Seven deadly audit sins can destroy you. These audit mistakes kill your profits and effectiveness.
You just completed an audit project, and you have another significant write-down. Last year’s audit hours came in well over budget, and—at the time—you thought, This will not happen again. But here it is, and it’s driving you insane.
Insanity: doing the same thing year after year but expecting different results.
Are you ready for better results?
Here are seven deadly (audit) sins that cause our engagements to fail.
1. We don’t plan
Rolling over the prior year file does not qualify as planning. Using canned audit programs is not planning.
What do I mean? We don’t know what has changed. Why? Because we have not performed real risk assessment such as current year walkthroughs. We have not (really) thought about current year risks of material misstatement.
Each year, audits have new wrinkles.
Are there any fraud rumors? Has the CFO left without explanation? Have cash balances decreased while profits increased? Does the client have a new accounting program or new staff? Can you still obtain the reports you need? Are there any new audit or accounting standards?
Anticipate issues and be ready for them with a real audit plan.
2. SALY lives
Elvis may not be in the house, but SALY is.
Performing the same audit steps is wasteful. Just because we needed the procedure ten years ago does not mean we need it today. Kill SALY. (No, I don’t mean your staff member; SALY stands for Same As Last Year).
I find that audit files are like closets. We allow old thoughts (clothes) to accumulate without purging. It’s high time for a Goodwill visit. After all, this audit mistake has been with you too long. So ask yourself Are all of the prior audit procedures relevant to this year’s engagement?
Will better planning require us to think more in the early phases of the engagement? Yes. Is this hard work? Yes. Will it result in less overall effort? Yes.
Sometimes the Saly issue occurs because of weak staff.
3. We use weak staff
Staffing your engagement is the primary key to project success. Excellent staff makes a challenging engagement pan out well. Poor staff causes your engagement time to balloon–lots of motion, but few results. Maybe you have smart people, but they need training. Consider AuditSense.
Another audit mistake is weak partner involvement.
4. We don’t monitor
Partners must keep an eye on the project. And I don’t mean just asking, “How’s it going?” Look in the audit file. See what is going on. In-charges will usually tell you what you want to hear. They hope to save the job on the final play, but a Hail Mary often results in a lost game.
As Ronald Reagan once said: Trust but verify.
Engagement partners need to lead and monitor. They also need to provide the right technology tools.
5. We use outdated technology
Are you paperless? Using portable scanners and monitors? Are your auditors well versed in Adobe Acrobat? Are you electronically linking your trial balances to Excel documents? Do you use project management software (e.g., Basecamp)? How about conferencing software (e.g., Zoom)? Do you have secure remote access to audit files? Do you store files securely in the cloud (e.g., Box)? Are you using data mining software such as Idea? Do you send electronic confirmations?
Do your staff members fear you so much that they don’t give you the bad news?
6. Staff (intentionally) hide problems
Remind your staff that bad news communicated early is always welcome.
Early communication of bad news should be encouraged and rewarded (yes, rewarded, assuming the employee did not cause the problem).
Sometimes leaders unwittingly cause their staff to hide problems. In the past, we may have gone ballistic on them–now they fear the same.
And here’s one last audit mistake: no post-engagement review.
7. No post-engagement review
Once our audit is complete, we should honestly assess the project. Then make a list of inefficiencies or failures for future reference.
If you are a partner, consider a fifteen-minute meeting with staff to go over the list.
This is a guest post by Harry Hall. He is a Project Management Professional (PMP) and a Risk Management Professional (PMI-RMP). See his blog at ProjectRiskCoach.com.
Some auditors perform the same procedures year after year. These individuals know the drill. Their thought is: been there; done that. But, before we start the engagement, we need to identify the audit stakeholders.
Imagine a partner or an in-charge (i.e., project manager) with this attitude. He does little analysis and makes some costly stakeholder mistakes. As the audit team starts the audit, they encounter surprises:
Changes in the client stakeholders – accounting personnel and management
Changes in accounting systems and reporting
Changes in business processes
Changes in third-party vendors
Changes in the client’s external stakeholders
Furthermore, imagine the team returning to your office after the initial work is done. The team has every intention of continuing the audit; however, some members are being pulled for urgent work on a different audit.
These changes create audit risks–both the risk that the team will issue an unmodified opinion when it’s not merited and the risk that engagement profit will diminish. Given these unanticipated factors, the audit will likely take longer and cost more than planned. And here’s another potential wrinkle: Powerful, influential stakeholders may insist on new deliverables late in the project.
So how can you mitigate these risks early in your audit?
Perform a stakeholder analysis.
