Hey Folks,

I know many of you would have been waiting for a post update very eagerly and now I should add patiently. Sorry folks for such an undue delay in publishing this post 😊.

Coming to the post finally, as title defines, the topic of this post is “What is SOP and why every organization should have formally documented SOPs.”

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An important way to ensure consistent quality is to be able to standardize processes and laying them down expressively in a formal Standard Operating Procedures (SOPs) document. By ensuring that company’s staff is working in sync with the formally laid SOP, will not only increase its efficiency but will also significantly reduce the possibility of an error. While each person in the organization wants to do things, which are right for the company, there might be a case where they may have a slight variation in their thought to process w.r.t right things. Which in turn means that how things are done is likely to vary from person to person. If a company expects everyone to follow the same set of practices, then it must expressively communicate these practices to everyone through a formal written document.

For those who have not experienced working in line with formal SOPs, I’ve put together an article to explain what Standard Operating Procedure is and why an organization should have them.

A standard operating procedure, or SOP, can be described as a step-by-step instruction drafted by the management to assist staff in performing the day to day tasks. SOPs are made to attain competency, to maintain quality standards and to ensure a degree of consistency in practice.

SOP is a very specific document whose content may not only vary from company to company but may also depend upon the process for which it is being drafted, the level of the company, the involvement of management, the regulatory framework etc.

Why Should Organization have SOPs?

SOPs is a great tool to ensure that an organization has a proper quality system in place, to keep a check on the efficiency of staff and to manage the costs. SOPs can be regarded as the bible for the employees which they can refer to, in case of any confusion or lack of clarity in any task or process. Following are some of the benefits which organizations can get by introducing SOPs-

Establishes a control system.

When a business wants to maintain a standardized quality of its product or service to meet its customer’s expectation, standardized procedures can play a key role in ensuring the same. SOPs ensure that the staff adheres to the defined flow to reduce the possibility of skipping any key step impacting the product’s quality. Religiously followed SOPs helps in ensuring that the product or service is of set quality standard and helps in maintaining the integrity of the product.

Simplifies Performance Management

SOPs can assist managers to assess an individual’s performance as SOPs can be used to develop the performance parameters. Staff who has performed in compliance with the SOPs knows what is expected of him/her and indicates towards their efficiency.
Thus, SOPs help manager to set up a benchmark for employees and those employees who surpass these benchmarks can be appraised.

Ensures Continuity of process with least interruption

SOPs also plays a pivot role in transforming an organization from a people driven organization to process driven organization. Imagine a scenario wherein all data pertaining to a process was stored in an employee’s system. When he leaves the organization, the data goes with him/her and even if data is there, no other employee is aware of the data or what he/she needs to do with it. Thus, in the absence of any formal SOP documents, such scenarios can be avoided. If there has been a proper SOP of roles performed by terminated employees and what all data will be generated in the process, even if an employee leaves without proper handover, the incoming employee can always refer to the SOP document to know what he is required to do & how to perform a task.

Introduces uniformity across branches

If the company is conducting its business from several branches based at different geographical locations, then ready-made SOPs can prove to be a handy tool in ensuring uniformity in how a task will be conducted across different branches.
This will also reduce the learning curve period of an employee who is getting transferred from one location to another location, within the same profile.

Acts as a training module for staff

Companies can use SOPs to provide standardized training to staff who are new to the organization, to explain what they are supposed to do and how are they supposed to perform a task.

Hope with this article, one can understand the importance of SOPs in an organization and how you can use it to standardize practices across different geographical locations and to increase the efficiency of staff in your business.

Happy Learning!!!

There is no doubt that businesses are seeing new heights in India right now. India has emerged as the fastest-growing major economy in the world as per the Central Statistics Organization (CSO) and International Monetary Fund (IMF). India’s GDP is estimated to have increased 6.6 percent in 2017-18 and is expected to grow 7.3 percent in 2018-19*.

