For most motivated, “go get’em” owners and executive management, compliance, and specifically internal audit, is a necessary expense. Often viewed along the same lines as the human resource department. With tongue in cheek, they're referred to as the "fun police," "rule zealots," or even the "revenue reduction squad." In some cases, let’s face it, they’re right.
But I’m here to yell from the mountaintops and stand up for the team whose value and contribution is so often understated. Standard readers of the world unite! Close your 78 tabs of rabbit hole research and come together! Repeat after me:
“WE ARE THE DRIVERS OF SAFETY, CONTINUAL IMPROVEMENT, REVENUE GROWTH, AND OPERATIONAL EFFICIENCY!”
Fortunately, I’m not the only one that believes that. The other day, while letting the dog out, I was aimlessly searching “internal audit” on Google. You know, just having fun. A link appeared on the search feed, usually riddled with boring definitions and stuffy reports on best practices. Its importance glowed brightly against the white background of my tablet. As I clicked it, I could hear the angels singing. “How Internal Audit Can Add Value by Pursuing Efficiencies” (Jonathan Ngah) lingered just within my reach.
All right, I might be overplaying it a tiny bit, but it was a refreshing read, and I wanted to know more. The article was a couple of years old, yet I hungrily began absorbing all the things I’ve always known were true. I was reading the internal audit article of my dreams.
The Internal Audit Value Chain
Often when we think about internal audits, we think of the box checkers, finger pointers, and root cause analyzers, but Ngah’s article puts those stigmas to bed. What other team observes and evaluates every facet of an organization more objectively? We are expert assessors with the business acumen to know how businesses operate in totality. We see things from a distance giving us a more generous perspective on the processes themselves. We can also summarize and report our findings in an organized way that can be measured, and as a result, more easily improved.
Most importantly, we can do all of that without overlooking the risks (financial, compliance, EHS) associated with the operational change required to improve and grow bottom line income. Tada!
Ngah describes the internal audit value chain as "enterprise-wide initiatives impacting functional areas across every organization, involving a combination of people, process, technology, and 'tone at the top' to drive the accomplishment of goals and improve profitability." I paused for a moment in my reading to reflect on this more. Wait, that sounded a lot like successful corporate strategy execution. This expression of the value of auditors was inspiring.
We should not get the words "evaluation" or "assessment" confused with "appraisal" or "judgment." As the article describes, the internal audit identifies the impact of efficient operations like exceeding customer expectations, saving money, and increasing profit alongside the effects of inefficient operations. These less efficient areas of our business can cost us more than we realize. Poorly designed, over-complex processes take longer, require more training, increase the potential for error or injury, and waste time with unnecessary activities. These processes can also make it difficult to measure the cost-benefit nature of the tasks performed, making it difficult for managers to make decisions. Even worse, they can produce non-compliant activities that can cost hundreds of thousands or even millions of dollars.
Where Did This Article Succeed Where Others Fail?
Rather than tout generalities about what internal audit can do for owners, managers, and their business, Ngah outlines some steps to drive these improvements through internal audit summarized in more detail below.
And he starts with the reason we all stay in business, to begin with, the customer.
Focus on your customer’s and interested parties’ expectations and requirements
Internal audit, when properly deployed, looks at how our companies meet our customer's requirements. We look at things like product or service quality, including quality assurance, how we respond to and measure trends in customer complaints, and how we are protecting customer's information and data security. We're also making sure our organizations stay on the regulators' good side. Frequent compliance issues can make these guys your most irritating, new best friend.
Observe and improve employee and other resource requirements
Many companies declare that their employees are their greatest asset, and they're right. The people hitting the buttons and turning the screwdrivers are the key to operational success. They also possess the power to create value, even when resources are limited.
So what's this got to do with the internal audit? Auditors can help objectively assess if companies can perform work activities faster or cheaper without putting quality or safety at risk. We can provide leadership with greater visibility around strengths, weaknesses, and gaps in competency and productivity. We are also capable of producing actionable plans to bridge gaps, soften liability, and capitalize on strengths.
Vigilantly identify and mitigate continually evolving risks.
