A significant warning has been issued concerning internal audit deficiencies in major UK construction firms, raising alarm among officials.
- Nine of the top 30 construction firms in the UK may lack essential internal audit functions, risking overlooked financial threats.
- These firms undertake critical public sector projects, and the absence of audits could have wide-ranging consequences.
- Without proper audits, issues like those that led to the collapse of ISG might go undetected.
- The Chartered Institute of Internal Auditors (CIIA) is advocating for mandatory audits for contractors working on public infrastructure.
A notable concern has emerged within the UK construction industry as the Chartered Institute of Internal Auditors (CIIA) highlights potential weaknesses in the internal audit functions of major construction firms. Of the leading 30 companies in the sector, nine are suspected of operating without appropriate internal audit capabilities. This revelation comes via a cautionary letter from the CIIA’s chief executive to business secretary Jonathan Reynolds.
These firms are responsible for delivering key public sector infrastructure such as schools, hospitals, roads, and utilities. The letter, also sent to Liam Byrne, the chair of Parliament’s business and trade committee, indicates that even when internal audits exist, they may not be well-positioned or sufficiently resourced to effectively address business risks.
Anne Kiem, the CIIA chief, has emphasised that the absence of proper internal audit committees, even if they are not legally mandatory in the private sector, poses serious risks. She argues these committees are vital for identifying, managing, and mitigating major risks within the sector. The recent collapse of ISG, a prominent firm that went under owing substantial sums to its supply chain, underscores the potential impact of inadequate auditing.
The ripple effect of firm collapses in the construction sector can be severe, resulting in job losses, diminishing investor confidence, and affecting the supply chain broadly. Kiem advocates for robust audit, governance, internal control, and risk management frameworks to support senior management in identifying and managing risks effectively.
The situation has prompted the CIIA to advocate for a new legal requirement that all ‘public interest entities’ maintain an internal audit function. This would mirror existing public sector audit requirements and ensure private contractors involved in public projects adhere to similar standards.
While the internal audit function might not have prevented the collapse of ISG, Kiem suggests it could have identified financial issues earlier, possibly providing the company’s leadership with the time needed to avert the crisis. The CIIA firmly believes that mandatory internal audits for government contractors are a necessary step towards safeguarding industry stability.
The call for mandatory internal audits is a critical step towards safeguarding the construction industry’s integrity and stability.
