The impact of global sporting events: How internal audit drives risk management

Corporate internal audit challenges in supporting global sports events risk management

For corporate internal auditors, particularly those in sectors like hospitality, retail, and transportation, global sporting events can lead to significant revenue spikes. However, this surge in activity also brings increased risks. Let us explore some of the key challenges faced by corporate internal audit teams.

Revenue surge scrutiny and sponsorship auditing

According to Reuters, after the 2022 FIFA World Cup in Qatar, Qatar Airways reported a record profit of $1.54 billion for the 2022-23 fiscal year, partially attributed to the influx of visitors for the tournament. Internal audit teams in such corporations must scrutinize these revenue surges, ensuring they are accurately reported and free from fraudulent inflation.

For instance, during the 2010 FIFA World Cup in South Africa, South African Tourism statistics identified that the country's tourism industry saw a 15.1% increase in foreign arrivals compared to the previous year. However, a subsequent audit revealed discrepancies in how some businesses reported their earnings, highlighting the need for rigorous financial scrutiny leading up to, during, and after such events.

Sponsorship deals associated with these events also require careful auditing. The 2016 Rio Olympics saw several sponsorship-related controversies, including allegations of overvalued contracts. Corporate internal auditors must verify the value and compliance of such agreements, protecting their companies from potential reputational and financial damages.

Supply chain risk management and cybersecurity considerations

Global sporting events often require companies to rapidly scale up their operations, applying strain on supply chains. Internal auditors must assess the risks associated with new suppliers, increased production demands, and potential disruptions.

One such example can be found during the 2012 London Olympics, when McDonald's faced significant supply chain challenges as it prepared to serve an estimated 1200 customers an hour over 29 days at its Olympic Park restaurant. Internal auditors played a crucial role in ensuring that food safety standards were maintained and that the supply chain could meet the extraordinary demand without compromising quality or safety.

With increased visibility and transaction volumes, organizations involved in global sporting events may also become prime targets for cyberattacks. Internal audit teams must ensure robust cybersecurity measures are in place well ahead of the start of these events to protect sensitive data and financial systems.

An unfortunate example of this can be seen with the 2018 Winter Olympics in Pyeongchang, South Korea, when the event fell victim to a cyberattack that disrupted IT systems, including the official website and ticketing services. This incident highlights the critical need for internal auditors to assess and strengthen cybersecurity measures in the lead-up to major sporting events.

Public sector internal audit responsibilities

Public sector internal audit teams face even broader challenges in sports event risk management. They must oversee massive infrastructure projects, monitor public spending, and ensure long-term value for taxpayers. The following are some key areas of focus.

Infrastructure project oversight and long-term economic impact assessments

The Paris 2024 Olympics, with a budget of €8.8 billion, presented a monumental task for French public sector auditors. They needed to track costs, verify procurement processes, and guard against corruption in construction and service contracts.

Additional lessons can also be learned from the 2014 Sochi Winter Olympics, which saw its budget balloon from an initial estimate of $12 billion to over $50 billion, amid allegations of corruption and mismanagement, underscoring the critical role of public sector auditors in maintaining budgetary discipline and overall transparency.

As Germany prepared for Euro 2024, public auditors were tasked with ensuring that the investment in stadium renovations and infrastructure delivered value for the money and for the 2.7 million ticket holders. This involved not only just tracking spending, but also assessing the long-term economic impact and sustainability of these investments.

The legacy of the 2010 FIFA World Cup in South Africa also provides an instructive case study. While the event boosted short-term tourism and job creation, many of the stadiums built for the tournament have since become underutilized and expensive to maintain. This highlights the importance of rigorous long-term impact assessments by internal auditors, such as infrastructure utilization monitoring the usage rates and maintenance costs of stadiums and other facilities built for these events.

Environmental, Social, Governance (ESG) and public-private partnership audits

With increasing focus on sustainability, public sector auditors must also evaluate the environmental, social, and governance impacts of these events, ensuring compliance with that region’s ESG standards and commitments.

The Tokyo 2020 Olympics (held in 2021) set ambitious sustainability goals, including the use of 100% renewable energy and the creation of the event’s medals from recycled electronic devices. Internal auditors have likely played a crucial role in verifying these claims and assessing the overall environmental impact of the games. As such, their involvement was multifaceted:

1. Pre-event planning – Internal auditors were involved in reviewing the sustainability plans and targets, ensuring they were measurable and achievable.
2. Continuous monitoring – Throughout the preparation phase and during the event, internal auditors conducted regular checks to ensure compliance with sustainability commitments.
3. Data verification – Internal auditors independently verified the data on renewable energy usage and the sourcing of materials for medals, providing credibility to the organizers' claims.
4. Supply chain audits – Internal auditors assessed the sustainability practices of suppliers and partners involved in the Games.
5. Post-event analysis – After the Olympics, internal auditors played a key role in evaluating the actual environmental impact against the initial goals, helping to create a comprehensive sustainability report.
6. Recommendations for future events – Based on their findings, internal auditors provided valuable insights and recommendations for improving sustainability efforts in future Olympic Games.