While several factors contribute towards the success of businesses ranging from favorable government policies to right people being part of organizations to standardized business practices, one such practice that is highly recommended is getting an internal audit on a regular basis. Over the years, several organizations have used it as an instrument to maintain and enhance the quality of their goods or services to meet customer expectation. If your organization does not have an internal audit function, then it is a worthwhile option to think about.

Why should you consider internal audit for your business?

Well, an internal audit function forces you to have a deeper look into your business processes and finances to ensure that they are in proper order and also are there any emerging risks that business should address or not.  While it is very normal for the management to be complacent and think that everything is running smoothly and is in proper order but there might be a case where, by the time you realize that it was not true, it’s too late.

In today’s volatile business environment, where businesses are facing a new challenge every day than whether it be in form of change in government regulation or new operational regulations like GDPR or change in labour related compliances or change in consumer expectation etc. An internal audit function always ensures that businesses are meeting their responsibilities and that the organization’s staff is also working towards organization’s goal.

How can an internal audit help business?

Whether you have a BPO or Manufacturing Facility, an internal audit can help as follow:

Help identify any financial discrepancies – All of us will unanimously agree to the fact that the main objective to undertake an internal audit is to look deeply into financial transactions and records of the company, to rule out the possibility of any malpractice by any person or group of individuals. An internal audit may help you spot duplicate posting of same purchase invoice or identify any dummy vendor or employee in the system, among many other malpractices which might be prevalent right under your nose.

Ensuring adherence to standard operating procedures – Well there is no doubt on the fact that management of any organization lays high emphasis on the adherence of Standard Operating Procedures by its staff, and would like to identify instances where such policies or procedures are being by-passed by its employees. An internal audit function can not only help you to ensure compliance of such policies & procedures, remind the staff of its importance if they are not but can also assist in updating the procedure or benchmarking them with industrial practices.

Help attain Economies – Another great output which business can generate by using internal audit function is to attain economy of scale in every business process. A good internal audit function will show you where you need to invest more in resources and where resources are lying idle or are being under-utilized. It will also help in identifying any redundant exercise which is being performed in any process, which is adversely impacting the working capital of the company.

Ensuring business is fully compliant – Another grave area for the management of any company is to be sure that they are fully compliant with all the legal and regulatory requirements of the land where they are operating. With so many laws ranging from company structure to tax compliances to labor welfare to industrial requirements, it is very difficult for any company to be sure that at any point of time that they are fully compliant to all these requirements. This is where an internal audit function can help you to be certain that your company is adhering to all the laws applicable.

Greater Coverage – Many times, you come across the remark from business owners that “why should we have an internal audit, while we already have a statutory audit in the company”. Well, I have always told them that the scope of the statutory audit is restricted to financial statements of the organization, while through internal audit, you can get those areas audited where you have concerns over and use it in a way you want to.  Thus, you are always in command and can amend the scope of the audit as per the changing the environment of business.

How to Effectively Deploy Internal Audit

In certain cases, we have also seen while businesses see internal audit as a great tool but don’t exactly know how to use it. Well, I totally understand the situation if you have never got it done in the past. In such a situation, I generally advise companies to outsource it to an external professional firm or to hire some expert who has experience of performing it.

To conclude I would like to say that an internal audit is a fantastic tool to not only help business prosper but can also help in identifying new opportunities. Not only will it ensure that you are working in a best possible manner, but will also help you grow in future by identifying emerging risks and opportunities.

Happy Auditing!!!

*Source: https://www.ibef.org/economy/indian-economy-overview (Last accessed on 07th June 2018)

Data is the mainstay of any sort of analysis that needs performance in Excel. And when it comes to data, there are loads of challenges that one can face – be it Spelling Errors, tenacious irregular spaces, unsolicited precedes, in appropriate cases, unrequired characters & irregular cell merge, all these in an excel spreadsheet give us all a lot of stress at times. On top of this, there are more such issues which one can face while performing analysis on any data.

