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Internal Audits – embrace & value the process.

August 7th, 2008 Comments off

While I had always participated in the internal audit process and provided my portion of the contribution, I’m not sure I really appreciated the process until I was the person actually leading the Finance team and responsible for everything that happened “under my watch”. During my time with MGE, it was decided by our parent company, Schneider Electric, that they would be purchasing the remaining portion of our company and converting us to a wholly-owned subsidiary of their $13 billion conglomerate. At the close of the transaction, Schneider sent in a full team to conduct a comprehensive internal audit on our process, documented procedures, and potential areas or risk.

The audit was not going to cover just the Finance department, but encompass every area of the organization. This was going to be an 8-week process that was going to cover Inventory & Logistics, Sales & Marketing, IT, as well as Human Resources. Their main objective was to assess the potential risks within each one of these areas and rate those levels of risk according to their importance and the ability to potentially have a material effect on our financial results. We also wanted to determine what levels of internal control and monitoring we had in place to deal with the risk, and if necessary, propose recommendations to correct either the situation or our ability to follow the risk.

Since we had always had a very good relationship with Schneider Electric there was no significant anxiety of the proposed audit, but this effort was much more comprehensive than previous audit engagements. We were hosting individuals from Los Angeles, Chicago, and Paris, along with occassional visits from external auditors Mazars and Moss Adams. Perhaps there was no significant anxiety since we had always operated our entity with a high level of control and accountability. Ultimately, our audit concluded and in a very satisfactory manner with some areas that were noted for improvement and a timeline for follow-up and modifications.

This is obviously a process that can be addressed in much more detail considering this was an 8-week engagement, which I will in future posts. I will spend more time discussing the audit engagement for each area. The most significant takeaway was the additional insight that it gave us into our organization and receiving an unbiased view of our operations. For any new CFO, this is a critical step to go through and assess what the strengths and weaknesses are for the organization and what the areas of risk are for you in the execution of the company’s financial goals. An area that certainly shouldn’t be left to chance & is well worth the 4-8 weeks that you might invest.

Thanks for reading . . . .