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When Audit teams and Sales staff collide….

August 18th, 2008 Comments off

In my last commentary on Internal Audits, I went into an overview on the segment concerning Finance & Control. When it comes to this group, internal audit exercises are rather straightforward and generally not intimidating. But how do you coordinate this same exercise for a group that’s not used to being questioned and are accustomed to generally running in a fairly independent fashion, like the Sales department? Answer, very carefully and with a bit of handholding. Again, like the Finance portion of the audit, this is only intended as a brief overview and there was a much more comprehensive approach behind the scenes.

Although the intended scope of review for this department was not going to be the least bit exhaustive, it did mean that Sales personnel were going to be questioned on protocols and that their approach was going to come under some level of scrutiny. With regards to the auditors, they were going to key some of the following topics:
1. Efforts & action plans to achieve synergies with the parent company.
2. Project margin tracking was in place to achieve the original commitments.
3. Sales personnel bonus plans were definitely structured and approved.
I knew that the first couple parts were not going to be much of an issue, but once you start questioning Sales folks about their bonus plan you know there’s the potential for fireworks.

As we went through the various topics, we began to dig into more detail about how higher value jobs were being quoted and how the change orders on those jobs were being charged to the customer, or in some cases, how they weren’t. Fortunately, we had already implemented a new reporting structure prior to the audit that had us tracking the margin progression of every job over a specified value. We would track every progression in the job to the point that if we encountered even 50bp of margin change by the completion of the job we could bridge every element contributing to that change. For the better or the worse….

The delicate balance in this portion of the audit was working with the Sales team, who were instinctively working in the best interests of the customer and meeting their goals, and the Audit team, who was only focused on whether protocols were being followed, regardless of the outcome. We encountered some very short tempers but were able to work through it once each party understood the motives of the other. Not that the Audit team really cared…..
The valuable perspective for this part of the audit was that you had one group who worked in multiple shades of grey, and the Audit team who only worked in black and white, and how do you generate a productive outcome? We did so by educating all parties involved and making sure that all parties were working towards the same outcome – Making sure the company continues as a growing and profitable entity while mitigating risk.

Thanks for reading . . . .