Episode 15 | Using data for audit efficiency outcomes

The Assurance Show
Episode 15 | Using data for audit efficiency outcomes
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In this episode we discuss how using data enables audit efficiency outcomes.

That is, if we think outside of the audit bubble and consider the broader organizational context (in the case of internal audit) or broader public sector context (in the case of performance audit), then using data for our audits can help improve efficiency.

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About this podcast 

The podcast for performance auditors and internal auditors that focuses on data & risk. Hosted by Conor McGarrity and Yusuf Moolla. Produced by Risk Insights.

Transcript

 

Narrator : 

Welcome to the assurance show. This podcast is for internal auditors and performance auditors. We discuss risk and data focused ideas that are relevant to assurance professionals. Your hosts are Conor McGarrity and Yusuf Moolla.

Yusuf Moolla : 

So the topic today is about using data for audit efficiency. And traditionally, when we think about using data for audit efficiency or effectiveness, we’re thinking internally within the audit team, so the audit team’s process – how we get from A to B, as opposed to thinking about efficiency more broadly. And so we really want to extend the conversation and in fact, focus the conversation more on efficiency outside of the audit team because that’s really where the value is to be gained. You can make a whole bunch of tweaks within The audit team in terms of how the process works, etc, to try to get efficiency, but really where you’re going to get far better value is where you thinking beyond the audit team and you thinking about the organization in the case of internal audit, or the public sector in the case of performance audit more broadly. So thinking outside of that audit vacuum to the stakeholders, thinking about them and think about how you can make their lives and the organization overall more efficient as opposed to just the audit department, which frankly, won’t exist if there isn’t the broader organization. Okay, so the few things we’re gonna look at why exactly is efficiency, important auditors’, you think about efficiency, and we think about effectiveness as two of the core areas that we can help with and effectiveness will cover a range of things. So you’ve got compliance with legislation and a range of methods associated with ensuring privacy ensuring that we prevent financial crime etc. So we’ll back at that under the broad category of effectiveness efficiency is something that auditors and audit stakeholders are often quite keenly aware of and in Particular when you’re in a situation where money is tight, or where you need to significantly do more with what it is that you have available based on external expectations or even internal expectations, then efficiency becomes quite an important topic. And as auditors, we do want to focus on efficiency, but we don’t always know how to do it. It’s important to auditors to understand how data can be used for audit efficiency, because it can help address that significant objective.

Conor McGarrity : 

And so from the performance audit side, it’s also very important to use data to make your own performance audits more efficient. But there’s a significant legislative mandate on performance auditors actually audit efficiency as part of some of their audit objectives, whether that be across a government program or in a particular oddity, and quite often the that’s that’s spelled out in some of the legislation and really what they’re looking for there from a performance audit side is whether or not resources are being optimized to achieve a given outcome.

Yusuf Moolla : 

Okay, so it’s one of the four years on sort of reduce the effectiveness, efficiency, economy and ethics. And so you’ve got a significant focus on efficiency, and that’s becoming more and more important, is that right?

Conor McGarrity : 

Yeah, that’s fair comment. So in the context of slower economic growth, and generally speaking, raising public deficits, that there’s been more and more emphasis placed on the efficiency of the public sector, members of the public expect that services will be delivered efficiently. And sometimes this is characterized as removing waste in the system. There are also more and more programs to create efficiency savings. So one of the important things for performance auditors is to provide some assurance over whether or not those efficiency programs are actually delivering those savings as intended. In terms of approaching the discussion today, there’s three key topics that we’ll cover. So the first one we’ll cover today, we’ll be using data for our own audit purposes and how we can rely on data to really drive efficiency within our own systems and how we conduct our audit. So that’s internally facing The second one is where we audit efficiency or where one of our audit objectives is to determine whether or not something is being done efficiently. So that’s again, where we’re conducting our functions and trying to give assurance over somebody else’s activity. So that’s an external facing one. And the third is how do we get or drive efficiencies in how our reports so the the outputs or the products of our audits are actually used efficiently by the audience, whether that be members of the public or by the business that we’re reporting to? And how can we make that reporting more streamlined, such that any actions that need to be taken can be taken efficiently based on our use of data in performing that audit? So there are three main things we’ll cover off today.

Yusuf Moolla : 

Topic number one more efficient audits. So this when we when we think about using data for audit efficiency, this is usually what we’re thinking about. How can our audits be more efficient? What’s the deal there?

Conor McGarrity : 

A couple of pressures on all the leaders there and the first one is because sometimes The audit function in itself is considered to be a corporate function or a back office function. And we as auditors need to get better at describing and showing the value we can give to a business. And that means we also need to play our part in in running our business efficiently. So we need to make sure that we’re taking all opportunities to make our audit function operate as efficiently as possible. So the first pressure there is coming from the external business outside of our our audit unit and making sure that we are showing to them that we’re in this with you and we’re also trying to operate as efficiently as possible. The second driver of having an internal focus on efficiency is we can’t really perform any efficiency audits if we’re not turning the lens on ourselves. So we can’t really make conclusions or any adverse comments or even recommendations about how either oddities external or all the parts of the business could be operating more efficiently if we’re not prepared to undertake all Our own analysis and make sure that we’re using the same yardstick to measure ourselves as we’re using the to measure the oddity.

