Internal Audit

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					                     CFO Career Grid



New Co.’s


                              Cost    Reporting,   Business Strategic
                Audit Acct.
                              Acct.    Investor    Analysis, Planning
                                      Relations    Treasury
               Internal Audit
• First thoughts?

  “NCAA” (No Clue At All)

  “Accounting Practice”


  “Reviewing Accounting Records”

  “Bean Counting”
   Purposes of Internal Audit

• Understand the Nature and Scope of the
  Activity/Function being audited

• Check Administrative Efficiency of Polices
  and Procedures (P&P‟s)
     Purposes of Internal Audit
• Ascertain the Extent to which Company Assets
  are Accounted

• Safeguard from Losses of All Kinds

• Determine the Reliability of Management Data
  developed within the Organization
    Purposes of Internal Audit
• Determine the Extent of Actual Compliance

• Appraise P&P‟s for Possible Improvement

• Increase Efficiency by identifying any other means
  by which the activity/function can be made More
   – shared best practices
   – How do you audit 10,000 Burger Kings?
                        Audit Cash
         Internal to ControlStructure
    Function of Ability
• Complexity & Knowledge of Business
• Quality/ Integrity of Personnel
• Centralization vs. Decentralization
• Report to Audit Committee (vs. CFO)
• Security Department (should be included)
Internal Audit Responsibilities:
• Operation Audits
• Financial Audits
• Cooperation with External Audit
  – can drive positive  within company

• Evaluation of Internal Controls
      Internal Audit Needs:
• Management Support of Audit
• Computer Skills
• Legal Interface
       Internal Audit Program
• Risk Assessments
    • Size, Amount of Change, Previous Reports

• Cycle Approach
    • Based on Risk
    • High Risk First
    • Visit Everyone within 2 to 5 year Cycle
         Internal Audit Program
• MIS Implications (Security Systems)
  – External Hackers
  – Internal Theft
  – Disgruntled Employees

• Statistics
     • Pinpoint problems by Variance
                 Internal Audit
What “I” need to know in order to be successful:

• Familiarity with some element of the business
  operations, not just “text book” learning.

   – Internal audit is a great job if you have 2-5 years of work experience
     in another department (especially IT/Systems).

   – Or, a strong ability to compare experience-to-date to the company‟s
     business processes.
       Success at Internal Audit

• Get to the Root of the Problem
   – Focus on the Cause, Not on the Symptoms.

• Strong Written and Verbal Communication skills

• The ability to structure work, be a self starter,
  stay on-time and budget, etc…
   – Strong Project Management Skills
     Success at Internal Audit

• Skill at being “Non-Threatening” in a
  threatening role

• Be a Consultant, a Listener with a Purpose

• Make Connections with people in a short time
Internal Audit – „the Dark Side‟
• If you don‟t have some other work experience,
  you can get Stuck in Audit
  – Best Sequence:
     • Functional Role 2-5 yrs.

     • Internal Audit 3+ yrs. (longer if promoted in audit)

     • Back to a Functional Role
Internal Audit – „the Dark Side‟
• Testing Compliance can be Boring

• Many people think its Not a good work experience

• You Travel a Lot (60% 0n the Road)

• “What Personal Life ?”
Internal Audit – „the Dark Side‟
• Most people are threatened by auditors and can be
  defensive (at the least) or aggressive, or even on the
   – You can have days where very senior people are screaming
     at you…

Works OK with my motto: “Any Exposure is Good Exposure.”
Internal Audit –the Good Side‘the Force’
• Audit Improves MPNW
   (My Personal Net Worth)

• Broad Exposure to a Business‟s Operations
  – Translates to Functional Experience

• Work on End-to-End processes, not just in Functional
      Internal Audit – the Good Side
• Opportunities to Learn How the Business Really Works
   – Functionally
   – in Different Markets

• Excellent Opportunity for Networking in the Organization
   – No other Internal Role give the same Exposure to the same Number of

• Great way to Learn about other Areas of the business from a
  career perspective
   Internal Audit – the Good Side
       Interaction & Exposure to Senior
• Can Scope out Future/Potential Roles

• Unusual for Entry-Level jobs to have such
  exposure to Senior Management

• Develops Communication Skills
  -the ability to think on your feet!
  – -and the ability to communicate to large amounts of
 Internal Audit – the Good Side

• Can get a better understanding of what jobs are like
  than via an interview process.
• Great Travel.
• Experience what it‟s like to live all over the world
  without having to move.
• Gives you more career paths as you‟re learning
  processes and operational capabilities; not just
      Lessons Learned – Internal
     Use and Develop Internal
2. People Development Opportunity
3. Promote and Move Auditors In/Out
      •   Eliminate Stagnation

4. If they Object send in More Firepower
      & more Senior People
5. Prosecute … Hang Publicly
6. High Compensation Doesn‟t mean High Integrity
           L.L. – Internal Audit II
7.   Share Findings and Best Practices
8.   Build on Audit Experience
9.   Utilize in House Consultants
       •   to question P&P‟s

10. Eyes and Ears in the Field
11. Cross-Train with Systems Personnel
12. Get Audit Involved Up Front on New Systems
       L.L. – Internal Audit III
13. Don‟t Forget to Recognize the Audit Team
14. Be Creative in Road Time Compensation
15. Remember it is Internal Audit

            They Are Your People,
          So Keep it in Your House.
                External Audit
• Answers to:
  Government and Accounting Bodies

• Became more:
  Consulting than Auditing of Company

• Economics is Driving Audit Firm Consolidations
  & Spin Offs
               External Audit
• Fiduciary Responsibility
• The Audit Committee of the Board
  – Hiring External Auditor
  – Reviewing Audit Plan
  – Reviewing Performance
  – Review Audit Issues/Recommendations
  – Insuring Internal Control
                   External Audit
• Audit Firm Reporting Relationships
  – Partners
  – Audit Managers
• Other Services (Eliminated)
     • < 30-40% of Bill => Dilemma: Conflicts of Interest

  – Technical Accounting
  – Systems
  – Organizational Development
      Lessons Learned – External
1.                     Audit
      Relationships Matter
     i. Audit to Client
     ii. Firm to Finance Function
     iii. Partner to CFO

2. Replace the Partner before the Audit Firm

3. Be Inclusive of External Audit within the
   Company as a whole
 – Income
 – Balance Sheet
 – Cash Flow
 – Public reporting requirements
•   S.E.C.
•   F.T.C.
•   I.R.S.
•   Dept. of Labor
•   Consolidations
•   Government Reporting
•   Technical Issues
•   Services
        Business Complexity
• International
• Compensation
• Manipulation
Lessons Learned - Accounting
• Understand the Grey Areas
  – Management Judgment
• Set Reasonable Policies and Avoid
• Standardized Charts of Account &
  General Ledger Systems
  – Are Worth their Weight in Gold!
  – Get the Best People!
           Shared Services
•   Payroll
•   Payables
•   Receivables
•   Financial Systems
•   Property Management
•   Human Resources
•   Legal
•   Purchasing
          Shared Services
          What Makes It Work:
• Internally
  – Service Orientation
  – Profit Incentives
  – Mgmt. Communications
  – Std. Systems & Procedures
  – State of the Art Technology
         Shared Services
         What Makes It Work:
• Externally
  – Service Orientation
  – Keeping Clients Happy
  – Overkill of Problems
  – Cost Savings
  – Communication, Communication,