“Prior Proper Planning Prevents Poor Performance.” – Brian Tracy
On the first day of your audit, you’re confident you’ll deliver your report on time. You have visions of a happy client and happy firm partners. But, somewhere along the way, things break down. Your best auditor transfers to another job. You learn–as the audit progresses–that your junior staff member lacks sufficient training. Your client is not providing information as requested. And, additionally, your audit team has unearthed a fraud.
How can you lessen or respond to these problems? Project management. In this post, I’ll tell you what it is and how you can start using project management in audits, including software selection and practical implementation steps.
Using Project Management in Audits
Auditors need to be effective (by complying with professional standards), but we also need to be efficient (if we want to make money). And project management creates efficiency.
Managing resources, identifying impediments to audit processes, responding to scope creep–these are just a few of the issues that we encounter. And these challenges can increase engagement time and decrease profits. Worse yet, that promise regarding timely completion can go unmet.
Either we will manage our audits, or they will manage us.
So, what are the keys to using project management in audits?
Audit team members
Project management software
Create a project management plan
Audit Team Members
The number one ingredient to a successful audit is your team members.Even more important is the person managing the engagement.
Have you noticed that some people–regardless of the obstacles–just get things done? If possible, get and keep people like this on your audit teams. You may be thinking–at this moment–“but our firm has a difficult time hiring and retaining great employees.” Then revisit your hiring and retention practices.
Having great team members is essential, but they need to work together. So, how do we get them to play their roles at the right time? A project management plan defined in project management software.
Project Management Software
There are plenty of useful project management software packages. They include:
Pricing varies. Some are free while others are expensive. So, you’ll need to do your research to determine which solution is best for you. Personally, I use Basecamp at $50 per month. If you want to start with a free application, try Trello or Asana. Another option is Smartsheet (an Excel-spreadsheet-based product) at $25 per month. Larger firms may desire to take a look at XCMWorkflow.
Regardless, get your feet wet. If you’ve never used a project management package, it’s hard to understand the beauty of doing so.
Here’s how I got my own feet wet.
Four years ago I started using Basecamp. And why did I pick this software? Mainly, because of ease of use. I can create cloud-based to-do lists for my audit teams and my clients. Also, Basecamp allows me to hide my audit team’s to-do list from my client. So, my audit team can see the client’s to-do list, but the client can’t see my audit team’s list.
Additionally, I can assign each to-do item to an audit team member or client personnel. And even better, I can assign a due date. When the to-do item is due, the designated person receives a reminder email. (As you can see, I no longer need to send a client assistance checklist to my clients. Those tasks that once resided in a Word doc now live in Basecamp.)
Basecamp provides iPad and iPhone apps so that I can see my projects on those devices. Additionally, I access my projects on my Windows desktop using the Internet. So, Basecamp is accessible from anywhere.
Here’s a video overview of Basecamp:
Once you’ve picked your project management software, you need to create a project management plan.
Create a Project Management Plan
What is a project management plan? It’s deciding what, when, and who. These three factors are dependent upon the deliverables, and in our case, the deliverable is the audit report.
First, let’s start with who will perform the actions.
A partner, an in-charge, and one or two staff members often comprise an audit team. Regardless of the team size, your first decision is “who is going to work on the engagement?” and as we said above, this is the most crucial element in getting your audit done. But notice that an audit involves not only your team members but client personnel. You can’t audit unless they provide information, answer questions, and allow you to inspect documents. You might also work with specialists or attorneys.
Add all persons to your project management software, including audit team members, client staff, and others. (In Basecamp, I add persons to the project by sending an invitation email from within the software.) But how do we know who we will work with? That depends on what we plan to do.
Second, determine what needs to be done. But how do we do this? The development of our audit plan.
The audit plan is our response to risk assessment which is performed early in the engagement. Once we perform walkthroughs, make inquiries, inspect documents, and make observations, we become aware of risks. And in response, we create an audit plan to address those risks. Now we know what needs to be done. The audit plan feeds the project management plan.
Notice the risk assessment process and audit plan informs the project management plan. Notice also that the project management plan is not the same as the audit plan; they are distinctly different. One addresses risk and the other addresses the how, when, and who of getting things done. For me, my audit plan lives in the audit programs (inside my audit software), and my project management plan lives in Basecamp in the cloud.
Here’s an example of how the risk assessment process feeds my project management plan. As I perform my risk assessment procedures, I see that one person makes disbursements, records the payment, and reconciles the bank statement. Now I know the client lacks segregation of duties in the payables area and has a fraud risk. I will respond to those risks by performing procedures such testing disbursements. Now I know what I am to do. In my project management plan, I need to marry this audit procedure (the testing of disbursements) to a team member. So, I add the task to my project management plan and assign it to one of my people. I also specify a performance date.
