“When orators & auditors have the same prejudices, those prejudices run a great risk of being made to stand for incontestable truths.”
Philibert Joseph Roux
With the business world becoming more complex and competitive, the importance of being compliant, above board, transparent and accountable is of utmost importance. The desire to be put everything in order, become compliant and a seamless operation is the primordial objective.
Incidentally, it is has become one of the most effective marketing tool. Future businesses, expansions and growth partly depend on result of audits. Saw additional businesses launched, deals closed and transactions finalized, if and when audit findings prove to be encouraging and satisfactory. On the contrary, opportunities are lost because damaging and non-compliant audit results specially if they remain un addressed.
Audits are also critical tools for businesses to assess financial health, be able to evaluate effectiveness of internal controls and gives the assurance on compliance with regulations and detect then mitigate potential risks. Audit help businesses thrive and proper in today’s dynamic environment. How we address audit findings play a fundamental role in promoting transparency and accountability within organizations. Regular financial audits conducted on financial statements and records demonstrate commitment to integrity and ethical behavior.
A systematic and independent audit of companies, be it their processes and procedures or financial status by qualified professionals provide invaluable insights that are essential for the growth, sustainability and success of companies.
In the early stages of my career, was exposed to all sorts of audits. In the manufacturing sector where I spent most of my career, process and/or customer audits would revolve around the ISO 9001 (Quality Management Systems), ISO 14001 (Environmental management System) and the then TS 16949 (The Automotive Industry Standard).
In the BPO industry which I now navigate, aside from QMS and EMS, ISO 27001 (Infosec) and ISO 20000-1 (IT Management System) with ISO 14064-1 (Carbon foot print) and ISO 45001 (Environmental Health & Safety Standard).
Process audits are indispensable for identifying operational inefficiencies, weaknesses in internal controls, and areas of potential improvement. Through a comprehensive review of processes and procedures, auditors can pinpoint inefficiencies that may be hindrance to a company’s performance and profitability. By addressing these issues proactively, businesses can streamline operations, enhance productivity, and reduce costs, leading to increased competitiveness and profitability in the long run.
Compliance audits from government agencies was also part of our staple. The Dept of Labor & Employment (DOLE), the Department of Environment & Natural Resources (DENR) and others were also designed to ensure that companies/businesses were not only compliant with applicable laws but also abreast with regulations and legal requirements. The DOH was a constant fixture during the pandemic. Government agencies were noticeably hard on known violators or those with previous records.
These audits also serve as means of ensuring regulatory compliance and mitigating risks. In today’s business environment, companies are subject to a myriad of laws, regulations and industry standards that govern them. These help businesses assess their compliance with applicable laws and regulations, identify areas of non compliance and implement corrective actions to mitigate risks and ensure adherence to legal requirements. Failure to comply with these regulations can resulting to severe penalties, legal repercussions and reputational damage.
Of late, the Social Compliance Audit or the SA8000 standard has also been making its presence felt. With companies aiming to be adjudged as one of the Best Place to Work, as it includes the evaluation of the company’s practices related to labor rights, human rights, environmental sustainability and critical issues such as diversity, inclusivity, respectful practices & communication channels between workers & management are subject to close scrutiny. ISO 30415:2001 covers Human Resource Management – Diversity & Inclusion.
Social compliance audit complies with social & ethical responsibilities, health & safety regulations and labor law.
Finance audits were the most tedious and took longer than usual. Though not only Finance departments were the auditees, we at Human Resources had some exposure and intertwining activities related to such audit such as payroll, statutory compliances and payments etc. ready to show proof and evidences upon requests. Known and internationally recognized usually audit firms would visit us at least twice a year.
A Financial audit being an objective examination of financial statements of an organization aims to make sure the financial records are fair and an accurate representation of the transactions they claim to represent. It instills trust among stakeholders, including investors, creditors, and customers, enhancing the company’s reputation and credibility because they help deter fraudulent activities and financial mismanagement, safeguarding the interests of shareholders and other stakeholders.
Moreover, audits provide valuable insights into financial health and performance of a company, enabling management to make informed decisions and strategic planning. By analyzing financial data and key performance indicators, auditors can help businesses identify trends, assess financial stability and evaluate effectiveness of business strategies. This information is crucial for management to set realistic goals, allocate resources and drive sustainable growth and profitability.
This is the reason the auditors or accountants readily attest to the accuracy and truthfulness of the report.
Before I became a management representative, at some point in time I was an accredited internal auditor eventually becoming the Lead Internal Auditor. These is where I met some of the best engineers and quality people in the industry. They took it upon themselves to ensure that everything is in order and compliant because they knew this was key to the success of the company. Former team members have gone on to become leaders in their field and now lead their own teams. What I found common among these bunch was that as auditees, they openly accept audit findings as help needed then immediately implement corrective & preventive measures to improve the situation and as auditors, as seasoned auditors, even before document review, they can easily detect or sense risks based on the demeanor & behavior or past experience with the auditee. But we also encountered unexpected resistance as well.
As a former Lead Internal Auditor myself, our team though not a norm, have encountered hostility towards auditors. Here are the unwanted consequences of hostility towards audits:
- Denotes Lack of transparency – Audits are conducted to ensure transparency and accuracy in financial reporting and operations. If there is resistance to an audit, it can raise suspicions about integrity of the financial records or activities being audited.
- Compliance issues: Refusing to cooperate with an audit may indicate potential compliance issues or violation. Required by law or regulations, failing to comply with audit requests can lead to legal consequences and costly penalties.
- Financial irregularities: Identifying inconsistencies, errors or potential fraud gives the opportunity to rectify and/or stop abuse. Hostility could be viewed as one way to thwart the exposure of potential risks or unethical practices with unwanted consequence.
- Lack of control or oversight. Organizations that resist audits may lack proper internal controls or oversight mechanisms. Resistance may actually indicate a lack of willingness to address issues.
Overall, resisting an audit, be it system, process, product or the like can erode trust in the organization or its practices. It raises red flags for stakeholders, regulators and authorities. It is generally in the best interest of organizations and individuals to immediately cooperate with auditors to demonstrate accountability, transparency and compliance with regulations. Any hint of resistance is where trained auditors thrive not because they would like to pounce on violators but mainly due to the opportunity to help in the improvement journey.
In conclusion, audits are indispensable for businesses seeking to achieve long term success and sustainability. As it promotes transparency, accountability, operational efficiency, regulatory compliance and strategic decision making, it helps mitigate risks, enhance performance and build trust with stakeholders. They do not only ensures compliance with legal requirements but also provides a roadmap for continuous improvement and growth.
Ultimately, businesses that give importance to audits & realize that they are actually strategic tools that will equip them to navigate challenges, seize opportunities and thrive in today’s competitive business landscape.
Though at times they are painful wake up calls on risks and loopholes that need to be mitigated and addressed, its purpose is to seek continuous improvement and provide the opportunity to correct oneself.
Any disdain or discomfort when the truth is sought out is when the possibility of the truth coming into light being uncomfortable and totally way off track.
In the end, the opportunity to do corrections and prevent recurrence is more important than a seeming temporary discomfort because it gives the opportunity to come out with measures to mitigate risks and prevent a repeat of the same mistake/s if any.
Honest feedback is both an ask and a reply. It may come in the form of an internal audit, customer audit, product audit, system external audit or from a plainly curious person seeking answers.
GOOD MORNING HARDWORKING PEOPLE!
For comments & suggestions, you may email author [email protected] & follow in Facebook Herrie Raymond Rivera.