Generating a Big Impact with a Small Audit Staff-Strategy VI

Strategy #6: Advisory or Consulting Engagements Can Be “High Impact” Too

The events of the past decade — Enron, WorldCom, Sarbanes-Oxley, and the global financial crisis, among others — have enhanced recognition of the fact that financial controls are important. But value-added consulting engagements such as assessment services, facilitation services, and remediation services also can add value and improve an organization’s operations in a big way. Consulting engagements are likely to be high impact because they generally are the result of management requests for needed services such as counsel, advice, facilitation, process design, and training.

Assessment engagements are those in which the auditor examines/evaluates a past, present, or future aspect of operations and renders information to assist management in making decisions. Examples of these engagements include assessing the risk of a physical security breach, evaluating a proposed reorganization plan, assessing proposed internal controls, or estimating total costs of decentralized acquisition.

Facilitation services are those in which auditors assist management in examining organizational performance for the purpose of promoting change. In a facilitation role, auditors do not “judge” performance. Instead, we guide management in identifying organizational strengths and opportunities for improvement. Examples include strategic planning support, business process reengineering support, benchmarking, performance measurement, and control self-assessment.

Remediation services are those in which the auditor assumes a direct role designed to prevent or remediate known or suspected problems on behalf of a client. Examples include developing and delivering training courses, reviewing or drafting proposed policies or systems, and augmenting operating personnel.

From Richard Chambers, CIA, CGAP, CCSA

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Deadly Money Sins You Must Never Commit

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This is a good read more so for persons who have not cultivate the right savings culture. Manage your finances in the right way and avoid these seven deadly sins…

Managing your finances correctly requires a lot of discipline. Unfortunately, not all of us have that discipline and instead, we can get entrapped by the seven deadly sins.

Yes, believe it or not, the seven deadly sins of lust, gluttony, greed, sloth, wrath, envy and pride, can also apply to personal finance. Here, I’m going to reveal exactly how, along with what you can do to prevent getting caught out!

Lust

It’s easy to spot something in the shop window or online and wish it was yours. However, lusting after items can be dangerous and can lead you into the trap of buying things you can’t afford. Lust can make us impatient and instead of taking the time to save up for that desirable item, we simply whack it on a credit card and worry about the consequences at a later date.

But this can be a very dangerous game and what was initially a small amount of debt on your credit card can soon morph into a considerable sum of money. If you then find you can’t afford to pay it off, you’re in trouble.

To avoid this, you need to be far stricter with yourself and learn to budget better. Before you buy anything, think about whether you really can afford it. If you can’t, don’t buy it. If you really want it, put the money in a savings account and buy it when you can afford it. Alternatively, if it’s necessary for you to buy it there and then, pay for it sensibly.

Gluttony

Living beyond your means and paying for top-quality items and luxury holidays that you can’t really afford is also likely to lead you into trouble. Buying top-of-the-range food and designer jeans might make you believe you look good, but spending until your wallet explodes will get you nowhere — apart from in masses of debt.

If you end up taking out a personal loan to pay for your life of luxury or you’ve reached your credit limit on every credit card you own, you need to take a long hard look at yourself.

Stop accumulating all that stuff and only pay for what you really need and can afford. No one will judge you any differently if you switch to supermarket own brand food ranges instead of paying through the nose for the luxury versions, or for booking a three-star hotel instead of a five-star one. And really, does anyone study your jeans that closely?

Greed

Another deadly sin is being stingy and keeping all your money to yourself. You saw what happened to Scrooge, so don’t be greedy and hoard all your cash. Give some away to those who need it — you never know, it might make you feel good!

If you can afford to, why not set up a monthly direct debit to donate to your favourite charity? And with Christmas around the corner, there’s no better time to show your loved ones how much they mean to you. Giving them lots of lovely presents this Christmas should make you feel all warm and fuzzy inside!

Sloth

Laziness can have a bad impact on your finances. Not bothering to shop around, switch accounts or open your post can lead to you wasting money, paying fees you shouldn’t have had to pay, and yes, you’ve guessed it, ending up in debt.

