A State of Resilience

The recent global events are forcing companies to assess risks not only from a growth perspective, but from a divesting perspective. In Europe, international companies have had to adjust how they view risks to their operations in countries sharing borders with global superpowers. It has added a worst-case scenario of “having to shut down a business in country X” to long-term strategic planning discussions.

Like many of its neighbors, Lithuania is no stranger to geopolitical conflict. With a population of nearly2.8 million people and a history spanning over a thousand years, Lithuania has weathered countless trials and remains resilient. Even with the omnipresent news of war, there is a semblance of normalcy in everyday life. The flexibility ingrained during the pandemic has, in many ways, equipped businesses and professionals to quickly adapt when faced with fresh challenges.

Like their country, internal auditors in Lithuania have responded to this latest upheaval with resilience and pragmatism. Auditors have helped guide their organizations around new risks and challenges, and their experiences can serve as a lesson for internal auditors undergoing similar change and upheaval.

A Time of Disruption

The Russia-Ukraine war has created multiple challenges for organizations and internal auditors in Lithuania, including complying with numerous international sanctions. These external impositions have forced businesses to take a closer look internally, reviewing processes related to anti-money laundering, sanctions observance, Know Your Business/Know Your Customer (KYB/KYC) regulations, and third-party risk assessment. Sanctions compliance in Lithuania means not only observing European Union (EU) sanctions, but also following changes to U.S. sanctions, as the U.S. Office of Foreign Asset Control issues guidance on sanctions.

Because of its relatively small size, most of Lithuania’s businesses rely heavily on imports, making it a truly global marketplace. One of the most significant changes businesses have faced is finding alternative suppliers in other countries. The sanctions have made it difficult for businesses to import goods from Russia, previously one of Lithuania’s primary trading partners.

As in other EU countries, special projects within public and private companies may be funded by grants from the EU, which are governed by EU laws and regulations. How well an organization adheres to those laws can have an impact in terms of legal compliance, but also in terms of its reputation.

If a company is found to be noncompliant and funds are retracted, it may result in negative media attention. This can impact not only the business itself, but the country as a whole. For auditors in larger countries, this reality may seem like an extra layer of responsibility. While some internal auditors working for global companies feel the weight of “representing one’s country,” most do not have to consider how negative media attention could decrease foreign investment in one’s home country.

Remaining Flexible

Internal audit departments have stepped up to support businesses in multiple ways. They have assessed the regulatory environments in new supplier countries and conducted risk assessments on their organization’s ability to monitor sanctions compliance in these markets. They have reprioritized audits to support the organization’s ability to adjust. Specifically, the lack of supplies from Russia and the search for suppliers or customers elsewhere has resulted in product shortages or disruptions.

Consider the internal audit team at Ignalina Nuclear Power Plant, which is undergoing an intense dismantling project. It is expected to achieve the “brownfield” end-stage by 2038, which involves rehabilitating the utility’s land and buildings so the site can be redeveloped and the surrounding infrastructure can be used for economic activity. The nuclear power plant has unique infrastructure needs; as part of the dismantling project, there is an inflow of specialized tools and materials and an outflow of parts that cannot be repurposed on site but must be recycled or destroyed responsibly. To achieve this, the internal audit team had to find suppliers from a very limited set of companies that work with nuclear plants built in the 1980s.

Strict sanctions compliance led the team down a path of integrated solutions, using two third-party providers to conduct sanctions screening, and adopting a software as a service (SaaS) tool for conducting sanctions compliance globally. In searching for the right SaaS tool, the team had to prioritize a provider with granular data specific to Eastern Europe.

This scenario emphasizes a fundamental truth during times of disruption: No single approach is the solution; creating an ecosystem of specialized approaches is a must. While in some cases, a global sanctions screening tool may suit organizational needs, it is often the case that broader tools may not address the needs of the organization as the landscape changes.

Standing Together

Even while Lithuanian internal auditors are responding with resilience to support their organizations, they are still human and are naturally affected by the simmering conflict. The recent stream of news about nuclear weapons being moved to Belarus (which borders Lithuania), seeing war refugees from Ukraine, and hearing about escalations in the war can create stress.

One of the ways internal auditors in Lithuania cope with the unknown is by fostering a sense of community. The Ignalina Nuclear Power Plant’s deep local ties enable it to be a center of community action and involvement. Built in 1980, the power plant has long been the city of Ignalina’s major employer, and the surrounding area is populated by people who either work for the plant or know someone who does. Many of its employees actively support relief efforts for Ukrainian refugees, embodying a spirit of solidarity and hope.

