This is the second article in a two-part series on internal audit strategy. Click here to read the first article, "When Emotional Intelligence Meets Strategic Intelligence for Internal Auditors."
You’ve audited the same area over and over, and you’re too close to the trees to see there could be any strategy at all in this area you’ve been auditing forever. But sometimes approaching the same area with a different question can make all the difference in honing the strategic effectiveness of an audit.
“You start with a simple question,” relates Jeff B. (name withheld), audit director with over 20 years of experience. “’What if we did x instead of y?’” Then use some analytical questions to make a policy recommendation.”
One audit executive noted in this year’s Internal Audit Priorities Report, “I don’t know anyone who thinks A/P is a strategic issue.” However, the report goes on to mention how A/P actually can be strategic:
“If the idea is to audit accounts payable as a precursor to moving from a 30-day to a 45-day payment cycle, and thus improve the company’s operating cash flows — that can be a strategic improvement.”
Here are some more common strategic areas to look at. One of these may be similar to your company, or maybe you have some additional strategic areas too. We’d love to hear about them.
Fraud detection and P-cards
Strategize: Aggregate data and look for opportunities to consolidate contracts.
Particularly a big company, or geographically dispersed company, there is an opportunity to aggregate data. “We do strategic intelligence most often in fraud detection,” says Jeff. “We pull company card transactions. We look for areas. P-cards are a great example. We start looking for fraud and then we realize that 38 facilities are paying for DirectTV through their p-card. So then we call Procurement to negotiate a volume discount.”
Fleet Car Programs
Strategize: What happens if we do mileage reimbursement?
Most companies have fleet cars. You can look and see how many miles are people getting per gallon? Are the employees using a car enough to necessitate a car? It’s not that you take away fleet cars, but there are areas where you can tweak the policy. Jeff recounts one audit:
“We looked at sales cars (so they could drive to the customer). So we looked at it as what happens if we do mileage reimbursement. We found out that for 60% of the people getting a car, the cost benefit wasn’t really there. They just weren’t using it that frequently. So they modified their policies to say that you have to drive over a certain level of miles in a year.
On the other hand, we also found some abusers. One time we reimbursed someone $18K one year [for their gas-guzzler]. Management just wasn’t looking at it that close.”
On one level, fleet cars can be looked at for whether they follow policy. On another level, they can be looked at as, “What if we do x instead y?” And that’s where strategic intelligence plays the card.
Strategize: Analyze how effective specific rebate programs were.
Rebates are another area where audit can use structured data to help the organization strategically.
“Why do you offer a rebate?” asks Jeff. “Because you want to drive up purchases? You can look at rebate programs and see how effective they were. Which programs actually drove an increase and why?”
On the other hand, you can analyze how effective specific rebate programs were.
“We did this rebate program to increase sales by 10%. Did it happen? History tells me not so much. Sales reps tend to become narrowly focused after a deal is signed. In our world, we sign deals and there are 15 different factors in the deal (e.g., product volume, specific services, branded versus national brands of products). After the deal is signed, the rep just wants to sell volume and loses sight of the company goals.”
In this case, the rebate program lost efficiency once the sales rep took over. Once you notice this as the auditor, you can suggest trying a different rebate program or targeted coaching for your sales staff. “For audit to provide this type of strategic intelligence, managers can know where to focus their time with their sales staff.”
Internal audit is a wealth of knowledge when it comes to the business. Sometimes we can get caught in the weeds with the auditee, focusing on the boxes to check. But step back a little and breathe the big picture into the small world and see there are a plethora of areas where we can reduce risk and drive up revenue.