So before you apply for any financial product, whether it’s a savings account, current account, credit card or insurance, make the effort to do some research first.

What’s more, ALWAYS open your post. If you don’t, you may not know that your car insurance policy is soon to expire or your fixed energy tariff is coming to an end, meaning they may renew automatically and you’ll end up paying far more money than you should.

Failing to open your post could also mean you’re unaware of any fees you’re being charged on your credit card or whether the interest rate on your savings account is being cut. Read The dangers of ignoring your post to find out more.

Wrath

Most of us get frustrated with our bank from time to time. Unfair charges, rubbish savings rates and poor customer service can all make us pretty angry.

But if you are getting angry, don’t just sit there and do nothing. Do something about it. If you think your bank has unfairly charged you for something, you can challenge it. Find out more in How to complain to your bank and win.

And if you’ve had enough of the poor customer service, switch to a better lender. First Direct, for example, is renowned for its excellent customer service. Meanwhile, if you’re fed up with receiving a pathetic rate of interest on your savings account, move your money elsewhere!

Compare savings deals

Envy

Keeping up with the Joneses is something many of us are prone to doing. Seeing your neighbour’s brand new shiny car or your friend’s flash new iPhone can make many of us green with envy.

But if you can’t afford these items, buying them for the sake of impressing people is only likely to trigger the horrible downward spiral into debt.

So again, it all boils down to only buying what you can afford. Try to be content with what you have and stop trying to keep up with everyone else.

Pride

Finally, pride can prevent us from asking for help when we need it. If you’re really struggling with your finances, you need to swallow that pride and talk to someone about it.

Start by talking to a close friend or family member. Telling them about your financial concerns is likely to be a big relief and they may be able to offer help.

Generating a Big Impact with a Small Audit Staff-Strategy V

Strategy #5: Measure Results

A major key to ensuring a big impact is simply to measure our own performance. By keeping track of measures such as return on investment, cycle time, customer satisfaction, and the percentage of our recommendations that have been implemented successfully, we can measure how well we are doing at meeting our goals.

As internal auditors, we expect operational management to measure their results, yet we often fail to take the same actions ourselves. When was the last time you looked at all the costs of doing an audit — not just internal audit’s personnel and travel costs, but also the costs to operating personnel in terms of time for interviews, walk-throughs, and report reviews? If you look at the total costs from management’s perspective, were your audits a good value? Each individual audit report may or may not have a big impact, but at a minimum your audit plans should demonstrate value relative to costs. If internal audit is not a good value, it is time to re-think the audit planning process with a keen eye for value-per-dollar- spent.

This is strategy 5 of 6.

From Richard Chambers, CIA, CGAP, CCSA

Auditors and Creativity

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“We’ve always done it this way” and “This method always worked successfully in the past” don’t cut it anymore.

The business landscape is littered with wounded — or terminated — organizations and individuals who failed to challenge existing methods and practices; and internal auditing departments and internal auditors are no exception. Internal auditing departments that do not stimulate and reward creative endeavors are more likely to be threatened by outsourcing, budget cutbacks, and staff turnover. On the other hand, internal auditing departments that do promote innovation and creative problem solving are more likely to give their organizations the kind of help they need to succeed in an environment that has never been more challenging and competitive.

Creative Auditors — An Oxymoron?

We’ve all heard it. Whenever it’s implied that auditors have an ounce of creativity, someone will invariably ask, “Isn’t that an oxymoron?” And it’s not always outsiders who make the joke. Even some auditors apparently share the view that auditing isn’t creative, that it’s, well, boring — which helps to explain why so many talented individuals leave auditing, never become auditors, or wish they were no longer auditors. Of course, there are some internal auditors who genuinely like all aspects of their jobs; but the profession loses far too many innovative thinkers and future leaders.

A recent IIA survey revealed that the number one ethics issue facing internal auditors is “undue reliance on prior years’ audit programs and workpapers.”(1) Why do auditors rely so heavily on old workpapers? Why are the same audit programs automatically repeated each year? Why are the workpapers organized the same way? Why aren’t auditors more imaginative?