Other organizations across Lithuania organize events that allow employees to support humanitarian efforts and represent their organizations in doing so. Many Lithuanian internal auditors participate in these initiatives, which helps build relationships with colleagues across departments. Working toward a noble common goal unites people far beyond what any traditional “team building” events could do.

Even the IIA-Lithuania affiliate exemplifies this resilience and adaptability. Its continued commitment to offering professional development avenues, both in-person and online, has enabled internal auditors to maintain their professional connections and enhance their knowledge.

The Lithuanian government also has been a supportive partner, offering businesses a pathway to collaborate with suppliers, especially in unique situations where no alternatives exist. Early on, the government established open lines of communication so that companies could easily obtain guidance.

Preparing for Change

Several key insights emerge from the experiences of internal auditors in Lithuania that can be applied to other teams facing geopolitical disruption:

Having a strong compliance framework is crucial. In light of changing geopolitical events, internal auditors should assess adherence to international sanctions, anti-money laundering rules, and KYB/KYC requirements. The function should carry out thorough risk assessments, especially with third parties, and review compliance processes to ensure they meet international standards.

The human element cannot be overstated. As geopolitical conflicts impact globally distributed teams on a highly personal level, leadership teams need to be mindful of the impact. Cultural sensitivity becomes more important, and supervisors need to educate themselves or seek out resources to ensure they are supporting their teams in ways that are culturally and context appropriate.

Collaboration between government and business can be beneficial. Lithuania’s approach to facilitating business collaborations with suppliers in a time of uncertainty is a good example. Internal auditors can help bridge this collaboration by acting as advisors for the company, but also as liaisons with government officials. This helps ensure the organization adapts smoothly to new regulatory environments while maintaining compliance.

Sanctions can disrupt traditional supply chains. This can prompt businesses to find alternative suppliers. Internal auditors can help guide businesses through the regulatory challenges of new markets, ensuring compliance with international sanctions at every step.

Specialized tools and expertise are vital to compliance management. The internal auditors at Ignalina Nuclear Power Plant learned that a mix of specialized tools and third-party expertise may be needed to support compliance frameworks.

Sanctions compliance is a reputational matter. Compliance with EU and U.S. sanctions is not just a legal requirement. Ensuring strict adherence to sanctions can help the company and the country maintain a good reputation. Internal auditors can ensure that compliance measures are in place and followed, helping to avoid negative publicity and its fallout.

Global disruption and change are happening at an accelerated pace. While many things change, being aware of familiar themes can help anchor internal auditors to a foundation that supports growth.

First, geopolitical scenarios will continue to evolve, and their impacts will be more profound. This mandates an unparalleled resilience and flexibility from businesses and internal audit practitioners. Internal audit functions must be there for the business, acting as a partner in tackling uncertainty. Internal auditors can harness their unique understanding of the organization and its risk profile to provide insights on the impact of new regulations, suggest ways to find new suppliers and third-party vendors, or even lend out internal audit staff to support other departments.

Second, risk assessments must remain grounded in both likelihood and impact. While COVID-19 and major geopolitical conflicts make it seem like those “black swan” events are becoming a trend, it is important not to over-correct. Instead, internal auditors should rationally assess the likelihood of these events occurring for their organization and location.

Third, the auditor’s role as a trusted advisor is more pivotal than ever. Organizations will lean on their internal audit teams to provide leadership and clarity, especially when wading through complex internal processes. Internal auditors will need to balance their role as providers of independent assurance with the need to become more involved in the business and strengthen their relationships with key business stakeholders.

For auditors to remain at the forefront as trusted advisors, there’s a clear call to action: They must make a commitment to continuous personal and professional growth. This means embracing new technologies, prioritizing lifelong learning, and proactively engaging with the global internal audit community to share and absorb new practices.

Networking has always been an essential part of the internal audit toolkit. With the faster pace of change, internal auditors can think of it as a way to shortcut learning.

Connecting Globally

The journey doesn’t end here. The broader challenge is about fostering global connections. The IIA Chapter and Affiliates page can lead to a treasure trove of insights. The world of internal auditing offers a platform of shared experiences and collective growth, bridging divides and fostering connections across continents. Join IIA webinars; it is a way to travel the world virtually and meet interesting professionals who share many of the same issues.

The journey of internal auditors, especially in nations like Lithuania, offers a beacon of hope. It serves as a testament to human ingenuity and the indomitable spirit to persevere, innovate, and evolve, no matter the challenges.