Who wants to be audited? What? No volunteers?
Okay, I’m not really surprised. Being audited is something most people in the U.S. absolutely dread. There could be someone out there who’d want to debate it with me but I’m certain that it’d land firmly at the top of any list of things that we want to avoid at almost any cost.
Auditors are demanding. They constantly want more and more records. They question what seems obvious to you. Didn’t he just ask your colleague the same exact question? Why do their sample sizes constantly grow larger and larger instead of smaller and smaller? Are they ever going to leave?
As financial leaders, we know audits get a bad rap. Audits are about risk management. In the case of internal audits, they’re there to help us make sure that our compliance with GAAP is in check, that we’re complying with contracts that we’ve engaged in, and help ensure that the wrong corners aren’t cut in the name of efficiency. Audits measure our processes, procedures and performance against rules, laws, and internally developed targets. Without audits and their objectivity, we’d also be limiting our access to bank funding and potentially reduce the number of people who’d want to do business with us.
The general public immediately thinks of tax audits when audits are mentioned. The world of audits is much wider than that and they’re often dependent upon the industry we’re in. Here’s just a glance at some types of audits that organizations are subject to and need to prepare for:
- Financial and Statutory audits (to provide assurance about the accuracy of the financial statements)
- Operational audits (a.k.a. internal audits)
- Human Resource audits (wage & hour audits, labor regulation, workers comp, I-9, etc.)
- Hardware and Software audits (internal controls, processing and data integrity, PCI compliance, etc.)
- Tax audits (Federal, State, County, Local to start with)
- Industry-based Compliance audits (premium audits for insurance, banking regulations, NASBA continuing education, etc.)
Being subject to an audit forces you to take the time to evaluate your processes, procedures, and results. Time you might not have carved out from your month otherwise. While it’d be a nice fantasy, it’d be naive to think that every policy and procedure is being followed 100% of the time.
Exceptions, Mistakes, and Fraud
Sometimes a new employee – or a tenured one – thinks they’ve got a great idea that’ll speed up the bank reconciliation process. Mis-keying the starting check number on a batch of monthly commission checks could wreak havoc if it’s not noticed. Bob, the go-to bank deposit runner, is on vacation and no one notices that Alice, the sweet lady who bakes fresh cookies every holiday, offered to do the bank run but somehow didn’t bother posting the payments in accounts receivable.
Controls are inadvertently bypassed and sometimes they just don’t exist. On occasion, people intentionally bypass controls that are normally in place. With 18 months being the median time it takes before fraud is detected, having a set or two of outside eyes looking in isn’t always a bad thing.
It’s not practical to double-check every formula in a reconciliation and depreciation schedule each time a journal entry is done. Tools like Analytics Maestro are great for helping to highlight trend fluctuations or anomalies in our metrics. Drilling down to the details to determine if it’s an error, an exception, or worse, can be worth its weight in gold. It’s great to be able to spend your time reviewing and determining corrective action rather than using that time to collect and process the data itself. Pinpointing issues gives us the time to prepare and record information about a material exception far in advance of an audit visit.
What process can you implement now to make your next audit less stressful for yourself and your team?
Businesses of every description rely on the Budget Maestro™ family of software solutions by Centage Corporation to improve the efficiency and effectiveness of their business budgeting and planning, financial forecasting, financial consolidation and reporting processes. For more information, take a tour of Budget Maestro, contact Centage, or call 800-366-5111 now.