Many global sporting events also involve complex public-private partnerships. Internal auditors must scrutinize these arrangements to ensure fair risk allocation and value for money for the public sector.

The London 2012 Olympics, for example, utilized several public-private partnerships, including the Olympic Village development. Post-event audits revealed both successes and challenges in these arrangements, providing valuable lessons for future events.

Post-event auditing and economic impact assessment

After these global sporting events conclude, both corporate and public sector internal auditors face the crucial task of verifying the reported economic benefits. This phase is critical in sports event risk management and involves several key activities:

Economic benefit verification and infrastructure utilization assessments

According to TASS, the 2018 FIFA World Cup in Russia reportedly added billions of rubles (over $14 billion) to the country's GDP between 2013-2018. However, independent economists often dispute such figures, highlighting the need for rigorous, impartial auditing of economic impact claims.

A study found that the economic benefits of hosting major sporting events are often overstated, with actual impacts being much more modest. This underscores the importance of thorough, independent post-event audits.

After the AFCON 2024 in Ivory Coast, internal auditors will play a vital role in assessing the true economic legacy of the tournament. This includes evaluating the utilization of new infrastructure and identifying any instances of new ‘Mega’ projects initiated by the country.

The case of the 2014 FIFA World Cup in Brazil serves as a cautionary tale. Several stadiums built for the tournament, such as the Arena da Amazônia in Manaus, have struggled with low utilization and high maintenance costs post-event. This highlights the need for careful planning and post-event auditing of infrastructure projects to ensure that new developments will continue to realize continued growth and return on investment after the events have concluded.

Tourism revenue verification and long-term cost-benefit analysis

Auditors must verify tourism revenue figures and cross-check reported numbers with independent data sources, for instance, from organizations like the International Air Transport Association (IATA) or global hospitality data providers, such as STR Global, to ensure accuracy.

Internal audit teams should be prepared to conduct a comprehensive cost-benefit analysis, considering not just immediate economic impacts but also long-term effects on local economies, employment, and quality of life.

The Barcelona 1992 Olympics is often considered a positive example of long-term benefits. The event catalyzed urban regeneration and boosted Barcelona's international profile, with lasting positive impacts on tourism and the local economy. However, thorough auditing is crucial to substantiate such claims and provide a balanced view of long-term impacts.

In contrast, the Athens 2004 Olympics serves as a cautionary tale. Despite initial optimism, many of the facilities built for the games fell into disuse and disrepair shortly after the event. The significant costs of hosting the Olympics, estimated at €9 billion, contributed to Greece's debt crisis in the following years. A study found that the long-term economic legacy of the Athens Olympics was negligible, with any positive effects dissipating within a few years.

These contrasting examples highlight the importance of long-term auditing and impact assessment. While mega-events like the Olympics can potentially bring lasting benefits, they also carry significant risks. Internal auditors play a crucial role in objectively assessing both the positive and negative long-term impacts, providing valuable insights for future decision-making and event planning.

Fraud risks and compliance challenges

Major sporting events often come with elevated fraud risks, making this a critical aspect of sports event risk management. Internal auditors must be vigilant in identifying red flags and ensuring compliance.

Fraud risk identification and anti-bribery and corruption compliance

Auditors need to be alert to potential fraud schemes such as inflated invoices, phantom vendors, or kickback schemes in the context of large-scale event preparations.

The Salt Lake City Winter Olympics scandal of 2002 serves as a stark reminder of the potential for fraud in global sporting events. The scandal involved allegations during the bidding process, leading to significant reforms in the International Olympic Committee.

Anti-bribery and corruption compliance often involve interactions with government officials and international organizations. Internal auditors must ensure compliance with anti-bribery and corruption laws, implementing robust controls and monitoring systems.

The ongoing investigations into the awarding of the 2022 FIFA World Cup to Qatar highlights the critical importance of anti-corruption measures. Allegations have led to numerous legal proceedings and reforms within FIFA.

Internal auditors need to work closely with compliance officers to develop detailed monitoring systems and reporting mechanisms to flag any suspicious activities or irregularities in interactions with government officials and contractors. Regular audits of expense reports, third-party contracts, and sponsorship deals should be conducted to ensure transparency and accountability.

Procurement process audits and financial mismanagement detection

Given the scale of purchases and contracts associated with global sporting events, thorough audits of procurement processes are essential to prevent fraud and ensure value for money.

The 2010 Commonwealth Games in Delhi, India, were marred by allegations in the procurement process, including inflated costs and substandard equipment. This case underscores the need for rigorous procurement audits in the lead-up to major sporting events.

