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AUDIT RECOMMENDATION – SELF ASSESSMENT QUESTIONNAIRE

By

Kastuv Ray

Introduction

Negotiation and persuasion skills are important to the effectiveness of an internal auditor. These skills are tested when the auditor holds an exit meeting with the client/auditee to discuss the findings/recommendations.

The auditee/client will sometimes disagree with the recommendations and it is up to the auditor to convince them that what they are proposing is practical. Unfortunately, some outsourced internal providers “back down” at these meetings fearful that they may lose out on the internal audit contract when it goes out to tender. At the other extreme, there are auditors who will make impractical recommendations and go out of their way to ensure that these recommendations are enforced. An approach that the auditor may wish to adopt is to insert a section in the audit report entitled “Proposed Benefits of Recommendations”.

This questionnaire probes our actions under certain situations where the auditee/client does not agree with our recommendations. It can be used by in-house internal audit departments and outsourced internal audit providers.

Listed below are the questions.

Example

Suppose an angry person starts arguing with you, what do you do?

a) Ignore them

b) Answer them back thus escalating the argument

c) Keep your temper and give them a soft answer

Answer

The correct answer is c as it makes the individual madder than they are.

Questions

1. Suppose you have recently undertaken an audit of Treasury Management and noted that bank reconciliations are undertaken, supported by adequate documentation, are accurate but are not in the format stated by accounting textbooks and as dictated by accounting practice. You decide to make the audit recommendation that proper bank reconciliations are undertaken. At the exit meeting, the Director of Finance has a one-hour discussion with you about this particular recommendation and questions your fieldwork in this particular audit. The exit meeting ends in a stalemate with neither you nor the Director of Finance willing to give in. Let us remember that it is only the format of the bank reconciliations, which is slightly different. What do you do?

a) Keep the recommendation as it is

b) Change the recommendation to the following: -

Bank reconciliations should be undertaken in the format prescribed by current accounting practice.

2. Suppose you have undertaken an audit on operational procedures regarding Recruitment of Staff at a NHS (National Health Service) Trust. You have recently read a magazine, which states that drugs can be a motivation for fraud. Suppose that the organisation in question has recently suffered some bad press with members of staff having committed fraud that were dependent on drugs. You decide to make the audit recommendation that compulsory drug testing should be introduced on all new employees together with the requirement to sign an annual compliance statement that the employee has not taken drugs. The Human Resources Manager disagrees with this recommendation on the basis that it is too costly. As part of the audit, you have benchmarked the Occupational Health Questionnaire and noted that it does not make any mention of whether the applicant has ever suffered from an alcohol or drug related illness. What do you?

a) Keep the recommendation as it is

b) Change the recommendation to the following: -

Management should consider adding a line to the Occupational

Health Questionnaire which asks if the applicant has ever suffered from an alcohol or drug related illness.

3. Suppose you have an undertaken on audit on General Ledger and have made a recommendation regarding reviewing the current Chart of Accounts. Suppose that at the exit meeting the Chief Accountant agreed with your recommendation. Whilst passing the Chief Accountant’s room, you overhear him talking to the Director of Finance about your audit recommendation stating that it is “b***s**t” recommendation. Subsequently after your draft report is sent out, you receive a response that management disagree with your recommendation. This is particularly annoying as the Chief Accountant agreed with your audit recommendation. What do you do?

a) Do nothing

b) Complain to management and state that the Chief Accountant agreed the recommendation at the exit meeting

c) Alter your exit meeting template so that the client/auditee is required to sign at the bottom stating that they agree with the recommendations. One copy of this exit meeting form then remains with the client/auditee and the other remains on the audit file as evidence.

Answers

1.The approach that I would adopt is to change the recommendation. This is what the recommendation should be, as in the actual findings it was the format of the bank reconciliations, which was different. To make the recommendation that bank reconciliations are not prepared based on the evidence is silly. The client/auditee is more likely to accept approach b.

2. The approach to adopt in this example is again b. By changing the recommendation you are allowing the organization to put in a key control into the Occupational Health Questionnaire. Maxima Plc published an article a few years ago regarding the topic of the “Use of Forms as Control Tools”. This is precisely what the organization would be doing if they accepted the recommendation. At the end of the day, the applicant signing the form has the choice between lying and being truthful. You cannot really adopt approach a based on the evidence in a book, as it may be applicable to the organization in question, moreover to its culture.

3. The correct approach to adopt is c. If you do this, there is irrevocable evidence that the auditee agreed to the recommendation especially if they singed for it. If you adopt approach a, the situation will happen again in future and if you adopt approach b, it is your word against the Chief Accountant’s.

Conclusion

Remember if your initial argument fails at an exit meeting, think of wording it differently to persuade the client. If you believe it in strongly and it is a significant or fundamental risk, do not back down.