Yusuf Moolla : 

Okay, so what we’re saying is that we want to make our process and our function more efficient. Can we use data to do that? And the answer The answer to that question is, yes, we can, but it does depend. And it depends on the nature of the audits that we do. So if we’re doing a range of individual audits every year, and those audits that the topics are new each time, it is a bit more difficult to get efficiency out of those audits. I’m talking about internal audit here. So with internal audit, if you are doing the same sorts of audits every year, or on a rolling scale, or if you are involved in some form of continuous controls, auditing, then you can actually use data for more efficiency in your audit. If you’re not if your audit topics are changing all the time and with with many more contemporary internal audit functions and in newer approaches your your plan doesn’t doesn’t stay the same right? You don’t have a static plan, you don’t have the same topics in your plan every year. So there is a lot, there’s a lot more to be gained by the what what I would call these traditional audit functions and internal audit functions in terms of efficiency in the audits by using data. And that’s because they’re doing the similar things every year where your topics change significantly, you can get some efficiency, but that takes time. And that is based on there being overlapping the data that you might need to use for different audits. So this first one, while there is potential for efficiency in internal audit, if you following a more modern approach or modern planning approach, then that level of efficiency won’t be as high as as some people are according it ought to be because it does take longer to work can take longer to actually get data and use that data for the audit. So that’s where probably going to get more effectiveness dividends as opposed to efficiency dividends in terms of using data. So that’s the first one. So are we saying oh, we’re not we’re not actually getting any efficiency by using data. Well, Reality is that as we said before, we don’t want to be thinking internally. So let’s focus now on where there is definitely bigger bang for buck in terms of using data. So the second topic that we want to do second area I wanted to cover Conor was audited auditing efficiency. So this is where efficiency is the audit objective. In the internal audit environment, there is obviously a move towards more, more audits where efficiency is an audit objective. But I know that, you know, there’s a lot that we can learn from the performance audit world in terms of auditing efficiency, but because that’s been an audit objective that’s been focused on for for quite some time. Now, what does that look like? How does how does data help enable better audit efficiency by helping audit efficiency?

Conor McGarrity : 

It’s a bit of a tongue twister use of but I’ll do my I’ll do my best to unravel at one. Look, if you just just as a reminder, if we go back, certainly in a performance audit world, and a lot of this is written down in, you know, the enabling legislation for auditors General, so forth. So if we’re talking in the meeting about auditing efficiency, what we’re looking at There is performance performance audits, we are looking to see if oddities are getting the most out of the available resources in terms of quality and quantity from the inputs they’re providing, or I guess a more simplistic way of senators, are they optimizing the use to achieve a given outcome? So this has been a quite rightly, as you say, one of the probably at least three constants or primary focus areas for performance auditors regardless of jurisdiction. Now, in terms of how data can be used to better audit efficiency, one of the ways in which performance auditors are improving and not spiked is their ability to know draw data from various sources and look at the data and derive the inputs that are being used to provide a service so previously, where there may have been a more of a traditional or paper based approach to doing an efficiency audit, because it was too prohibitive to, for example, try and understand all the inputs that were required to drive a certain outcome, it was a little bit more difficult to get a full picture of how efficient a particular program or service or outcome measure was with the growing use of data, it means we can get a more complete picture from the data, what inputs we’re using, that are being used to deliver a particular outcome, and then make a determination about whether or not that is efficient. So in summary, data enables performance holders to look at a more complete picture of inputs to try and get a more accurate picture of whether or not something is being done efficiently.

Yusuf Moolla : 

Okay, so we’ve seen over the last little while a range of performance audits where various statistical and other productivity techniques have been used. efficient frontier analysis is one of those not necessarily exactly the right fit, but data. envelopment analysis is another one that we’ve seen used, again, a situation where you may have a lot of potential for bias in the model that’s used. But in the absence of anything more concrete, some of these models would actually give you a better answer than not having anything at all. So we’re not saying that the models are perfect, but you’re not saying that the models are wrong either. And so some of those models can actually be used to show with potential for efficiency improvements might be, but overall, what you were saying there was that there’s various ways in which we can use data to help identify where the efficiency gaps might be, or where there is an inefficiency in the process. So if we are auditing efficiency, and we want to be able to identify where exactly the potential for inefficiency is, or where exactly the existing waste is, then using data will help us get to that objective much faster.

Conor McGarrity : 

And in some circumstances, and again, trying not to speak to conceptually here, you may through data, identify some inputs that are being relied on to create an outcome where in fact, they’re not essential to that outcome. So let’s go back to your point there. So if we manage through data to identify 10 things that are producing something. But only nine of those things are essential to produce that and the 10th one is adding no value whatsoever, then we can sometimes identify that through data and strip off that excess input.

