Sajjad Haider & Associates Business Improvement Services

As organisations move from the traditional economy to the new economy, the role of auditing too has undergone a metamorphosis. The traditional role of internal auditing was one of security, compliance, certification and investigation. Its emerging role, however, is constructive, participative, consultative, proactive, advisory and catalytic.

Similarly, the traditional audit areas of accounting have expanded to include: Operations, Marketing, Finance, Human Resources, Information Systems, Environment, Quality and Re-engineering. This leads to a shift of emphasis shifting from financial controls to managerial, strategic and operational controls.

With the emerging methodology focusing on risk evaluation, controls appraisal, CAATs, statistical tools, the internal auditor’s role demands multi-disciplinary skills and an in-depth knowledge of business.

Designed, as it is, to add value and improve an organisation’s operations, Internal Auditing helps an organisation accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance process.

Internal Auditing, therefore, will focus more on where a business is going rather than simply on where it has been.

- Identification of key business risks and consideration of the possible consequences, if business risks are not addressed;

- Identification of the universe of auditable entities, functional activities, and regulatory requirements;

- Evaluations of whether controls within the context of each auditable entity reviewed adequately address business risk - in particular, are the internal control criteria, such as that of COSO, met?

- Identification of appropriate controls relative to operating policies, management's financial statement assertions, and compliance with statutes;

- Evaluation of findings from both a quantitative and qualitative perspective, as appropriate;

- Discussion of findings, conclusions, and recommendations at appropriate levels of management before issuing final reports;

- Incorporation of references to management actions into the internal auditing report, as deemed appropriate;

- After an audit examination is completed, issuance of a report that presents the purpose, scope, and results of the audit, including an expression of the auditor's opinion, as appropriate;

- Follow-up on management actions to determine that corrective action was taken and is achieving desired results or the board has assumed the risk of not taking corrective action on reported findings;

- Issuance of a summary internal auditing report on the system of internal control based on evidence gathered during the internal auditing process, considering whether significant control weaknesses exist in the system of internal control, evaluating their pervasiveness, and issuing a report, accordingly.

Operations Audit

1. Evaluation of the efficiency and effectiveness of the operations in order to achieve the business objectives;

Cost control
Strategic Planning
Decision Making

A detailed system study will be carried out before the commencement of the audit in order to have an understanding of:

The nature of business and the related complexities in operations;
The systems and procedures implemented by the organization.

A thorough analysis of the various segments of the organization will be carried out in order to ensure that:

Sufficient internal controls are in place at all levels of the organization;
Routine functions of the organization are carried out within the framework of the policies and procedures approved by the management;
Policies and procedures of the organization help in directing the appropriate authorities that have been delegated with the powers to undertake strategic decisions;
Timely completion and submission of the required deliverables.

Criteria	What the operation is supposed to accomplish
Condition	What the operation is actually accomplishing
Cause	Why the deviation from the criteria has occurred
Effect	What’s happening or could happen because conditions do not meet criteria
Conclusions	What needs to be corrected / improved
Recommendation	How can the correction / improvement be implemented

Business Process Evaluation (BPE) is a discipline that utilizes a variety of management and accounting techniques for the purpose of identifying the weaknesses in existing structure processes and practices if any, and looks toward ways in which these processes may be analyzed, evaluated and, ultimately, improved.
Business Process Reengineering (BPR) / Systems and Operations audit as the case normally follows such an evaluation, which focuses on devising and prioritizing solutions to these identified problems through the reorganization of selected processes, re-distribution of tasks and process throughput, and the deployment of the appropriate technology to achieve the desired enterprise objectives.

An enterprise through its continued existence and growth, acquires sub optimal, induced systems and practices, not envisaged during the project phase. Costs mount and profit margin shrinks. More often than not, such sub optimal systems and practices are brought about by crisis management, short time solutions, and non-adoption of appropriate and latest technology, absence of professional management and to a certain extent lack of focused approach. Unless identified and removed, these will continue to erode the already meager profitability - hence the need for a BPE.

BPE should not be construed as a one-time exercise. It should be repeated as often as necessary, whenever declining margins are noticed or after a definite interval of time.

Components of BPE
A typical Business Performance Evaluation assignment would cover the following aspects:

The present business scenario is different from what existed a decade ago. Customer retention is no longer a given proposition. Rather a prized possession that has to be won against tough and ever increasing competition. With the opening up of the economy and free trade policies, companies are going to be tested with competition from the global market. Unless the company adapts to this situation, its profitability and growth is going to be in jeopardy.

Periodical performance reviews, conducted in the form of Monthly Review Meetings (MRM’s), are an integral part of Total Cost Management Solution, preceded by several steps, such as Identification of Critical Success Factors (CSF’s) and Key performance Indicators (KPI’s), Core group formation and assignment of responsibilities, identification of deliverables, Fixing of targets for achievement etc. The focus will be on CSF’s and KPI’s leading to cost reduction, cost control and customer satisfaction

MRM’s are a means for critically analysing, through a periodical executive level meeting, deviations of a specifically selected set of Key Performance Indicators (KPI’s), over the time elapsed between two successive meetings, against preset desirable norms. As a corollary, it also follows that, action points would have to be evolved, during each MRM, to set in motion activities which would ensure that such deviations are not only corrected with a minimum of time delay, but also install control points for prevention of recurrence. Progress on these action points would then perforce be discussed at successive MRM’s, till such time the issue is satisfactorily resolved.

The KPI’s themselves are carefully chosen parameters, which will ensure organisational effectiveness. Their selection will have to be based on Critical Success Factors (CSF’s) for each process.

* Essential enablers focused on the process;
* A thing or condition required for optimal success or an activity recommended for optimal success;
* The most important things to do, to increase the probability of the success of the process;
* Observable, usually measurable, characteristics of the organisation and process;
* Either strategic, technological, organisational or procedural in nature;
* Expressed in terms of processes and not the whole business.

* A measure of how well the process is performing;
* Predicts the probability of success or failure in future of the process;
* Process oriented;
* Expressed precisely in measurable terms;
* Will help improve the process when measured and acted upon;
* Will focus on those resources identified as the most important for this process.

2. Careful selection of, and setting desirable norms to KPI’s, covering the entire spectrum of the enterprise activity from Marketing/Sales to Production to dispatch and realisation of sales proceeds;

3. Continuity of MRM’s through which, resolution of all action points are ensured, by clearly defining the activities to be undertaken for correction of observed deviations and also by assigning non-transferable responsibilities to designated individuals.