The document summarizes recruitment trends in the internal audit market for the second quarter of 2016. It finds that internal audit headcount is continuing to expand due to increasing regulatory demands, and talent acquisition is critical given reliance on co-sourcing and challenges reducing costs. There are shortages of specialists in areas like IT audit, risk audit, and regulatory specialties. Compensation is generally flat or below market across banks. The summary recommends targeting internal audit talent at Citi and Bank of America due to turbulence and limited mobility, and recruiting European bank audit leaders who may bring their teams as those banks scale back from the US.

1. Internal Audit Market Report
1
Second Quarter
2016

2. • 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
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3. Introduction
Willard 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.
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4. 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 for
Internal 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 security
requirements is significant. Hiring managers are experiencing challenges transferring candidates from
Risk into Audit, both from a compensation perspective and in terms of how they are getting those
transitioned acclimated to the work and culture within Audit. Internal Audit teams are hiring talent
to build Governance, Risk, Control systems to manage the audit plan workflow, work papers, audit
data, and risk taxonomy, for use firm-wide.
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5. 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 a
LATAM CAO role in Aug 2015, and now for the last 10 months Janet Chapman (formerly of
Bank 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, but
rapid change has many unsettled. Things are now moving towards a steady state as
methodology sets in. This methodology has moved them towards 4 year planning, which
has JPM bringing down co-sourcer costs over time.
• At Barclays, Sally Clark is now two years into her first Chief Auditor role. Many view her
approach to be innovative, but also feel that Sally is less experienced when compared with
her industry peers and in terms of how talent decisions are being made.
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6. 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 the
analytical 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 does
not happen again. Citi is aggressively scaling up its ICG Audit team to assist with regulatory
reform efforts focused on the FX trading consent order they received (with Citi’s board
level audit committee overseeing this initiative).
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7. 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).
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8. 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 new
regulatory requests come up to look for skills within.
• As RBS has scaled back their business in the US, Tony Borg’s organization has been reduced
by 60% in the last year and a half (from early 2015 to mind 2016) from 42 auditors now
downsized to 16 in total.
• After joining the firm last year, Deutsche-Boerse CEO Carsten Kengeter decided to focus the
business in Europe. As a result, they will sell ISE to NASDAQ this summer. Communications
underway between NASDAQ and ISE Audit leadership have disclosed internally that
reductions will occur and many employees will be asked to relocate.
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9. 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 accounting
professionals are more motivated to consider a move into industry for opportunities within
business from the start.
• There is a shortage of specialist Internal Auditors, especially in Risk Audit and Corporate
Functions Audit.
• There is a significant need to increase headcount tied to regulatory initiatives and the
stress of work in this capacity is driving turnover.
• Many firms are only considering Visa sponsorship for candidates that bring along with them
a team or specialized skills.
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10. 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. Senior
Auditors today are accustomed to taking on more work load, supported by co-sourcers, but
they are looking to see that the Chief Auditor has a clear talent model and strategy which
allows for organic growth or the hiring of junior auditors.
• Junior level auditors are attracted to firms that provide opportunities allowing them to
learn and in some cases move into the business through rotational opportunities. Firms are
focused on doing this in a way that presents talent with new challenges and opportunities
for development while still getting through the audit plan. Wells Fargo and Morgan Stanley
have historically done a better job than most competitors in this regard.
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11. 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 for
Model Risk Audit candidates at the VP level has been a challenge. Most candidates that
would consider transferring from Risk, don't fit in the compensation bands within defined
for Audit.
• Most recruiting teams attempt to strike a balance of hiring candidates from both Risk and
Audit, 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 Regulatory
Agencies. These candidates are also often making less.
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12. 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 churn
however, 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 pay
better than its peers, but that the constant regulator requests create for a highly
stressed environment and this negatively impacts the quality of work. On average, from
2014 to 2015, total compensation for Internal Auditors at JPMorgan remained flat.
• Internal Auditors at Bank of America are not being compensated for the additional workload
and this is creating a very poor mood.
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13. 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 is
consistent with most European banks pulling back from the US.
• Deutsche Bank is paying out annual bonuses within Internal Audit in very limited instances.
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14. 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 than
prior years as they rotate their talent more often.
• Barclays is attempting to rotate talent in a better way, but the Internal Audit function there
is not mature enough to do this well; Auditors are rotated without basic understanding for
the new area of discipline.
• Bank of America is not rotating talent or providing mobility for Internal Auditors and are
losing many mid-level Auditors. The sentiment internally is that there are too many people
at the VP level and there are limited promotional opportunities.
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15. 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 York
Plaza). Those who commute from Westchester and Connecticut could be good candidates
to target.
• Wells Fargo is hiring Auditors across the country, but has a preference to hire in
Minneapolis, San Francisco, and Charlotte. The Internal Audit headcount in Charlotte is the
largest. The Minneapolis team has grown to about half of the Charlotte headcount and they
have built a sizable Risk Audit group. The San Francisco Internal Audit is about half the
size of Minneapolis and is growing.
• Firms are employing flexible work arrangements as a recruiting strategy (especially on the
West Coast in cities with high traffic, i.e. Los Angeles).
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16. 16
Summary
Given 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.
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17. 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).
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18. 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 Audit
leadership at (John Roberts’ departure), capitalize on this group’s current stress by courting junior
and mid level IT Auditors.
• Consider Internal Auditors at Big 4 firm with experience outside of financial services and Internal
Auditors 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 and
structure of rotational opportunities.
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19. Talent Movement: Wins and Loses – 2016 (Attachment I)
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20. Talent Movement: Wins and Loses – 2015 (Attachment II)
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21. Talent Movement: Wins and Loses – 2015 (Attachment II
Continued)
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22. Talent Movement: Wins and Loses – 2015 (Attachment II
Continued)
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23. For Additional Information, Contact:
David C. McInnis
Founding Partner
203.542.7815
david.mcinnis@willardpowell.com
175 Atlantic Street, Suite 300, Stamford, CT 06901
23