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Is Yours A Poorly Run Business? December 23, 2012

Posted by Audit Monkey in The Joy & Pain of Internal Audit, Working Life in Britain.
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During my working life, I’ve worked for a tremendous number of firms, either by virtue of employment or as a consultant. I use the term consultant loosely; this covers a multitude of roles, either as co-sourced or insourced Auditor, contractor or temp. As Internal Auditors we often get to see the whole organisation rather than a brief insight which would happen in a 9 to 5 operational role. My latest firm is simply a disaster area; there are control breakdowns, ineffective controls, over control, control weaknesses and absent controls. This had me thinking on a couple of fronts.

Thought one – is a good control environment conducive to profitability? While text-book Auditors and our good friends at the CIIA would automatically say ‘yes’. Personally I’m tempted to say either ‘yes but’ or ‘no’. Inefficient organisations can still make money; this may arise from the nature of the industry sector or the fact that consumers are happy to pay a premium for the product. Internal Audit may not even review key business areas or review areas which are inconsequential to the strategic direction of the firm. Ultimately, the Board, the CEO, will decide the strategic direction of the firm, not the Audit Team or the Head of Audit.

Thought two – what are the characteristics of a poorly run business? Based on my experience, here are they are:

– reliance on legacy systems: poor, unsuitable computer programs or software which hasn’t been updated or replaced to match today’s business requirements.

– manual workarounds: due to the ineffective systems, manual workarounds have been instituted as temporary cum permanent fixes. Workarounds are perpetuated, new workarounds introduced. Off the shelf programs such as MS Access are used, thereby introducing new control weaknesses.

– low quality staff: no need to worry about the legacy systems, the staff can’t cope with normal processing routines. They exhibit typical avoidance behaviour by focusing on trivial matters and avoid performing the ‘core’ job.

– bad behaviour is prevalent: managers are defensive due to control weaknesses, lack of technical expertise (either IT or operational ability) and exhibit classic defensive behaviour, e.g. aggressive to those who question inefficiencies, workarounds, processes. The argument ‘you don’t understand the industry or sector’ is used as a counter defense. The situation is helped by the fact that managers think they are highly competent and technical experts when they are not.

– poor leadership: the senior management team are in denial or apathetic. They know significant control issues exist but lack the will power to act. The problems are insurmountable, or they are constrained by lack of capital to fix the problems. Their own lack of IT system or process knowledge hinders the selection of new systems. Again, aggressive behaviour is used to ward off those who question. Alternatively, a more conciliatory approach is adopted; ‘we know the core problems but at least we are addressing subsidiary weaknesses’.

– poor project management experience: probably should read ‘lack of’! Management have initiated projects to ‘patch up the system’ but these have overrun in terms of time and cost or are simply going wrong due to poor project specs. However, management are so far in, especially in terms of cost, there is no alternative but to continue to save loss of face. Projects designed to remove key person dependency are only perpetuating the key person dependency they seek to remove!

So there you are. If anyone else has some additional thoughts I would be interested to hear them.

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Comments»

1. ITauditSecurity - December 30, 2012

Regarding profitability and controls – if controls are part of the business culture and they are to prevent problems, and not just to pass audits, they help profitability by preventing or minimizing the impact of failure, fraud, etc.They also can help avoid waste and aid efficiency.

I’d add to your list: turf. VPs, directors, and managers who protect and rule their processes and people like fiefdoms instead of managing and contributing their part to achieve the overall company goals.

Final thought: all the issues noted are laid at the feet of management; poor managers = poor business, regardless of the quality of employees or stellar product underneath them.


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