Internal audit functions across North America are entering 2026 under mounting strain, as shrinking budgets and staffing constraints collide with expanding responsibilities and an increasingly complex risk environment.
That is the central findings from the latest North American Pulse of Internal Audit Survey, released by The Internal Audit Foundation at The Institute of Internal Auditors’ Great Audit Minds conference in Las Vegas this week. The annual report, based on responses from 373 senior audit leaders, highlights a profession at a crossroads—one where expectations are rising even as resources decline.
“Our research confirms a direct link between strategic alignment and audit function resourcing,” said Anthony Pugliese, president and CEO of The IIA. “Organizations across industries are operating in an environment of constrained budgets and limited staffing. Internal audit is no exception. In this context, alignment with enterprise priorities is not optional—it is essential. Audit functions that anticipate risk, align to strategy, and demonstrate clear value are better positioned to secure the resources needed to deliver high-quality assurance and advisory services.”
For many internal audit leaders, the challenge is no longer simply about keeping pace with risk. It is about doing so with fewer people, less funding, and broader mandates than ever before. In addition to declining resources, most internal audit departments are grappling with how to better incorporate artificial intelligence into their work-flows and improve their ability to adapt to change.
A Turn Toward Tighter Budgets
After several years of relative stability, internal audit funding took a noticeable downturn in 2025. According to the survey, the percentage of internal audit functions reporting budget cuts rose from 11 percent in 2024 to 19 percent in 2025. At the same time, the share reporting budget increases fell from 34 percent to 23 percent. The shift marks a return to conditions not seen since the period following the COVID-19 pandemic, when organizations across industries pulled back spending amid uncertainty.
The consequences are already being felt. The proportion of chief audit executives (CAEs) who say their functions are mostly or completely sufficiently funded dropped from 53 percent to 45 percent. Meanwhile, those reporting insufficient funding climbed from 22 percent to 30 percent.
These figures point to a growing gap between what internal audit is expected to deliver and the resources available to support that work.
Staffing Pressures Add to the Strain
Staffing trends tell a similar story. The percentage of internal audit functions reporting staff cuts increased from 11 percent to 18 percent between 2024 and 2025, while the share reporting stable staffing declined.
Yet even amid these reductions, the percentage of organizations reporting staff growth held relatively steady at around 23 percent. The result is a fragmented landscape in which some audit functions continue to expand, while others face tightening constraints.
From a longer-term perspective, the data suggests that the profession has not fully recovered from pandemic-era disruptions. While hiring rebounded in the years following COVID-19, growth has since plateaued and, in some cases, begun to decline. For audit leaders, the implication is clear: resource constraints are not a temporary challenge, but a structural reality that must be managed strategically.
Alignment With Strategy Becomes a Deciding Factor
Amid tightening budgets and staffing pressures, one factor stands out as a critical differentiator: alignment with organizational strategy.
The survey finds a striking link between strategic alignment and funding sufficiency. Among internal audit functions that claim they are fully or almost fully aligned with their organization’s strategic priorities, 59 percent report having sufficient funding. By contrast, only 29 percent of those that say they are only somewhat aligned with the organization’s strategy report sufficient resources—a difference of 30 percentage points. The pattern holds across industries and organization sizes, underscoring the importance of positioning internal audit as a strategic partner rather than a purely compliance-driven function.
Nearly 60 percent of CAEs say their functions are fully or almost fully aligned with organizational strategy. However, that alignment varies widely by sector. Financial services leads the way, with 69 percent reporting strong alignment, while manufacturing and public administration trail at 47 percent and 50 percent, respectively.
For many organizations, the message is becoming increasingly clear: internal audit functions that demonstrate direct relevance to business priorities are more likely to secure the resources they need.
A Tale of Two Sectors
While the overall trend points toward tighter budgets and reduced staffing, the survey reveals notable differences across sectors.
