Construction - sector challenges series

The second in our fortnightly series of guest blog posts focusing on sector specific challenges from an internal audit perspective.

Take a look through the lens of construction.

​​Guest blog post by Jeremy Lawson

After its initial shutdown, the construction industry remained active throughout the COVID-19 pandemic, and has fared better than many sectors. With government support, the industry has adapted to new working practices and has been able to continue its work, maintaining and developing critical infrastructure and building the homes the country needs. Despite these positives and the near term optimism, there are storm clouds on the horizon.

The Chartered IIA has been discussing the competing crises of pandemic, climate change, recession, political uncertainty and regulatory evolution for some time. These risks compound each other in a ‘perfect storm’, which will create a complex and uncertain future for many sectors, construction included. History tells us that construction, as a bellwether industry, will likely feel the effects of this storm sooner and perhaps more deeply than others will.  

We are all aware of these significant and competing risks. However, at the same time, big issues such as climate change and political tensions can sometimes feel distant and intangible. They sit outside of the conventional and more readily auditable areas we are used to in the sector. Perhaps instinctively we are more comfortable addressing our conventional risk profiles, looking at project risks, cost control and managing sub-contractor processes.

The challenge is how to make these risks feel tangible, and to translate them into something we can provide assurance over. We should challenge ourselves to be relevant and take these big-ticket items on:

Are we close enough to the business?

It seems obvious, but it is important to stay close to the operational realities of the business on the ‘front line’. We can do this by attending management and project meetings (reference to your Internal Audit Charter or the Internal Audit Code of Practice may help if you meet any resistance). Doing this can help us understand how these risks are materialising on the ground. This can be a big help in translating the risks into our audit plans.  

How is the second line responding?

The challenging times have led to a tremendous pace of change in operations in our sector, and control environments have adapted to keep up. These changes span all aspects of the ‘perfect storm’:

  • Covid-19: Implementation of enhanced hygiene, social distancing and safe operating practices on site. Are these operating as designed?
  • Regulatory change: This seems relentless, whether in response to industry failures such as the impact of Grenfell and cladding, or the leasehold investigation, or climate challenges as with the Future Homes Standard. Are we ready?
  • Political challenges: Brexit friction and trade tensions elsewhere have exposed resilience issues in supply chains. What safeguards have been established?
  • The constrained labour market has created a war for talent. How are our training and succession plans meeting this challenge?

We need to ensure we work with second line functions to understand how controls in our organisations are meeting these changes. Where significant control developments occur, do our audit activities provide the right coverage? What are we doing to provide the necessary assurance to our stakeholders?

Can we leverage the experience of others?

Network, network, network. This can be a big help. Reaching out to your peer group can throw light on the challenges experienced elsewhere in the sector. The Construction Internal Audit Forum meets regularly and is a great place to share insights and experience. Also, all of the firms, due to their investment in specialist expertise, are a great source of information on industry trends together with emerging political and regulatory challenges.

Watch out for our next blog post in this series on the financial services sector. Coming the w/c 3 May. 

Related blog posts

Help! My crystal ball is broken!

Central government - sector challenges

Content reviewed: 18 May 2021