One explanation for the dearth of creativity in auditing is that most auditors have had minimal, if any, training in creative thinking. In fact, the auditing culture usually encourages opposite behavior. Auditors are taught to learn and enforce the rules, such as those governing internal controls, policies and procedures, laws and regulations. Although this work is clearly challenging, it does not usually involve creative thinking.

Creativity is not an innate talent that one either has or doesn’t have. Creative thinking can be taught and learned, just like sales or public speaking. Of course, some people have more natural ability than others, but that’s true of almost everything in life.

Creative approaches can be applied to almost everything internal auditors do. For example, creative techniques can help in finding new ways to:

* Strengthen the quality of audits.

* Improve efficiency.

* Provide value-added service to operating departments.

* Increase service to management and the audit committee.

* Enhance professional credibility.

* Improve working conditions.

In Michael Hammer and James Champy’s best-selling book, Reengineering the Corporation,(2) they state that “Redesign . . . demands imagination, inductive thinking, and a touch of a craziness. In redesigning processes, the reengineering team abandons the familiar and seeks the outrageous. Redesign asks the team members . . . to suspend their beliefs in the rules, procedures, and values that they’ve honored their whole working lives.” If auditors want to participate in this process, the traditional auditor mind-set must be abandoned, and audit approaches must be continually reexamined to ensure efficiency and quality.

The Creative Process

A self-assessment of strengths and weaknesses can help auditors and others who want to improve their creative skills. According to creativity guru Roger von Oech, the creative process involves four stages:

1. Explorer. The Explorer searches for new ideas — good or bad, rational or outrageous, serious or silly. Many, many ideas are needed to find innovative solutions to problems and challenges. As a famous philosopher once said, “Nothing is more dangerous than an idea when it is the only one you have.”

2. Artist.

The Artist takes existing ideas, provided by the Explorer, and molds or transforms them into entirely new and unique ideas.

3. Judge.

The Judge weeds out bad ideas and attempts to find workable, feasible solutions.

4. Warrior.

Finally, the Warrior implements the new ideas. Armed with a game plan, persistence, and diplomacy, the Warrior leads the battle against the many forces that resist change.

Each of the four steps is required if innovation is to occur. The most successful persons excel in all four areas, or they find others who complement their weaknesses.

Auditors often consider themselves weakest in the first two categories — the key ones for producing new ideas. Conversely, most auditors rank high in the “Judge” category. Auditors are skilled in evaluating different alternatives, shooting down unworkable ideas, and playing devil’s advocate, which means that, for most auditors, skills need to be improved in the other three categories.

The Creativity Toolbox

“Flashes of inspiration” seem to occur unexpectedly, and not always at the precise moment when you need them. When the auditing budget has to be reduced by 30 percent — without sacrificing quality — the ideas are needed now. A systematic method for stimulating new ideas can help.

Every auditor should build a personal “toolbox” to use whenever new ideas are needed. This figurative “box” should contain tools (idea stimulators) of all shapes and sizes. Some should be easy to use; some may be more sophisticated and require training.

The toolbox can even be used in one’s personal life. The same concepts that work in the business world can be applied to almost any situation. For example, a few fantastically clever costumes — the kind that win the Best Costume awards — always seem to show up at Halloween parties. Where do these ideas come from? Are the wearers just naturally creative? Possibly, but it’s more likely that they used creative toolboxes.

A Halloween toolbox might include a dictionary, for example. Each October, the toolbox’s owner might spend an hour scanning the pages in search of ideas. If a word leaps off the page, it’s written down (Explorer). Once a sheet of paper is filled, the person reviews the list and combines words to produce new ideas (Artist). Then, options are narrowed, based on factors such as cost (Judge). Finally, after reaching a decision, he or she purchases materials and prepares the costume (Warrior).

The result? On one Halloween, several friends dressed as Mount Rushmore. They walked together under a large, white sheet. Their faces, sticking out from four holes, were painted white, and each wore a powdered wig. The costume was a huge hit, and the idea didn’t require a visit to North Dakota, just the use of a simple tool, the dictionary.

