Mention the word “audit” to anyone and the chances are that it conjures up the idea of an accountant (usually a registered auditor) and his/her team coming to your office with their quill pens – ready to give you a “thorough going over” before they’re ready to sign off an audit report on the contents of the annual accounts. These financial audits are part of the regulatory system – if you like, it’s a cost that has to be paid when you run a company, with some exemptions for small companies.

advanced business process

To be truthful, the financial audit isn’t generally welcomed – it’s something that has to be done, but few business owners and managers regard it as something they actually really “want”.

But your historical trading record isn’t the only thing that should be subjected to scrutiny or “audit”. There are many other audits that people aren’t aware of, such as (excerpted from my publication on Strategic Audits):

  • Business Strategy Audit: This means analysing the effectiveness of your company’s strategy and the process by which the strategy is determined and implemented.
  • Marketing Audit: This provides a thorough review of the company’s marketing environment, objectives, strategies, and activities with a view to determining problem areas and opportunities and recommending a plan of action to improve the company’s marketing performance.
  • Corporate Identity Audit: This means providing measurement tools for your company’s corporate image and reputation.
  • Technology Audit: A technology audit gives you the necessary tools to see how effectively you can exploit the technological strengths in your company (and eliminate weaknesses) as well as identifying other IT opportunities that may help your organisation.
  • Leadership Skills Audit:  Are you “leading” or “pulling” – you need a guide to improving the leadership effectiveness at every level in your company. The audit identifies the competencies are required for leadership success in your company and measures the performance of the company’s employees in terms of those competencies. It stresses the need to develop leadership at all organisational levels, and suggests an outline for developing personal improvement plans.
  • Corporate Culture Audit: Here’s how to evaluate your company’s organisational culture as well as capturing all its strong points to create sustainable competitive advantage.
  • Computer Security and Fraud Prevention Audit: This is an in-depth way to check the security of your computer systems and the data held on them.
  • Productivity Audit:  This incorporates performance measures to identify key areas where improvements in productivity can be achieved. This audit increases the chances of increasing productivity in real terms, rather than improving efficiency at the expense of strategic goals.
  • Service Management Audit:  This is an assessment process to determine the direction and effectiveness of each service unit throughout your organisation. The audit provides information about using service resources effectively, measuring the quality of service management, and assessing a company’s ability to recover in the face of service failure.
  • Customer Satisfaction Audit: This audit ensures that your company stays firmly focussed on customer needs. It looks at the critical aspects of system-wide customer satisfaction and measures performance.
  • Partnership and Alliances Audit: Are you in good company? – find out via a structured assessment of your company’s alliance, partnership and joint-venture relationships.
  • Environmental Management Audit: This audit describes how you can determine which environmental standards should be targeted and provides a model for auditing performance in terms of those standards.
  • Logistics Audit: If you’re set on maintaining sustainable competitive advantage, here’s the solution to reshaping the logistics processes in your organisation.
  • Risk Audit: This audit assesses the various risks to which your business is exposed. For example: what would happen to your business if someone slipped and fell on your property, or a customer sued you for an error you made, or an employee stole funds, or a power surge knocked out your computer system and vital data is lost, or someone hacked into your computer system and stole your company’s secrets or, perhaps worst of all, a product you made injured or poisoned someone or even killed them?

The new kid on the block – the Audit of Honesty.

The above is a formidable list and perhaps too much except for large companies dealing with millions of consumers.

What’s missing though is the audit of honesty. It’s coming soon and it may become the norm.

On 7 July, the Chartered Institute of Internal Auditors (CIIA) said that businesses should launch a full- scale review of their corporate cultures if they want to stop future crises and scandals taking place. It went even further by proposing that the audit industry should be given sweeping new powers covering behaviour in all parts of businesses, as well as the traditional role of monitoring and reporting on financial activities.

This news was widely reported in the financial press and was warmly received.

Would Honesty Audits be any different to Financial Audits?

breadIn July 2013, The Wall Street Journal (WSJ), here, wrote about financial audits. They said the auditing business rests on what Joshua Ronen, a New York University accounting professor, once called “a structural infirmity.”  Auditors are paid by the companies they audit, much as rating agencies, such as Fitch, Moody’s et al, are paid by companies they rate.  WSJ wrote that this gives auditors an economic incentive to lie on their clients’ behalf, even if that puts their reputations at risk. As an old German proverb puts it: Whose bread I eat, his song I sing.

We have to try to think of what an honesty audit might encompass. Here’s a start:

  • If something goes wrong, how does the business report it to the customer?
  • Does the business act swiftly in reporting problems?
  • Are all the facts relating to a problem communicated to the customer without attempt to confuse or distort?
  • Is the business honest and trustworthy when writing reports to customers and in completing forms etc?
  • Does the business deceive customers by knowingly over-charging for products or services?
  • Does the business always comply with all employment laws and other regulations?
  • Does the business knowingly misrepresent any facts?

winston churchillNo doubt you can add many more points.
[NB “business” mentioned above means the company or organisation whose honesty is being audited.]

Final words from Sir Winston Churchill:

“It is a fine thing to be honest, but it is also very important to be right.”

Martin Pollins
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