In this post, I will be sharing few very simple ways, which one may use to sanitize data in excel-

#1. Getting Rid of Extra Spaces

It is highly difficult for anyone to identify extra spaces in excel spreadsheet. While some of you might be able to identify extra spaces in between text or number but it is most difficult to identify extra spaces after text or number. Thankfully, there is a simple & clean way to get rid of this issue in excel. Just Apply TRIM Function on the data where you see extra spaces and it will remove all such spaces.

Function - =TRIM(Text)

#2. Converting Number stored as Text back to Number

This is another very common issue that one faces, especially when data is imported from a database or any application, where number gets converted into text format due to which user can not perform any numeric calculation or analysis. The simplest way to convert the number from text format to number format is-

a.    Select the data which is to be converted to Number Format

b.    Press Ctrl +1

c.     A “Format Cell” Dialogue box will pop up.

d.    Go to “Number” option in Number Tab

e.    Press “OK”

#3. Removing unnecessary blanks

Blank Cells can really cause a lot of confusion if they are not handled at the very beginning. I am sure even you have faced problem caused by blank cells in data. Here is a smart way to identify all blank cells at one go and replace them with any character or value.

a.    Select the data to be analyzed.

b.    Press Ctrl + G

c.     Click on Special Button at left bottom.

d.    Select “Blank” option in Go To Special & Press “OK”.

This will highlight all blank cells in data. Then it is up to you to replace them with any value like “Not Applicable” or “Nil”. Then, press Ctrl + Enter.

#4. Merging Columns

Another very common task that I perform after extracting data from an external database is to merge content in two or more columns into one. Imagine a scenario where you have downloaded an employee master, wherein employee first name & the last name is coming in two different column & now you want to identify cases where two employees have the same name. For this, you will be required to merge both these columns to generate a new column containing employee first & Last Name. Following are most used ways to merge cells or columns-

a.    Use CONCATENATE Function to perform this task.

Function - =CONCATENATE(First Name, “ “, Last Name)

b.    Use & for merging two cells

Function - =First Name&” “&Last Name

c.     Use CONCAT Function to perform this task.

Function - =CONCAT(First Name, “ “, Last Name)

#5. Splitting text into Columns

Just like merging text of two or more columns into one, at times I am also required to split text of one column into two or more columns. Imagine a situation where you have downloaded an employee master, wherein employee last & the first name is coming in one column separated by a blank or comma & you want it to be in order where employee first name is followed by his/her last name. For this, you will be required to split text of one column to two columns using text to column function & then merge the two columns in desired order by using above-stated functions as stated in point 4.

Use Text to Column Function to split text. This is one of my favorite function in excel and is very handy at times. So, without wasting time, let us understand its use-

i.              Select the cell or column whose content you want to split

ii.             Go to Data >> Text to Columns

iii.            A Text to Columns Wizard will open. Click Delimited option & press Next

iv.           Check Comma, and clear the rest of the boxes, or check Comma and Space if that is how your text is split (Woods, Alan, with a comma and space between the names). You can see a preview of your data in the Data preview window. Click Next

v.             In this step, select the format for your new columns. Press Finish.

#6. Changing the Case of Text

How often we come across data where text cases are improper & irregular. Using excel case function, one can quickly convert text to any of these case formats.

LOWER Function -Converts all uppercase letters in a text string to lowercase letters

Function – =LOWER(Text)

UPPER Function -Converts all lowercase letters in a text string to uppercase letters

Function – =UPPER(Text)

PROPER Function - Capitalizes the first letter in a text string and any other letters in the text that follows any character other than a letter. Converts all other letters to lowercase letters.

Function – =PROPER(Text)

There are many other techniques to clean data in Excel, Which I will be sharing in my future posts.

Keeping Watching this space for more interesting tips & techniques…

Happy Learning Folks!!!

Also Read: Excel Formulas that Every Excel User Should Know (Click Here) ...