An endless variety of tools can be stored in the auditor’s toolbox. Those already in use, such as prior audit workpapers, audit programs, and discussions with peers and other groups should not be discarded; but the toolbox needs to be bigger and better. It might include brainstorming sessions, process flow mapping, outsiders’ opinions, and other options.

Brainstorming Sessions

Brainstorming certainly isn’t new; but not everyone knows that brainstorming sessions produce optimum results when they are divided into two phases. In the first stage, ideas must be solicited and recorded without judgment or criticism. Under normal conditions, auditors may be hesitant to suggest new ideas that could appear stupid; but in the brainstorming environment crazy ideas are encouraged, since a dumb idea may spark a great one (the piggyback concept).

Once this phase is completed, participants should then focus on practical solutions. This is typically viewed as the “Judge” phase, but “Artist” possibilities should not be overlooked. In other words, as objections are raised, participants should search for ways to address them if the fundamental idea has potential. Many objections can be overcome if the team is determined to find new approaches.

While brainstorming may work best in groups, individuals can also “self-brainstorm.” To increase the odds for success, the individual must discipline himself or herself to produce ideas. For example, if the self-brainstorm is geared at rethinking the approach to achieving an audit objective, the auditor might commit to writing 10 completely different ways to accomplish the goal. Even when the task seems impossible and some of the ideas seem ridiculous, the determined brainstormer persists.

Sometimes “opposite thinking,” where the brainstormer lists 10 ways to achieve the opposite objective, can be productive. These ideas can lead to breakthroughs because the thinker has to explore radically different thoughts.

Process Flow Mapping

Since most audits are comprised of processes, this technique is an excellent tool to improve quality, efficiency, and service. The process flow map can be executed on a large sheet of paper or a blackboard.

Each step in the process and the estimated completion time should be listed, and the steps that add value and those that do not should be identified. Most participants are surprised at how often extensive effort produces little, if any, value.

What adds value in an audit? Activities that provide audit evidence or increase service levels — nothing else.

For example, the Exhibit illustrates the basic process for sending confirmations. Which steps add value? Just one: evaluating responses, or performing alternative procedures. No other step provides audit evidence or improves service.

So, can these steps be eliminated? Obviously not. But, these are examples of the kinds of areas that should be targeted when reduction of hours is under consideration. Using process flow maps in groups will almost invariably stimulate discussion and new ideas.

Outsiders

The saying “It’s difficult to see the picture when you’re inside the frame” illustrates a valid point regarding creative thinking. In Reengineering the Corporation, the authors write “It would be asking too much to expect [insiders], unaided, to overcome their cognitive and institutional biases and to envision radically new ways of working. Left to their own devices, a team made up of insiders will tend to recreate what already exists, with perhaps a 10 percent improvement. They will remain within the frame of the existing process, not break it. To understand what is being changed, the team needs insiders; but, to change it, the team needs a disruptive element. These are the outsiders.”(3)

Outsiders, such as audit efficiency consultants, can bring fresh perspectives and specialized expertise in areas such as benchmarking to internal auditing departments. Outsiders can also serve as a catalyst for action, unencumbered by office politics. The views of outsiders can provide the impetus for staff members to begin to look at old problems in new ways.

Other Options

There is room in the creative toolbox for many other resources, including more advanced techniques such as time compression studies, synectics, and mind mapping. A variety of books, software, training seminars, and audiocassettes can spark innovation. Simple tools, such as trade magazines or newspapers, can be powerful, too.

Just as a carpenter selects the appropriate tools for a project, auditors must choose the appropriate tools in each situation. The choice of tools depends on many factors, such as the nature of the problem or challenge, time constraints, and the availability of other persons and resources.

Overcoming Resistance to Change

Innovative ideas are useless if they are never implemented. To enact change, creative auditors must be determined to overcome frequent roadblocks. Anticipating and identifying obstacles are the first steps in conquering them.

Rushing

Time pressure is a major killer of creativity. Just think about it. Will a better audit program be devised in five minutes or one hour? Robert Kriegel, in his book If It Ain’t Broke, Break It,”(4) points out that “As a result of our time famine, we go for early closure on important issues, grabbing at the first ‘solution’ and running with it.”