Financial services stands out as a clear exception. It is the only sector where internal audit budgets remained relatively stable in 2025, with 40 percent of organizations reporting budget growth and just 9 percent reporting cuts. Staffing trends in the sector are similarly resilient. The percentage of organizations reporting staff growth rose from 25 percent to 32 percent, while those reporting cuts remained low at 10 percent. This stability likely reflects the sector’s heavy regulatory requirements and the critical role internal audit plays in managing financial and compliance risks.
In contrast, privately held organizations experienced some of the sharpest declines. Budget cuts increased significantly, while the percentage of organizations reporting staff reductions jumped from 11 percent to 28 percent. At the same time, staff growth dropped markedly.
Other sectors—including nonprofit organizations, healthcare, education, and the public sector—also reported notable setbacks. Many saw double-digit declines in budget growth alongside rising budget cuts, highlighting the widespread nature of the challenges facing internal audit.
Expanding Responsibilities Stretch Capacity
Even as resources become more constrained, the scope of internal audit continues to grow. According to the survey, 86 percent of CAEs are responsible for at least one area beyond internal audit. Fraud investigation is the most common additional responsibility, cited by 47 percent of respondents. Ethics and whistleblower programs, along with enterprise risk management, are also frequently part of the CAE’s remit.
In publicly traded companies and manufacturing organizations, oversight of Sarbanes-Oxley compliance is particularly prominent, with 80 percent and 70 percent of respondents, respectively, reporting responsibility in this area.
This expanding scope reflects the increasing importance of internal audit within organizations. However, it also raises concerns about capacity and focus—especially in an environment where budgets and staffing are under pressure. For many audit leaders, the challenge is no longer simply about managing risk, but about determining which risks matter most.
Risk Priorities Shift Toward Tech and Compliance
The composition of audit plans offers further insight into how internal audit functions are adapting. Cybersecurity and information technology continue to dominate, accounting for roughly 20 percent of audit effort across most sectors. As organizations become more digitally dependent, the need to address cyber risk remains a top priority.
Regulatory compliance also plays a central role, particularly in organizations subject to Sarbanes-Oxley requirements. In those environments, a significant portion of audit resources—around 30 percent—is dedicated to financial reporting and compliance activities.
Overall, internal audit functions continue to devote the majority of their time to assurance work, which accounts for approximately 75 percent of activity, compared with 25 percent for advisory services. This balance has remained consistent, suggesting that while advisory roles are expanding, the core mission of internal audit remains firmly rooted in assurance.
Governance Structures Provide Stability
Despite the pressures facing internal audit, governance frameworks remain relatively strong. Most CAEs report functionally to an audit committee or board, reinforcing the independence of the internal audit function. Engagement with these oversight bodies is also high: 89 percent of CAEs say they attended all audit committee meetings in the past year, and more than half report that their committees meet more than four times annually. These structures play a critical role in ensuring that internal audit retains its influence and effectiveness, even as resource constraints intensify.
Looking Ahead: An Inflection Point for the Profession
Taken together, the findings of the 2026 survey suggest that internal audit is at a pivotal moment. On one side are mounting pressures: shrinking budgets, staffing constraints, and expanding responsibilities. On the other is a growing recognition of the function’s strategic importance.
For CAEs, the path forward will require a shift in mindset. Success will depend less on doing more work and more on doing the right work—focusing on the areas that deliver the greatest value to the organization. That means aligning audit plans with strategic priorities, anticipating emerging risks, and clearly demonstrating the impact of internal audit’s work. As organizations continue to navigate uncertainty, the demands on internal audit are unlikely to ease. If anything, they are expected to grow.
Yet the survey also makes clear that internal audit is not without options. Functions that align closely with business strategy, prioritize high-impact areas, and effectively communicate their value are better positioned to secure funding and maintain influence. In a constrained environment, relevance is everything. For internal audit leaders, the challenge is not simply to adapt—but to evolve. 
Joseph McCafferty is editor & publisher of Internal Audit 360°