While Tail end spend Management has become one of the priorities for all big organizations across the world, in India, it is yet to be recognized as a tool for a cost-saving opportunity in procurement. Traditionally, Organizations Procurement division has been focusing on identification of cost saving opportunities & management of all A-class spend i.e. Top 80% of spend representing only 20% of the supplier base. In the process of managing A-class Suppliers, the companies have left the horde of C-class Suppliers forming the tail end of the spend unmanaged.

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It is difficult to find any company managing their full spend properly & strategically. Probably in last decade or so, due to increasing transparency & recognition of procurement as a hardcore strategic activity, the Companies have been able to manage their A-class procurement forming 70 to 80% of their total spend. Now, these companies have started planning to shift efforts on managing the remaining spend which is forming 20-30% of the total Spend, with the following objectives:

a.    Increasing visibility/ Transparency of low value spend.

b.    Elimination of transaction cost by reduction in many transactions.

c.    Reduction of procurement team’s cost.

d.    Process improvement & data quality improvement.

e.    Safeguarding against business risk by increasing contract coverage.

f.     Managing eccentric spends & preventing frauds.
  

Convolution of Tail End Spend Management

However, as companies are trying to manage the tail spend, they have realized that they can’t use the same traditional tactics as they were using for A-class spend.

Another complexity of tail spend is that there are much more suppliers involved than the suppliers involved in A-class spend. The spend is very diversified & there is a lot of individual buying happening involving end users from Accounts, HR and so on, who are not professional buyers. Until the total cost is less than the defined upper limit then these individual buyers can place orders with whom so ever & however they want.

Apart from the above-mentioned challenges, another challenge involved in managing tail spend is weak data quality, wherein either the name of suppliers is incorrect or item description is incorrect/incomplete or weak data capturing resulting in duplication of data, the presence of junk characters etc.

The risk involved in Tail End Spend

With unorganized tail end spend, nobody generally considers aspects like - who the supplier is, what price is he charging, the credentials of suppliers etc. exposing them to many risks. The following can be some of the risks of unplanned tail end spend:

a.    Negative Impact on Company’s Reputation

Unorganized Spend might result in companies doing business with the suppliers that violate legal provisions and are not complying with CSR principles which will bring a negative impact on the company’s reputation.

b.    Procurement of items at the higher rate.

Since most of the tail end spend is done by the end users, who are not professional buyers, there is a risk of them paying more for a material as usually they do not go into the details of pricing and are only concerned to ensure that the purchase price is less than the threshold price, as approved.

c.    Best Practice Risk

When companies allow end users from distinct functions of the business to buy from whomever they want, there is a possibility that they will just buy from a personal connection, or from a supplier with whom they have a historic relationship. This might result in the company paying more for an item or breaching of fair practice regulations.

Companies who are failing to address these convolutions and risks involved are leaving a lot more on the table than they think.

Hi,

This is the first post in the series of posts where I will be sharing my experience on “Different Aspects of Internal Audit Assignment”. In this series of posts, I will be discussing various aspects like steps of internal audit, reporting etc. and how businesses can utilize internal audit as a strategic tool to add more value to the business rather than restricting its utility to the identification of any financial mis-reporting. So, I request you all kindly subscribe to this blog to get notified as & when I post more articles for sharing knowledge and experiences with you.

While some companies have an in-house team of professionals who conduct the internal audit for the company, many other companies believe in outsourcing internal audit function. Thereby maintaining the independence of the auditors & also reducing the possibility of any biases or influence by or over internal audit function. Internal audit has grown over the years to not only be seen as a function to ensure fulfillment of regulatory compliances and/or accuracy of financial records but to a more strategic function to evaluate the performance of the business & manage risks.

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Over the years, often I have come across people who ask me, “How should they perform an internal audit- to add value to the business by enhancing performance and/ or managing risks”. And I have always told them that it is difficult to generalize steps in internal audit function as it depends on several factors like scope of work, industry type, how big is the organization, periodicity of audit, what all internal controls have been defined, what all documents are made available during audit etc. Having said that, following are some of the key steps involved in internal audit-

1.    Initial briefing Meeting

This is the preliminary step of any internal audit, where the company and management lay down the broad scope of work and expectations from internal audit function. The scope does not need to be limited to providing the management with assurance over the controls implemented by management and can head towards a ‘consultancy’ role, providing strategic support to the management and company.