This is a real concern because many auditors do face enormous time constraints. These pressures explain why critically important functions, such as planning, are often neglected. First, planning is a nonurgent task and can usually be delayed. Second, it is difficult to devote sufficient resources for planning, including the time required for generating ideas, when reports must be delivered, phone calls returned, workpapers reviewed, and other tasks completed. So, even when time is allotted for planning, the process is often rushed and effectiveness is limited.

To combat this problem, auditors should be passionate, even obsessed, about planning. Unfortunately, most auditors do not naturally possess this enthusiasm, so adequate time needs to be budgeted for planning, and performance evaluations or incentive programs should reward those who devote time to planning, especially when time is limited.

Fear

The fear of various forms of punishment stifles innovation. Fear of failure also prevents many auditors from trying new ideas. Thus, the best auditing departments and audit teams promote a culture that removes such fears. Risk-taking may not be appropriate during fieldwork, but it should be encouraged, for example, in brainstorming sessions.

Egos

When change is proposed, egos are often at stake. Auditors must, therefore, polish their diplomacy skills. If an auditee is threatened and can hinder progress, he or she should be allowed to save face, which is sometimes an exercise in creativity itself. One technique is to stress how the current situation is different than the past and therefore requires different actions.

Lack of Cooperation

There are some who resist and fight change for selfish reasons. Creative ways must be found to overcome such resistance. Just as common are situations where others are simply not interested or are too busy to help.

In these circumstances, the auditor must be determined and persistent. No magical formulas exist. The only recourse is to rely on a can-do mentality. Creative auditors do not make excuses — they find ways to get the job done!

Conclusion

Creative auditors have a huge advantage over those who lack this expertise. Internal auditing departments should train auditors to be creative and promote a culture where creativity flourishes. On an individual basis, auditors can distinguish themselves by proposing new and innovative approaches to many aspects of their responsibilities.

Generating a Big Impact with a Small Audit Staff-Strategy III

Strategy #3: Benchmark for Success

Benchmarking is simply a process for comparing the performance or practices of one internal audit organization to another. It can be done either formally or informally, and it is particularly important for smaller internal audit shops, where the CAE may be somewhat isolated from the expertise of other experienced audit professionals.

As a CAE leading small shops, I found The IIA to be an extraordinary resource in connecting me with CAEs of similar sized audit groups. We frequently compared internal activities, processes, functions, or operations. I relied on benchmarking to facilitate improvements of my shop and to accelerate change, using tested and proven practices and identifying areas for improvement. Some of the objectives of benchmarking are to examine performance across organizations and industries in search of practices that are new or innovative. It also can be useful for involving process owners or for convincing skeptics of the need for change. (Remember the salary survey my colleague was reading? It seemed to convince him of a need for change, in salary at least.)

A few of the more common types of internal audit benchmarking include comparing audit charters, comparing briefing materials for new auditors (and for new audit committee members), comparing audit planning processes, and comparing audit reports and reporting processes. Many audit shops also participate in formal benchmarking programs, and small audit shop CAEs are turning increasingly to The IIA’s new AuditExecutiveCenter as a resource.

This is strategy 3 of 6.

From Richard Chambers, CIA, CGAP, CCSA

Generating a Big Impact with a Small Audit Staff-Strategy IV

Strategy #4: Improve Internal Audit Processes

Some of the biggest impediments to internal audit productivity are ineffective and inefficient processes. Large audit staffs can afford a certain amount of inefficiency. Small shops cannot. As a profession, we still have quite a bit of work to do in this area: Despite the fact that we are experts in reviewing operations, quality reviews often indicate that internal audit organizations can improve processes for planning (both annual and at the engagement level), conducting engagements, documenting results, reporting results, monitoring results, and for quality controls.

One common objective is to reduce engagement cycle time, or the time required to complete an audit. During the past century, delivery of news information has progressed from monthly, to weekly, to daily, to hourly, to the present, when news is delivered instantly to your cell phone or desk. Our customers are becoming conditioned to speed, but unfortunately, internal auditing has not kept pace.