To mitigate fraud risk and maximize value for money, the internal audit function should focus on several key areas:

• Vendor selection - Ensuring that all contractors are selected through competitive and transparent bidding processes.
• Contract management - Regularly reviewing contract terms to ensure adherence to budgets, timelines, and deliverables.
• Payment controls - Auditing payment procedures to prevent overpayments, verify the completion of work, and ensure that only authorized personnel may approve payments.
• Risk assessments - Identifying high-risk areas in procurement and allocating additional resources to audit these processes thoroughly.

Auditors should also implement advanced analytics and continuous monitoring techniques to detect potential financial mismanagement or fraudulent activities in real time.

The 2015 scandal with FIFA, which led to the indictment of several high-ranking officials, demonstrates the potential for financial mismanagement at the highest levels of sports organizations. This case further highlights the need for sophisticated financial monitoring and auditing techniques.

Internal auditors can leverage advanced analytics and continuous monitoring techniques to prevent financial mismanagement and detect fraud in real time. Here is how this might work in practice:

• Data integration - Internal auditors can use advanced analytics to integrate data from various sources (procurement, payment records, contractor performance, etc.) and perform cross-checks to identify inconsistencies or red flags. For example, anomalies in pricing, sudden changes in contract amounts, or duplicate payments can be detected by analyzing large datasets.
• Trend analysis - By continuously monitoring financial transactions, auditors can identify unusual patterns, such as frequent changes in suppliers or sudden increases in expenses, which may indicate fraudulent activity.
• Real-time alerts - With the help of real-time monitoring tools, auditors can set predefined rules and triggers to flag suspicious activities. For instance, if a large payment is made outside of regular working hours or to a previously unapproved vendor, the system can send an immediate alert to the audit team for further investigation.
• Predictive analytics - Internal auditors can implement predictive analytics models that assess historical data to predict where future fraud or financial mismanagement is likely to occur. These models can help auditors focus their efforts on high-risk areas and prevent issues before they escalate.

The role of TeamMate in supporting internal audit teams

To effectively manage these complex auditing challenges in sporting event risk management, both corporate and public sector internal audit teams can benefit from advanced audit management software like TeamMate+. TeamMate+ offers a comprehensive suite of tools designed to support auditors through every phase of these high-stakes events:

1. Risk assessment - TeamMate+ risk-focused planning and execution helps auditors identify and prioritize risks, from procurement fraud to revenue misstatements. For instance, it can help create risk heat maps, enabling auditors to focus their efforts where they are most needed.
2. Audit planning - The planning capabilities of TeamMate+ allows teams to develop comprehensive audit strategies that cover all aspects of operations. This includes creating detailed audit programs, assigning tasks to team members, and setting up milestones to ensure timely completion of audit activities.
3. Fieldwork support - TeamMate+ enables auditors to conduct audits easily. This can be particularly useful for auditing complex infrastructure projects or verifying crowd management procedures during the event.
4. Data analytics - TeamMate Analytics helps auditors identify anomalies in financial data, potentially uncovering fraud or mismanagement. For example, it can analyze procurement data to flag unusual patterns that might indicate bid rigging or kickbacks.
5. Reporting - The robust reporting features of TeamMate+ allow auditors to clearly communicate findings to stakeholders, supporting transparency and accountability. This includes creating customizable dashboards that provide real-time insights into the audit progress and key findings.
6. Follow-up tracking - TeamMate+ facilitates the tracking of remediation efforts and long-term impact assessments. This can be crucial for ensuring that lessons learned from one event are applied to future events, improving the overall management of global sporting events over time.

Conclusion: The critical role of internal audit in global sporting events

As the world of sports continues to intersect with complex economic realities, the role of internal audit in sports event risk management becomes ever more crucial. From ensuring financial integrity to maximizing long-term benefits, internal auditors play a pivotal role in the success and legacy of global sporting events.

By leveraging advanced tools like TeamMate+ and applying rigorous risk management strategies, internal audit teams can help host countries and organizations navigate the unique challenges posed by these events. The work of internal audit will not only safeguard against potential pitfalls but also support the realization of the immense potential these events hold for economic growth, cultural exchange, and global cooperation.

As we look forward to future global sporting events, the importance of robust internal audit practices cannot be overstated. They are the unsung heroes working behind the scenes, ensuring that the spectacle on the field is matched by integrity, efficiency, and lasting value off the field. The lessons learned from past events, both successes and failures, underscore the critical need for thorough, independent auditing at every stage of these global spectacles.

In an era where the economic and social impacts of major sporting events are under increasing scrutiny, the role of internal audit teams in driving effective risk management has never been more important. As we have seen through numerous examples — from the financial scrutiny of the Qatar World Cup to the long-term impact assessment of the London Olympics — internal auditors are at the forefront of ensuring these events deliver on their promises while minimizing risks and potential negative impacts.

The future of global sporting events will likely see even greater emphasis on sustainability, social responsibility, and long-term economic benefits. Internal audit teams, equipped with advanced tools and methodologies, will be crucial in navigating these evolving challenges and opportunities. Their work will continue to be essential in maintaining public trust, ensuring financial integrity, and maximizing the positive legacy of these monumental events.