2.    Planning an internal audit

Any internal audit function which aims to add value to the organization shall commence the internal audit by preparing a proper strategy, considering controls deployed by the management and the risk environment of the organization. Audit plan so prepared should be flexible enough to identify any new emerging risk. If any internal audit function wants to be a strategic advisor to the management, then it should be aware of the risk appetite, capacity & tolerance and same shall be covered in the internal audit plan.

3.    Conducting Fieldwork

While commencing any internal audit review, the internal audit function should be aware of “How a Process to be reviewed Works” and “What all controls have been deployed by the Management”. Post answering such questions, an internal audit program should be developed stating what all checks will be reviewed by the auditor. While conducting an on-site review, the auditor can use techniques like an interview for gaining information and/or evidence to form an opinion. There are several sub-steps involved in this step, some of which are highlighted below-

•    Audit Program Preparation

•    Scheduling Audit Testing

•    Analytical Reviews

•    Document Handling

•    Interviewing Personnel

The internal audit function must analyze and assess the facts drawn from the internal audit evidence, obtained during the review, to decide upon the efficiency and effectiveness of structures, processes, and controls. The internal audit function should also consider the efficacy of the structures, processes, and controls that are in place.

4.    Document Findings and Evidence

As the name suggests, in this step one shall document the findings noted during their review exercise and shall highlight any policy violation or financial misrepresentation. This shall also include any scope of process improvement or lack of control in any of the process or activity.

5.    Preparation of Audit Report

If you ask me, this is the most crucial step of any internal audit assignment as the report is the document basis which is decided whether an audit was conducted properly, and did it cover all major risks as identified by the management and the audit committee. A good report should very clearly state the following-

•    Title Page

•    Index (Recommendatory)

•    Report Distribution List

•    Background

•    Executive Summary

•    Scope of Work

•    Audit Limitations

•    Audit Methodology (Recommendatory)

•    Detailed Audit Findings

An internal audit report writing is the skill that needs to be discussed in a more detailed manner and I will be doing this in my future posts. So Please keep following this space as I will be explaining the content of each & every bullet point as stated above.

6.    Closure Meeting

Internal audit report which was prepared & presented to the Management & the concerned stakeholders is discussed in this meeting to assess whether findings, as highlighted in the report, are correct and if they are then future action plan is defined. Basically, how the organization will implement the recommendations made by the auditor in his report is decided and a timeline within which action will be taken is decided.

Auditor while doing any follow-up audit will have to check the implementation of Future Action Plan.

Ultimately, any organization can be successful only if it is able to deliver the product or services to its clients in a smooth, seamless manner. Internal SOPs & management directives are how an organization tries to establish a uniform practice across processes and domain to ensure smooth delivery of quality product or service. Internal audit is one such tool that organizations should use to ensure their business achieves its ultimate objective by identifying all risks and recommending measures to mitigate such risks.

Hi Everyone!

Welcome, the topic of this post is “How Data Analytics is Proving to be a Game-changer for Internal Audit”. All of us, who have been performing internal audits or are getting it done, would vouch for the fact that it has evolved enormously over the years. Internal audit, which was perceived as a process to review financial records in a more detailed manner, when compared with statutory audit, has now evolved with times, to play a more strategic role by laying down a cohesive approach towards risk management. With the evolution, there has been a clear shift from a document-based audit to a data-based audit, whereby internal audit function is deploying modern technologies and techniques like data analytics to create more value for businesses.

