Performance Audit. Rationally Or Effectively?

20/ 04/ 2017

Author: Tadeyeva Nataliya, Director of Accace Ukraine. More than 5 years of experience as an auditor in Big 4, financial management in a manufacturing enterprise. Taking into account an organizational structure of any business generally we can define two sides where one part is a front part - a sale, marketing, activities associated with involving customers and a back-office which are designed to ensure the functioning of the Company by maintaining the life support processes and provide with a relevant information for management. Thus, the mentioned processes are accounting, management accounting, procurement etc. It is worth thinking about an effectiveness (productivity) of each of the areas. Among different types of audit (financial, human resources, security, etc.), efficiency audit is used to assess the efficiency and effectiveness of company’s existing resources use. The closest to the efficiency audit is a financial audit. What is a difference you can find in the table below. Efficiency audit increasingly becomes a part of the company’s daily life because the procedures are able to point out where the funds are spent and whether it brought a desired result. A use of the performance indicators make able us to track the patterns of connections between specific types of costs and achievement of goals. However, it should be noted that it is necessary to begin with a efficiency audit for the back office processes, as often they carry a greater threat on the inefficiency costs. For example, if company has 5 accountants and chief accountant for 50 employees, 5 accountants it’s not very effective. At the same time having analyzed the costs they generate you can get confused, as they may significantly exceed the costs that are generated with front lines of business. Costs of “back office” consist of: salary + taxes + additional benefits + training + penalties + consultants + the cost of subscriptions to specialized publications + recruiting + adaptation and control etc. Moreover, such back-office’s processes as accounting and logistics, demand very professional trained specialists and continuous monitoring to meet the highest standards in order to minimize risks and financial losses in the future. The efficiency audit can identify business processes that consume more resources than bring value to the business, and this is obviously wrong proportion. Studying the different business models and analyzing the practice of optimization of business processes, you will undoubtedly need to get acquainted with Paul Harmon matrix that tells you how to manage business processes effectively. The Matrix is a strategic nature for the company taking into account the importance of the process and takes into account the complexity of the process itself. If the company uses a process approach to management, it becomes obvious that to have a significant costs of the accounts is not effective. Much have necessary is information, which provides an operational / management accounting. After all this information helps quickly intervene and adjust the control to the right results oriented direction. The trend of the past 10 years in Europe and developed countries is to have the financial analysts, who on a daily basis provide information to management about results and efficiency indicators, while the financial accounting function is outsourced to professionals for whom this is a business. Moreover, through the using of a certified provider of outsourcing the Company has the ability to keep the commercial and financial information in its entirety. Among the most popular areas for outsourcing are also personnel administration function, the internal audit function and logistics. In Europe, also separately allocated direction of outsourcing of payroll, but in the Ukrainian reality is difficult to single out the process which is completely independent of general accounting.

Author: Tadeyeva Nataliya, Director of Accace Ukraine. More than 5 years of experience as an auditor in “Big 4”, financial management in a manufacturing enterprise.

Taking into account an organizational structure of any business generally we can define two sides where one part is a “front part” – a sale, marketing, activities associated with involving customers and a ‘back-office’ which are designed to ensure the functioning of the Company by maintaining the life support processes and provide with a relevant information for management. Thus, the mentioned processes are accounting, management accounting, procurement etc.

It is worth thinking about an effectiveness (productivity) of each of the areas. Among different types of audit (financial, human resources, security, etc.), efficiency audit is used to assess the efficiency and effectiveness of company’s existing resources use.

The closest to the efficiency audit is a financial audit. What is a difference you can find in the table below.

Efficiency audit increasingly becomes a part of the company’s daily life because the procedures are able to point out where the funds are spent and whether it brought a desired result.

A use of the performance indicators make able us to track the patterns of connections between specific types of costs and achievement of goals. However, it should be noted that it is necessary to begin with a efficiency audit for the “back office” processes, as often they carry a greater threat on the inefficiency costs. For example, if company has 5 accountants and chief accountant for 50 employees, 5 accountants it’s not very effective. At the same time having analyzed the costs they generate you can get confused, as they may significantly exceed the costs that are generated with front lines of business. Costs of “back office” consist of: salary + taxes + additional benefits + training + penalties + consultants + the cost of subscriptions to specialized publications + recruiting + adaptation and control etc.

Moreover, such back-office’s processes as accounting and logistics, demand very professional trained specialists and continuous monitoring to meet the highest standards in order to minimize risks and financial losses in the future. The efficiency audit can identify business processes that consume more resources than bring value to the business, and this is obviously wrong proportion.

Studying the different business models and analyzing the practice of optimization of business processes, you will undoubtedly need to get acquainted with Paul Harmon matrix that tells you how to manage business processes effectively. The Matrix is a strategic nature for the company taking into account the importance of the process and takes into account the complexity of the process itself.

If the company uses a process approach to management, it becomes obvious that to have a significant costs of the accounts is not effective. Much have necessary is information, which provides an operational / management accounting. After all this information helps quickly intervene and adjust the control to the right results oriented direction.

The trend of the past 10 years in Europe and developed countries is to have the financial analysts, who on a daily basis provide information to management about results and efficiency indicators, while the financial accounting function is outsourced to professionals for whom this is a business. Moreover, through the using of a certified provider of outsourcing the Company has the ability to keep the commercial and financial information in its entirety. Among the most popular areas for outsourcing are also personnel administration function, the internal audit function and logistics. In Europe, also separately allocated direction of outsourcing of payroll, but in the Ukrainian reality is difficult to single out the process which is completely independent of general accounting.