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EQA

Brexit: ‘starter for 10 or 11’ for internal audit to consider NOW

17 October 2018


Whilst politicians cogitate and the media speculate, our organisations continue to operate and plan for an uncertain future. Brexit cannot be avoided. Even UK-centric organisations will be impacted in some way, positive and negative, either through suppliers of suppliers, employees, customers or changes to regulations.

There are decisions that cannot be made until the details of the Brexit deal are finalised but preparation and informed choices are imperative. Yet everything cannot be left until the 11th hour. Internal audit can help their stakeholders to shine a light in the darkness of the current uncertainty. 

Look out for our research report later this month detailing the Brexit preparations of audit functions. In the meantime, here are some questions to get you thinking!


1. Brexit – preparedness audit

Internally:

  • Internal audit needs to consider options - assurance or consultancy?
  • The board should be independently advised on the organisation’s preparedness for Brexit and its current approach. Wait and see is not an option.
  • What is the governance structure? Is it ad-hoc? Are there working parties and a programme of activity? Who is accountable?
  • Has the C-suite considered the opportunities of Brexit?
  • Is there a budget for Brexit activities? 

Externally:

  • What is the impact on your customer?
  • How are you keeping them informed and giving them confidence that you are set up well for scenarios?
  • Where is reliable data sourced from?
  • Has the impact on both the organisation and its customers been estimated for different outcomes?

2. Contingency planning/supply chain adaption

  • Is it timely, effective and within budget and compiled by credible people to get to credible outcomes?
  • What about additional warehousing to hold higher ‘buffer’ stock due to potential border delays?
  • Are there innovative/diverse shipping options?
  • How about alternative different supply chain models?
  • Are there likely to be issues with talent retention contracts for senior non-UK nationals considering repatriation?
  • What about upskilling colleagues?
  • Will there be labour shortages (warehousing/agriculture)?

3. Third party management

  • Where are they based?
  • Have they been prioritised for business criticality?
  • Which domestic partners could have a higher risk profile post-Brexit?
  • How are you engaging your key third parties?
  • Is joint planning appropriate and/or beneficial?

4. Contracts management preparedness

Existing contacts will need to be reviewed, particularly VAT and potentially amended such as the inclusion of incoterms (the legal provisions for importing and exporting that define who is responsible for shipping goods across borders).

  • Have management identified and assessed any Brexit clauses?
  • Is a working party established ready to deal with this?
  • Who has accountability procurement or legal?
  • How will internal audit provide assurance on the completion of this?
  • What about driving licences for example – will UK licences still be valid for haulage and any other employees delivering goods to the EU?

5. Intellectual property preparedness

There is uncertainty as to the future process and validity of existing patents, trademarks, designs etc.

  • Can assurance be provided that the organisation has an IP process and register to facilitate any remedial activity that may be required?

6. Supply chain data audit

  • Provide assurance that the business has robust processes for real-time reporting on the country of import for individual products and raw materials.
  • Where domestic suppliers source raw materials is equally important; business as normal is not guaranteed. It is critical to know the supply chain in detail as EU suppliers may withdraw services. A CIPS survey in 2017 provides useful insight.

7. Customs risk workshop

  • Has a strategic risk assessment been completed to evaluate the options available to the organisation? Internal audit should work with risk colleagues and/or facilitate a risk workshop if necessary.
  • How material would any custom changes be to the organisation; time, cost, skill capability, systems?
  • If significant business is currently done within the EU, organisations may be considering/have started an application for Authorised Economic Operator status as this facilitates swifter border transactions for companies external to the EU. The application process can take a year to complete. Has this been debated?
  • Should the board be asking for assurance on the completeness/timeliness/accuracy of the application process?
  • Certain goods may qualify for zero rates under EU free trade agreements although the process to achieve this status is complex and costly. How robust is the information for decision making?
  • Should subject matter experts be brought into the decision process?

8. Cash flow risk management

  • If the UK leaves the EU’s VAT system then EU imports currently exempt will require VAT payment at the point of border entry. Has the financial impact of this been modelled?
  • What impact could this have on short-term viability? Could this impact planned and current strategic projects?

9. HR data audit

  • Whilst EU laws have transferred into UK laws as part of the EU Withdrawal Bill, it is important that organisations are aware of the nationality of all employees to ensure compliance with all legal rights post-Brexit.
  • Organisations may already have this information, although some may only keep a record of a right to work rather than nationality.
  • A compliance check of data or advisory support to get up to speed may be worthwhile.

10. Market access

  • Which markets are currently used for funding, liquidity and hedging of risk?
  • Have alternatives been considered if markets become unavailable/cost prohibitive?

11. Opportunities

  • Do decision makers have an open mind-set to Brexit?
  • Are opportunities being sought?
  • Does the culture of the organisation encourage informed risk taking?
  • Could new partnerships be forged?

Further reading 

There is a wealth of information available from bodies such as the ICAEW, BDO, Local Government Association for example. Whilst the government itself has recently published a raft of technical papers aimed at specific sectors in the event of a ‘no-deal’ scenario.

Content reviewed: 24 October 2018