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When we talk about data, it is something which is everywhere, from a mouse click to a tap on the mobile app, to a phone call, to a punch-in at office gate. The reason for the availability of such huge volume of data can be attributed to the change in the mindset of the consumers & easy accessibility of technology to them. Consumers, where some years ago, were not willing to share their personal details, are now with a change in their aspirations & needs not worried about sharing them. Thus, giving birth to the huge volume of data, which businesses are using to understand the customer need and the changes in their needs. Taking advantage of the availability of such huge volume of data & applying data analytics, internal audit function can create more value for businesses than ever before by providing valuable business insights, a greater degree of assurance and predicting emerging risks. Given below are some of the advantages that internal audit function can reap by using data analytics- 

Increase in Effectiveness of Internal Audit.

By using data analytics, internal auditors can audit the entire population instead of auditing a sample of transactions to form a judgment. Data analytics also empowers auditor to conduct several audit checks just by applying a program to generate exceptions which auditor needs to check in detail.

Enhancing the Efficiency of Audit Function.

Data Analytics also help in increasing efficiency of an audit function, as an internal auditor can always re-use the same data analytics script for periodical reviews, saving a lot of time & effort on the part of the auditor. Auditor can deploy the same in some other areas, resulting in higher effectiveness as well.

Mitigation of Risk & Fraud Detection.

Data Analytics also enables internal audit function to identify trends, that are appearing in datasets over a period of time indicating a potential threat to the organization. Data analytics also enables auditors to identify & uncover any fraudulent activities that are happening in the organization. Thus, audit function can create a greater value for the organization, by using data analytics, whereby they can ensure the organization is prepared for emerging risks and is secure against any type of fraud.

Greater Assurance.

Data Analytics also helps in delivering a higher sense of assurance to all stakeholders in relation to operations of the organization and ensuring that company does have proper controls in place to mitigate emerging risks in the organization. The higher assurance is achieved by the fact that internal audit can virtually review entire population to identify risks and frauds, by using data analytics.

Greater Focus on Strategic Risk

By deploying Data Analytics & combining it with machine learning, internal audit function can automate the routine audit checks of similar transactions and can shift their focus towards the strategic risks that might challenge organizations in future.

CASE- STUDY

Given below is the case study where internal audit function deployed Data Analytics to identify potential risk, which otherwise would have been a real daunting task for the auditors-

Background

ABC Private Limited was a big FMCG company having headquarters in New Delhi & 5 plants across India employing more than 3000 people.

Majority of staff strength comprised of workers & supervisors. The hiring was done by each Factory Department respectively.

The company had biometric devices installed across all locations to monitor daily in & out time of each personnel.

At each month end, HR Department generated the attendance report from biometric software and basis such attendance report, payroll was prepared.

Scope

Internal audit function was required to conduct payroll audit to ensure that –

• Employees are getting paid for the actual number of days worked by them.

• There are no ghost employees in the system.

• All statutory dues pertaining to employees are duly deducted & deposited.

Approach

Internal audit team deployed Data Analytics to -

• Ensure all employees were paid in accordance with the biometric record by plotting paid days as per biometric record and comparing it with paid days as per salary sheet.

• Review employee master to highlight missing key data points in it like PAN Number, Bank Account Number, Aadhar Number, Date of Birth etc.

• Identify any duplicate employees being created in the system and to check for duplicate payments being made to a single person.

• Review of employee records to check for any incorrect data being recorded in the system.

Results

Following observations were noted –

• In case of 17 employees, joining date was a Sunday (weekly off in the company), which was wrongly entered in the system resulting in the excess pay of Rs. 113,000.

• 78 employees were noted who were not recording attendance in Biometric System on a regular basis. Out of the same, 50 employee records were not properly filed in ERP & out of this, 23 employees were found to be fake.

• Excess overtime amounting to Rs. 337,000 was paid to the employees due to wrong calculation of overtime hours in case of 327 employees.

• The scope of process improvement in human resource management was identified to reduce fraudulent records and transactions.

While Data Analytics offer abundant possibilities in internal audit function, one should first understand the scope of using it. Further, like any other business function, internal audit’s forte lies in the adoption of new techniques & the use of Data Analytics is no different. The scope of using Data Analytics in internal audit is further widened when it is combined with Machine Learning to automate routine procedures.