Timeliness is a journey that begins with the survey phase and includes planning and fieldwork, concluding with the final report. Some of the reasons for long cycle time include an extensive survey phase, scope or objectives that are too broad (or that grow over time), poor plans, inefficient methodology, uncooperative activity personnel, limited expertise, staffing constraints, excessive evidence/workpapers, delays in writing draft reports, an inefficient editing process, untimely supervisory reviews or quality assurance processes, extensive legal reviews, delays in receiving final approval for release of draft reports, delays by activity personnel in providing a response, or delays in resolving disagreements.

Unfortunately the consequences of long cycle time can be disastrous: poor customer satisfaction, out-of- date audit results, diminished value of products, or even diminished value of the audit organization itself. In internal auditing, the work never stops, so it’s important to remember to wind up older projects before the audit information can become stale.

This is strategy 4 of 6.

From Richard Chambers, CIA, CGAP, CCSA

Yes, house rent can be a form of saving!

It should not be seen as lack of ambition when I say that I am not so much into real estate but living under a rent-free house would give me satisfaction, better still a dream house.

With this thought, the allure of mortgage has always been my best pick.  Being a bank staff, the interest rates applicable are incomparable to the commercial long term lending rates in any financial insitution in the market. There’s also something about age that I’m favors me.

This article ‘House rent is not your enemy’ by Bernard Were really got me thinking….

In a decisive resolve to own a family house, a couple who reasoned they wanted to stop paying rent and live in their own house, arranged for a Ksh 47,000 per month 25 year mortgage plan with a Ksh 475000 down payment on a property valued at Ksh 7.5M .I took out my calculator, did my quick math and it intrigued me the rationale that would inform such an evidently prohibitive choice. While it seem an obvious case of common sense to me and I guess indeed to many folks, this well meaning couple evidently allowed their innocent desire for family comfort and convenience to cloud their sense of judgment and consequently deny themselves an opportunity to leverage themselves for a solid financial foundation.

For a start, why would one pay Ksh 7.075M more for anything?

This by all standards is a tidy sum you would agree. But there are arguments for the logic though, one of which, that in 25 long years the property price will have appreciated considerably; a fact I obviously wont dispute.
But therein too lies my investwise beef! Let’s suppose a credible chance that this couple would keep the promise of their bargain and that is, never to default in their monthly installments (failure would in all likelihood mean losing the property and any contributions remitted)! 25 years for a couple in their mid 30, means the mortgage term would take the rest of their active years, perhaps to retirement. Consequently these means they would own the house yes, but perhaps that would be the only thing they would have accomplished in their working life with the enormous resource advantage that is evidently at their disposal.
For this family, the connotation- rent, it appears is what they had an issue with, and consequently moved from a Ksh 15,000 monthly one (this is what they were paying as rent)for a two bed roomed flat to one christened -mortgage going at Ksh 47,000 with Ksh 475000 “appreciation,”- for what?


Picture this mathematics: These extra Ksh 32,000 per month channeled to a simple monthly investment giving modest return of 12% p.a compounding interest will in just 25 years accumulate to over Ksh 60,000,000! That’s right! That means these good people would still live comfortably paying rent but using the extra- capability to invest for returns that would enable them acquire- if they desire to, not only a family house but also capital for other venture if they choose to, at the end of the 25 years. The Ksh 475,000 can be a good enough capital for simple investments as forex or shares portfolio.
While it won’t be feasible here to offer full synopsis about such simple common wisdom on money sense, my advice to this folk as indeed to those that would find themselves in a similar hole was rather a simple one. They were better off paying rent than living off a “mortgaged vision”. And even with that commitment having been entered into, to plan an exit strategy and secure their financial liberty once again. How? By finding a suitable tenant for this property and engaging him/her to pay for the mortgage on their behalf. Or better still, if they could, find someone who would pay slightly more, say, Ksh 50,000 per month. This would then mean that at the end of it, they would get some change for part of their Ksh 15,000 rent and still acquire the property for free, in the meantime releasing pressure off their pay slips to think of investing for their future.
They thanked me for helping them see it that way!

From Bernard Were.

Not by works, lest any man boasts Eph 2:9