In his article, Ngah identifies three core risks to businesses:
· Risks to customers
· Risks to employees and other interested parties
· Risks to organizational continuity (read: profitability and growth)
It’s usually pretty clear how internal audit can identify and help minimize many of these risks to help organizations prevent:
· Violations resulting in fines
· Reputational damage (to both the company and our customers) through a data security breach
· Loss of customers resulting from inconsistent quality
Additionally, regulations are constantly evolving. You can blink an eye, and there's a new one, sneeze, another new one. In today's particularly tumultuous (I'm careful here) political environment, staying on top of changing requirements is imperative.
Help to provide the best processes, systems, and tools to consistently deliver sustained profitability.
Training employees is imperative to achieving organizational and operational success. So is re-training them. So is training them when something changes. It can be a challenge to keep track. It can also be challenging to ensure that our procedures are reviewed, updated, and fully implemented. Another struggle is making sure we're designing and implementing the best possible processes and systems. No matter how hard it is, it's a critical aspect of "consistent execution."
Internal audits contribute to achieving this level of consistency by helping managers re-engineer tasks to minimize or even eliminate waste, loss, or fraud. This collaboration between the highly skilled managers in the trenches every day and auditors’ impartiality and process acuity creates magical results. Reductions in customer complaints, improved productivity, cost reduction, and safer workplaces are just a few.
Achieve and maintain organizational market strength
By helping management meet and exceed interested parties' (including customer's) needs, reaching higher levels of productive employee engagement, and managing risks, internal audits can help companies establish dominant positions in their market. We don't magically improve and stay at the top of our market, or even get there if we aren't continually improving.
The internal audit ensures we are always looking for ways to evaluate operations, summarize data, and help company leadership effectively use that data.
Ngah also spoke to technology as a means of organizational strength. He discussed a quote by tech renaissance genius Bill Gates. Gates' revelation on technology as a source of improvement was this:
“The first rule of any technology used in a business is that automation applied to an efficient operation will magnify the efficiency.”
OK, I think we can all agree on that. The real kicker is the second part:
“The second is that automation applied to an inefficient operation will magnify the inefficiency.”
Although technology is a magnificent solution to many operational problems, if we don't identify where our gaps are, they will only grow if we slap a few technology layers on top. We'll still be less efficient, just with more expensive wiring.
Say "no" to the status quo.
Enhancing productivity and profitability isn't something we do once or even twice if we want our companies to thrive and grow financially. We need people in our organizations that will regularly confront "how we've always done it" from a neutral position. That's an internal audit. We have the expertise to ensure that successes aren't short-lived, and we continue to innovate.
The strange thing is auditors want to do it over and over again. Why? Circumstances, environments, people, markets, virtually everything is in constant flux. We recognize that and want to keep revisiting aspects of our business to ensure they are keeping up and helping executives capitalize on new opportunities for positive change.
Cultivate continual improvement cultures
Cultures that celebrate shared successes, engage all employees in organizational progress, and show an actual "top-down" mentality of continual improvement will, without a doubt, always improve. The thing is, any company can do it. There's no special sauce. The better question is, "How to get it done?". Organizations with continual improvement cultures live and breath monitoring, measurement, assessment, and analysis in all areas of their business. They are always identifying opportunities through not just internal audit but participation at all levels.
Auditors help nurture that spark while engaging with operators, supervisors, and managers. Even when findings arise, the collective wants to pull together to uncover the root causes, spot opportunities, and take action. This teamwork is particularly important in a business environment where everyone is pushed to do more with less. Everyone must do their part to ensure success, and organizations that embody continuous improvement illustrate that very clearly.
The End Game
So here we are. What do we do now that we know that compliance and internal audit have been cleverly disguised as the gentle Clark Kent all this time? How do we unleash their superpower onto our businesses for the better? We can begin by opening our eyes to the good they can do and not merely the time or the perceived disruption they cause. We can start being honest with ourselves that, like any business, there are areas of our organization that could use enhancement. What's more, we can work with auditors to become a fiercer market competitor and not take their observations personally.
Auditors and compliance managers are not the enemy. Stagnation and inefficiencies are. The longer we allow them to linger in our facilities, the stronger their impact on our businesses' fundamental aspects such as customer satisfaction, industry reputation, financial performance, available resources, and risk mitigation become.
Need help with yours? Let's talk. Blue Beacon can lend a hand to ensure you're getting the most of your internal audits.
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