Some audit tasks are performed in every audit, regardless of the audit risks, such as obtaining a signed representation letter. These tasks can be set up in a project management template which can be used to create your initial project management plan. Then you can add the client-specific tasks as needed.
Thirdly, we need to specify a date for each action.
Project management software allows you to specify when an action is to occur. Once I know who is on the audit team and what is to be done, my remaining duty is to specify a date for the action. You may wonder, “how do I know when each action will occur?” You may not know precisely, but you have an idea. So, go ahead and specify a date. If later you need to change that date, you can. There is no sin in amending the plan.
Now that I have a project management plan, I need to be aware and vigilant to keep the plan on track.
The purpose of project management is to enable you to control your audit. But many times the original scope and particulars of our audits change. And if our project management plan doesn’t change concurrently, we lose control.
For example, if your audit team discovers a fictitious vendor fraud, then your time budget may need to expand. Let’s say we believe the audit will now take an additional 80 hours, and that we need to bring in a fraud specialist. At this point, if we don’t amend the engagement letter, we’ll eat this additional cost. So, it’s time to ask the client for an additional fee. The fraud was not anticipated in the original contract. Now, you need to amend the contract to cover the additional work. (Construction contractors do this all the time with change orders. But auditors are often hesitant to do so.)
As you perform your audit, be aware of scope creep. If your client asks you to perform additional services, then amend your contract. Otherwise, your profit realization will diminish quickly. This is especially true for bid audits such as governmental engagements.
More times than not, changes will occur during the engagement. And regardless of the cause, we must amend our plan. For me, I’m going back into Basecamp and adding additional steps.
In addition to being aware of potential changes, we need to be vigilant.
We know from experience that it is natural for the audit process to fall apart. It’s like most things in our universe. Entropy happens.
When it does, you must fight to restore order. Why is this so hard to do? Because you have so much going on. You aren’t working on one audit. You’re working on two–or three. You have office meetings, client meetings, tax deadlines. You are busy! Therefore, if you don’t have a way to maintain control, you will feel desperate.
But that’s the beauty of project management. With it, you can maintain control.
Think of your project management plans as dashboards that flash green or red lights. And those indicators allow you to see how things are progressing–or not. Moreover, this knowledge allows you to react in real time–and to stay vigilant. As you monitor your audits, you can take corrective actions to keep your projects on track.
Summary of Using Project Management in Audits
Project management is simple in concept. You plan tasks, you assign them, and you specify due dates. Then you need project management software to track the actions, assignments and due dates. Once the system is in place, you can monitor your projects and manage change.
So why do most auditors not use project management? Because many think they can do so in their heads–and I know many who feel this way. Sorry, but I have to disagree. If you’re like me (and I bet you are), you have a million things going on. So without project management, you’ll do your work by the seat of your pants. The result? Missed deadlines. Frustrated clients and disappointed partners. Not what you desire.
So, give it try. You will find yourself delivering audits on time and on budget.
Auditing Blog Series
This post is a part of my auditing series. In it, I take you from the start to the end of the audit process. Click here if you’ve missed my prior posts.
[callout]This is a guest post by Harry Hall, the Project Risk Coach. Harry is a speaker, teacher, and blogger who helps leaders and project managers get results. Harry has managed projects–mainly for insurance companies–for more than 17 years. He also teaches project management courses to CPA firms. Harry lives in Macon, Georgia with his wife Sherri. He can be found on LinkedIn.[/callout]
Are you wondering how to create new accounting products and services? In this post, I’ll explain how.
Imagine an accounting firm (we’ll call it Premier CPAs) that has struggled in recent years. Revenue is down, and the firm has lost several top clients. To make matters worse, the firm recently received a fail report in its peer review.
The partners recently met and were brutally honest with one another. Something has to change.
Premier CPAs has a great team of auditors. However, they are failing to understand their client’s needs, and they are not changing their business model accordingly. Over time, competing CPA firms have created superior products and services.
The partners selected a team to go offsite and develop a strategic plan. The group was challenged to perform an assessment of where the firm is and where it needs to go.
The top strategies identified were to:
Implement a more modern auditing software solution
Map and re-engineer Premier CPAs’ audit processes
Implement a small customer service center
How to Make Your Dreams Come True
Great ideas, but how do we make them a reality? It’s easy to talk about things, but it’s another matter to plan and execute new ideas.
Well, you could do this like many lack-luster firms. Just do the projects willy-nilly. Do it as you have time. Find a few warm bodies who are not busy to do the work. Maybe assign the activities to the IT guy.
