On a personal level, most of us have to operate within a budget at home. We make priorities and we set financial goals toward those priorities. We might enjoy education, traveling, or even saving. But if we don’t make a financial plan for any of those goals, then it’s possible we won’t have enough money to do what we really want.
The principles for budgeting internal audit activities are similar to our principles for personal budgeting. However, internal audit budgeting must be more specific. Taking into account the common big-ticket items in an audit function (e.g., payroll, training, and travel), there are ways to stretch your internal audit dollar for the year.
Corey Dameron, an audit professional with over 16 years experience (CFE, CRMA), works with a small audit team that supports a global business. When it comes to the budget, their internal audit group likes to run “lean and mean,” more out of principle than necessity. To keep costs in check, they begin with risk assessment planning.
Budget Tip #1: Perform Solid Risk Assessments
Perhaps performing risk assessments wasn’t necessarily at the top of your budget list, but here’s why it should be:
Having a strong risk assessment is like having a good topographical map in the wilderness as compared to just a list of instructions. Although the list of instructions could possibly get you from A to B, it might not account for obstacles along the way and it will take you longer to get to your destination. However, a topographical map will show you specific distances, and elevations to climb or descend, so you can develop an acute plan.
Like a topographical map, a thorough risk assessment will alert you to areas that will require more time, and help you plan accordingly, and hopefully keep the budget in sight.
One way to feel confident that your risk assessment is thorough is by completely adopting an ERM framework. There are a variety of ERM frameworks, and they each have their own lingo. Dameron and his team are purists of the popular COSO ERM framework. “If you follow the COSO ERM framework, you can audit anything you want.”
An ERM framework gives you peace of mind, knowing exactly where you need to target audits in the company. That means you can plan your quarters, your auditors’ time, and even communicate with your audit client months in advance to get on their schedule. It also means that you can have more direct conversations with your audit committee as to the goals for the company. With a good map for the year, you can plan your budget better, too.
Budget Tip #2: Determine Auditor Capacity and Most Important Items
Once you feel confident that you’ve defined your risk universe for the company, you can begin to figure out how much you can cover and where to allocate your audit team. A capacity analysis will determine the bandwidth available for the year.
Dameron and his team take stock. “We try to get pretty detailed in our capacity analysis. We start with auditors and vacation time and figure out hours of availability. For us, each audit averages about 400 hours. We then do the math and figure out how much one auditor can do.”
Once the team figures out the capacity, they can determine the most important audits to perform. “It’s probably more art over science determining how to allocate resources. We look at our needs. Say we have to do 15 audits, but only have the capacity for 12. So then we might have to hire. We budget our headcount by the quarter to the best of our abilities.”
Budget Tip #3: Watch Your Budget Weekly
Once you go through and pick your top audits, you’ll need to estimate how much money you need to budget per audit, accounting for time, payroll, travel, and other expenses. Once the budget is set, then you track your time spent on each audit. It might be helpful to set up specific weekly timesheets that managers can print out to compare budget to actual spending.
“People will take as much time as you give,” says Dameron. “For example, if planning is budgeted at 60 hours and the planning has already hit 60 hours, then you have some choices to make. If the budget is slipping, ask why and change for the next audit.”
Without checking in weekly, a budget can run amuck. Learn from mistakes and make choices going forward that will keep you on budget.
Budget Tip #4: Plan Projects for Downtimes
Inevitably, audits and projects will need to be changed to a different timeslot, the Audit Committee will reprioritize items, or another unforeseen circumstance will occur. In any event, you’ll have to move things around. However, adjustments can equate to lost time and wreak havoc on a budget.
However, if you plan for unexpected changes, then you can make use of your downtime. “No one works on just one audit,” says Dameron. “At any given time, people are working on different projects. Those projects fill people’s time so there is very little downtime. We budget that into the calendar.”
To avoid inadvertent downtimes, communicate your dates with the audit client far in advance. This way, the audit client can clear their schedule for you and you won’t get into an audit missing key players who are out on vacation.
Budget Tip #5: Use Specialists
You have a core group of auditors, but sometimes you just need some extra help. You can hire contractors that specialize in specific audit operations (like payroll) to come fill in for specific audits. You can also try a rotational auditor program within the company, where you have a leader from another group rotate into audit for a few projects.
One thing that all auditors need is training – and a lot of it. In theory, it seems like creating training in-house would be a budget-friendly idea. But it isn’t. Creating training from scratch is time-consuming. We’re talking hours to weeks of time. That’s time that auditors could better allocate elsewhere. Not to mention, outside courses and trainers will offer valuable CPE credits.
If you’re a small group with a small budget, consider outside training where you can send one or two of your auditors to attend or consider partnering with another company with an equally small team to split the cost of training.
What it all comes down to
In the end, planning can be your best ally when dealing with a budget. Plan for specific audits, plan for change, plan for downtime, plan for outside resources, and plan to learn from mistakes. We’re all human and mistakes are inevitable, but hopefully a few budget tips can keep us moving in the budget-friendly direction.