘Exhaustive CEB research shows that over the last 10 years, two thirds of incidents causing drops in market value of 50 percent or more are the result of corporate strategy failures, while strategic missteps are more likely today because of heightened economic uncertainty,’ the CEB states.

Corruption and bribery place third in the top 10 auditing hot spots for the coming year, the CEB adds, noting that ‘a recent study finds that US companies facing bribery-enforcement action lost 9 percent of their total market value.’

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