Yusuf Moolla : 

That makes sense. So whether you use one of the statistical models to do that, or really just focus on a process led approach, you can definitely use data for auditing efficiency. So where efficiency is your audit objective? All right, so that’s topic to topic three. And this is one that is a bit harder to measure, but definitely something that can be well understood as we as we work through it. So in this we want to talk about two things. The first is where we make the consumption of our audit outputs more efficient to that’s audit reports ready, and then where we make the consumption of our audit actions more efficient. So these are actions that are flowing from an audit. So if we think about reporting, traditionally reports have gone no in the internal audit world, anything from 10 to I’ve seen larger But 35 pages 3540 pages, right? You’d get the odd hundred page internal report, which I don’t think anybody ever has read. I think even the the writer has read it in full. I feel like that’s a dig at me somewhere. And yeah, it is. And that’s because in the performance audit world, the reports go anywhere from 60 pages is may be a bit shorter than that anywhere from about 5060 pages, which is the top end of internal audit anywhere up to 120, hundred and 30. And I think there’s a few that fall outside of that range. But you know, 90 to 100 pages is about the average. So we’re talking about lots of pages of reporting, one of the things that we’ve seen happening over the last little while to try to start using that in terms of the just the sheer volume of paper, but also the way in which the report is written. So making it easier to understand a lot of that is based on the use of infographics and the use of data visualization. So where we use graphs and charts to explain what we’re saying, or to provide that picture overall so that when we I explained You don’t have to read that paragraph 15 times before you understand. So you got a, you got a graph next to an English explanation. And the graph helps make that English explanation come to life really, and makes it the faster, easier read. And then you don’t have to explain each of the individual data points, which is another thing. So without doubt, there’s a significant benefit to be obtained by using infographics for sure, but also data visualization. So graphs and charts to make the consumption of an audit report more efficient. And in some cases, even writing the report becomes more efficient, because you can you can see you can see what you’re seeing and just have to explain a little bit to the side

Conor McGarrity : 

because this is an external facing efficiency. So you’re reducing the time burden on the audience. That’s a fantastic thing. However, I would caution there that it’s sometimes it does take a little bit of time to get those visuals fully accurate, so they’re not misinterpreted. So, but overall, I guess it’s a general comment, you would say that there’s far more efficiency on the reader or audience To begin from that sort of approach, then time consumed by the auditor in putting that together.

Yusuf Moolla : 

That’s right. Yes. And in both cases both internal audit and performance audit there is yes, of course there is time that is being taken by the auditor, which dam does reduce as, as experience grows, really with, as with all things. The other thing is that those audit reports generally go through various layers of review. And if the review process is made easier over time, obviously, initially, the review process might still be a bit longer than it would have been because people are getting to grips with what are we seeing in this visual and does it make sense and can we release it etc. But over time, that review process should actually reduce even though it takes a bit more time for the auditor. It should take a bit less time for everybody else that’s reviewing it and that means, you know, a more efficient audit overall, really.

Conor McGarrity : 

And one of the things we said at the top of the episode Yusuf was around how do we get more efficiency around any actions ensuing or coming out of our our audits?

Yusuf Moolla : 

Yeah, so that’s the second thing. So the first one was making the Consumption of a report more efficient. The second thing is, and this is potentially more important than the report consumption, in terms of the level of effort that might be able to be saved. And this is where we conduct traditional audits and provide broad sometimes sweeping statements around control failure, and where there needs to be action to identify specific control weaknesses and the issues associated with those and then go and fix each of those issues. That situation can be made a lot easier on management if we use data to identify the specific issues that exist. And this might not always be possible, but importantly, identify what the root cause of those issues is, root causes of those issues are and so you’ve got a situation where if you using data to identify weaknesses, when you identify that weakness, you know exactly what it is as opposed to looking at a control by taking a controls based approach and then finding a potential weakness in that either the design or the implementation or the The operation of that control and then putting down a broad action for management to fix that control, which could be a theoretical failure as opposed to a real failure, we obviously don’t want to just do one or the other, you want to dis control them. And it’s still important continues to be important this controls, but were you using data as well, you then have a situation where you’re able to say, this is the specific issue that we’ve identified where the control failure has created a real loss or potential loss. And so this is exactly what we need to go and fix. And it makes it easier for management to identify what it is exactly that they need to do and why they need to do it.

Conor McGarrity : 

Just go back to your point about root cause analysis. There’s certainly a greater focus in the auditing profession around being able to highlight problems at their root cause as part of your audit. It’s a greater focus of many public sector practices now, and certainly if you can use data in your audit to home in on those root causes, as opposed to like you say, just having broad sweeping statements and that’s something that would definitely be welcome.

Yusuf Moolla : 

Where we ended up there was probably a bit different to what you thought you’re gonna be listening to at the top of this of this of this episode. So broadening out yond data for just more efficient audit, but also thinking about auditing efficiency and then making the outcomes and the outputs of our audits more efficient for management. So making the audit more efficient overall, without necessarily creating efficiency within the audit team. And I think if we can get to a more efficient audit, overall, then we’ve won the war and not the battle. And that’s really where we want to get to.

Conor McGarrity : 

Great summary. Thanks, Yusuf.

Yusuf Moolla : 

See you.

Narrator : 

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