Will you get there? Maybe, but how long will it take? How much further will you fall behind your competition?
Take a different approach. Focus on your goals and strategies. Be intentional.
How to Create New Accounting Products and Services
The following steps can put you on a fast track to greater success:
Define your projects. In the initiation of your projects, define them with project charters. Spell out the problems you are attacking, your goals, what you will deliver, the assumptions of the project, the constraints of the project, key stakeholders, top risks, and who will serve on the project team.
Assign project sponsors. Select partners and senior management who will define and cast the vision for the projects. These leaders should have the authority to provide resources and money to complete the projects. While the project team does most of the work, the sponsors are ultimately responsible for ensuring success (and should be held accountable).
Create project teams. One of the most important things you can do for your projects is to staff the teams. Carefully select individuals who have the knowledge and skills to deliver the project in a timely manner. There will likely be some opportunity cost in this equation. You may have to assign some audit personnel to perform the project work.
Kick off projects. Get your project team and key stakeholders together for the project kick-off. The sponsors should share their vision for the project. The individual leading the project (i.e., project manager) should review the project charter, ensuring that everyone understands the project and their roles.
Monitor progress. The project managers should periodically meet with their team members to check the status of the project and to plan their next steps. The project managers report to the sponsors, and in some firms, the sponsors report to senior management and partners. Doing so provides transparency throughout the firm’s leadership.
Celebrate success. Create a robust project culture by celebrating when teams hit milestones or complete projects on time and under budget. Thank your teams.
Perform benefits realization. How do we ensure that the projects produce the desired results? Measure your results at designated times (e.g., six months and twelve months after the completion of each project).
Parting Words…This Is NOT Easy
These steps may require a significant transformation in the firm’s culture. Changing what people believe, their attitudes, and their behavior is the toughest part of creating a productive project culture.
First, leadership is required, not optional. Without a firm hand, people will fall back into old bad habits. The senior leadership team of the firm must consistently communicate their expectations and lead by example. Make sure there is a high level of accountability with appropriate rewards and recognition for high performing teams.
Second, train your teams in project management. At a minimum, identify and train individuals who will serve as project managers. You may want to get a project coach to work with your firm. Many progressive firms require their project managers to get project management certifications.
Lastly, all of these actions must be performed with an eye on your firm’s strategic goals and objectives. Make sure the changes align and support your vision, mission, and goals.
Do you ever find yourself digging through hundreds of emails to find one message? You know it’s there somewhere, but you can’t put your electronic finger on it. Use Slack to communicate by project–that way, you’ll have all messages (by project, e.g., individual audit engagement) in one place.
What is Slack?
Slack is software designed to allow project teams–e.g., audit team–to send and store messages. Why use Slack rather than traditional email? Messages are stored by channel (by project), making itmuch easier to see project conversations.
The Slack website says the following:
Most conversations in Slack are organized into public channels which anyone on your team can join. You can also send messages privately, but the true power of Slack comes from having conversations everyone on the team can see. This transparency means it’s quick to find out what’s going on all across the team, and when someone new joins, all the information they need is laid out, ready for them to read up on.
How CPAs Use Slack
How can you as a CPA or auditor use Slack?
Create a channel for each project, and ask all team members to communicate using Slack (rather than email).
In CPA firms, some activities are year-round such as quality control reviews (we perform several hundred a year). Other activities are a true project, such as an audit engagement. Either way, you can use a separate (Slack) channel to communicate and store all related messages.
Using Slack for Quality Control Reviews — An Example
Below you see an example of how Heather, my associate, and I use Slack to communicate about file reviews in our quality control department. By doing so, we can see who is doing what and when. Also, all of the messages are searchable by channel. So, suppose I’m wondering when we reviewed the ABC Bank engagement. I can search the CPR (cold partner review) channel to see who performed the review and when. Notice, in this channel, Heather and Iare posting status comments. We do so for the following reasons:
To create a history of each review
To notify each other that the review has commenced (Slack automatically sends a notification message to those included in a channel)
To select our quality control channel, I click the CPR channel on the left (where all the channels appear). Once I click CPR, I see the most recent messages for this channel.
Made with Stitcher
Audits – Another Example
Think about a typical audit. You have three to five team members, with some individuals coming and going. To maintain continuity, you need a message board that allows all audit team members to see what is going on. That’s what Slack does when you create a channel for a particular audit. Think of it as a message board in the cloud since the designated personnel can see the audit communications with their PC, iPad, or cell phone.
Other Advantages of Slack
Advantages of Slack include the following:
Accessibility from all devices, including cell phones and tablets
Shareability of documents such as PDFs and spreadsheets