The Audit Love Triangle

There is a joke about the love/hate relationship between auditors and clients.

 Auditor: We’re coming to audit you soon. Will you guys be available?

 Client: Sure, you know we love you guys!

 Auditor: REALLY

 Client: Well we hate to see you coming and love to see you going.

A client said this to me jokingly recently. But it got me thinking about the relationships between auditors and clients. I liken it to a love triangle.  There are three sides to the relationship:

  1. What the clients says
  2. What the client does
  3. What the auditor sees

What the Client Says

Most audit planning begins with discussions from high ranking members of management. The vice president of the audit area provides his/her high level take on the function. The outcome is usually valuable information. This person has the vision for the unit and the viewpoint is primarily strategic. This level of management passes the strategy along to middle management.

What the Client Does

With executive expectations in hand, personnel design processes and tasks to meet the strategic vision. The amount of support (monetary and emotional) is based on a variety of factors including the perceived ability of the staff, organizational sentiment for the function, total funding available or the specific executive asking for support. So with expectations, personnel and processes in place, a department is born. The executives periodically measure effectiveness and make adjustments when necessary. And then here come the auditors, wanting to “test” processes to see if they actually meet the strategic objectives.

What the Auditor Sees

As mentioned, the audit planning process typically begins with discussions from organizational executives, who set the expectations. Middle management and support personnel are instrumental in executing tasks designed to meet the expectations. Then your auditors evaluate (1) the effectiveness of processes in achieving expectations and (2) the efficiency of processes. A few scenarios usually arise:

  1. Processes are effective (i.e. expectations are met), however, inefficiencies result in waste
  2. Processes are not effective, but extremely efficient (i.e. you do the wrong thing well)
  3. Processes are not effective and very inefficient
  4. Processes are either effective or efficient but controls do not appropriately mitigate risks

These situations are problematic and exist because there is a disconnect between executives expectations and the resources and/or abilities of the personnel performing the work. And then here come the auditors again.

Very few clients complain when auditors report that processes are effective (i.e. achieve the goal) but inefficient.  That’s because these result in cost savings. Big problems occur when processes are effective and efficient but controls do not mitigate risks. Sometimes management views controls as an extra cost. They do not become important until an actual loss occurs.

Auditors often experiences difference between executive expectations and process execution. It is important to understand the difference between what audit clients say, what they do and what you see.

Conclusion

If not managed appropriately, the audit love triangle can cause strife in organizations. It is usually no one individuals fault, but rather a byproduct of the business environment. There is a natural disconnect between expectations and processes designed to meet expectations. Personnel responsible for setting expectations will occasionally see things differently from those responsible for executing tasks. Objective auditors, the humble messengers (please don’t shoot the messengers), are often caught in the crossfire for telling the truth.

 

What has been your experience with the audit love triangle?

 

 

Robert Berry (108)

Robert (That Audit Guy) Berry is a risk, compliance and auditing advocate, educator and innovator. He helps good professionals become better by creating articles, web services and training that allow them to expand their knowledge network.

2 thoughts on “The Audit Love Triangle”

  1. Sundar Rodriguez FCA., CFSA.,FAIA.,CFA

    I fully concur with it.
    However, I would like to state that if, especially the internal auditors, take the initiative to inform the client that they are coming to help them out, or rather look at what they are doing in different perspective, and thereby come up with improved action mechanism, some may change However, remember change is a painful process. The use of Kotter’s 8 step model could be adapted in this regard.
    As internal auditor for UN for five and half years, I have never ever had any problems, and all the recommendations I have come up during the exit conference were accepted because, I did never ever keep my findings under wrap, but discussed the same with the clients then and there, and also told them they have time till the conference to come up with defence and if it acceptable then I would delete it and if there is difference of opinion we would discuss it. In that way the recommendation would not be like something out of the blue and the client would be not in a position to refute it. However a thorough documentation to support the whole process is key to defend in case some client back track what they have said.
    But to be honest, I always enjoyed this love hate relationship. This had given me an opportunity to relive the youth experience of moving from ordinary relationship to love with your loved ones.

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