Positive and Honest feedback adds to Audit Effectiveness
One of the important factors for an effective audit is “Auditee feedback” which has commonly been ignored and has not usually been part of professional discussions. It appears very simple and nice to read this statement but all internal auditors know how much effort it takes to get focused, positive and value adding feedback from an auditee. Dealing with behavior and responses of auditee during this process is quite a challenge.
The auditee should recognize the fact that his enhanced performance, through auditor’s recommended corrective measures, will help in achieving his department’s objectives. So establishing an honest understanding of objectives of the audit and respective roles of auditor and auditee, should take place before the start of the audit process.
The Need for Feedback
Audit reviews can be a smooth journey if both auditor and auditee understand the objective and both of them work in coordination and participation with each other, to achieve desired improvements. The auditor has to ensure transparency in review approaches, conduct and finalization of the audit. The auditee also has to support the review by demonstrating confidence in auditor.
Feedback from auditees is a confirmation on the auditor’s analysis of data, compilation of information, approaches of audit, observations made, acceptance of recommendations etc.. The auditee is the one who can approve or reject the internal auditor’s efforts, which should be done diligently and honestly. Even the auditee at higher levels of management will not accept the observations unless they have been accepted by the previous levels of management. Hence the auditee can even make or break auditor’s positivity of approach in audit review.
The auditee’s feedback should be specific to the issues/observations, timely and be delivered in an appropriate way.
A. Specific to issues
Feedback is at its best when it relates to a specific observation, data analysis and audit query. The auditee’ feedback will be to the point and constructive if all the relevant details have been provided as any gap will lead the auditor to an unwanted direction. Submitting an audit observation to auditee like “Observed that exercise of identification of slow, non-moving and dead inventory items is not effectively conducted during the year” will not yield any tangible feedback unless it is specific like “As per policy the exercise of identification of slow, non-moving and dead inventory is not being done quarterly and our exercise of identification of such inventory items resulted in 12 such items, the detail of which is in the attached statement.”
The auditor is required to submit any detail or observation to auditee well in time and for the period under review. Any undesired delay in feedback will lose its significance and may delay the process of audit. The sooner the auditor identifies the requirement of changing approach, working and source of information/data, the sooner they can correct the point involved and conclude the audit effectively.
Feedback should be given in a manner that will help to improve audit performance. Since people respond better to information presented in a positive way, feedback should also be expressed in a positive manner. It must be accurate, factual, and complete. Feedback is more effective when it reinforces what the auditor did right and/wrong and then letting him judge what needs to be done during the course of audit.
Frequency and Stages of feedback
The feedback from the auditee can be regular or as requested by the auditor. Regular feedback can be given as and when the auditor discusses processes, asks for records and data for review and when querying the auditee about some observations. The auditee’ feedback is expected to be with positive intent as it would depict auditee’ desire for the auditor to add value.
Feedback is required at different stages of an audit and it can be informal or formal, written or verbal. The auditor has to notice and evaluate such feedback critically.
The periodic feedback sessions are normal features of any audit review where formally the details of issues to be discussed and feedback to be taken from the auditee are provided in advance. The feedback is documented and is either taken as base for the next level of audit review or forms part of report itself. With effective feedback, auditor will be working in right direction and will be more potent in conduct of audit.
A. Feedback in the opening meeting with auditee
The auditor has to explain to auditee the objective, scope, tentative duration of review, initial record and details required in the Kick off meeting. The meeting will give opportunity to the auditee as well to raise questions and ask for clarifications, if any from the auditor. At the end of the meeting his clear understanding about the whole process of the review is a kind of feedback whereby he gives his concurrence and assures of complete support.
B. During conduct of audit
While conducting audit reviews the auditor is applying different approaches and techniques of audit. He also makes verbal and written communication on issues involved in reviews. The responses, actions, reactions and behavior of auditee to such activities are a kind of feedback to auditor on how the audit review is being conducted. After having explained the scope and objective of audit review in the kick off meeting, the auditor should ensure that the review is being conducted within the same scope, with positivity and without any intention to find mistakes, errors, frauds etc.. The moment the auditee will get any sense of negativity in what the auditor is doing; the auditee will withdraw himself and will tend to feed or provide whatever has been asked without any positive participation. The end result will be extra efforts by the auditor, not enough confidence in whatever is being done and non-participation of the auditee in the process of improvement.
C. In the closing meetings
The feedback requirement in the closing meeting should not come as a surprise. It is better to raise issues as they arise in the course of an audit, having a constructive discussion on the spot as and when required. The closing meetings are done at various stages and with various auditees during the course of finalizing audits. Since these closing meetings are done with concerned auditee, department and functional heads levels so types of feedback at each of these levels will differ in content and style. The process of getting feedback in the closing meetings will be smoothened if auditor has been transparent in his approach and conduct during the course of audit.
Though an auditor is getting feedback at different stages and from different level of auditees and management staff on specific areas of audit, the practice of getting an overall audit feedback has been formalized in many organisations. The criteria on which overall performance of audit is to be evaluated are many and in use. It is the maturity of the organisation and the role of the auditor it has foreseen, which defines the list of criteria for feedback. An organisation may even require the auditor to rate different auditees also on defined criteria.
The overall feedback on different aspects of the audit sets a benchmark or highlights the gaps in performance acceptance of management from audit department.
Auditee feedback on different aspects of the audit sets a benchmark or highlights the gaps in performance acceptance of management from audit department. Each audit observation has to be taken up in its right perspective, without over doing and mis-interpretation. An auditee expects to be given the opportunity to give their perspective, a process that helps to gain their commitment, so the auditor should welcome feedback. By adopting and implementing a collaborative approach to feedback and highlighting the ultimate aim of the audit to support auditees in order to improve organizational performance, will provide solid foundations for a positive experience for all concerned.
LALIT DUA, CA is head of internal audit at Shalina Healthcare in Dubai.