Taheer Afzal, CEO, 7T3

Can auditors be consultants?

Can we do everything we want with the staff we have? Do they know everything they need to know to help drive business improvement? Probably not- that is why we engage consultants.

Consultants offer a fresh perspective on your business from an outside source. There are two primary reasons why consultants are engaged. Resource and Expertise. From a resource perspective, the absence of fixed overhead expense, and the benefit of no permanent distraction of key staff on the project. But consultants are also engaged so that the client can benefit in terms of their expertise and experience from other projects. Consultancy can help companies gain a competitive advantage.

Using a consultant is the embodiment of the maxim- “no pain no gain”, because consultants are typically called on when clients want to embark on change. For many within the organisation, change is not good- it up to business management to convince the employees of the benefit of the change.

Consultants operate across a wide variety of services such as:

•  Business strategy
•  Marketing
•  Financial and management controls
•  Human resources
•  Information technology
•  Operations
•  Supply Chain Management

This article discusses whether or not it is possible the auditor can be a consultant?. Subject to a major limitation in scope as described later, it is perfectly possible that auditors can be consultants.  There are many areas of common ground.

Objectivity and independence

The parallel and the binding tie between the auditor and the consultant is the objectivity they can bring to the situation. One of the main reasons why consultants are engaged on projects is to ensure that internal resource is not overloaded with their own day to day job as well as the project. But also because, internal employees often get too close to the projects they are on and can lose their independence and objectivity when looking for the outcome that has the most value to the organisation in terms of cost benefit analysis and impact on the wider organisation and culture. The first rule of an auditor is to remain independent and objective when performing their work and to always give an unbiased opinion based on facts to hand.

Similarity of day to day tasks

The day-to-day activities of auditors during an audit are similar to management consultants. Typical tasks include

•  Carrying out research and data collection to understand the organisation
•  Conducting analysis, interviews and facilitating workshops
•  Managing projects and programmes
•  Leading and managing those within the team, including analysts
•  Liaising with the client to keep them informed of progress and to make relevant decisions
•  Identifying issues and forming hypotheses and 
•  Presenting findings and recommendations to stakeholders

At the moment- the main difference between Audit and Consultancy is that Audit does not and should not be involved with the implementing of recommendations/solutions otherwise this can lead to conflict of interest.

Skills and experience matters

The reason we choose people to do a certain task is because we know they have done it before and they know what pitfalls to expect along the way and how to avoid them if planned correctly. Auditors, both external and internal, tend to move a lot between organisations and can also bring their experiences of past project successes to the table. The consultant is not a magician. He is unable to pull the rabbit out of the hat, and especially not without knowing anything about your business. The key to good consultancy Is in the understanding of the client. Giving good client service is key at all phases of the process so listening is more important and this is something auditors are fully aware of and understand. We were given 2 ears and 1 mouth for a reason! It’s better to imagine the consultant as a doctor who is there to help fix the root cause of the problem and not its symptoms.

Stakeholder management

Apart from the CEO, and to a lesser extent the Main Board, Internal Auditors have the best view of the entire organisation.  As the eyes and ears of the CEO or Audit Committee, they get visibility of the strategic, tactical and operational level difficulties and challenges facing an organisation and they know about the interactions one particular course of action may have on another function or departments workload. They are in a good position to assess the likely outcome of decisions.

Limitations on the role of Internal Audit Consultancy

The major difference between an in house auditor and a consultant is that the Auditor can help as consultants in the design providing a project oversight role too, but they should not be involved in the operational execution. They should not be involved in the decision making otherwise they cannot audit them later on for fear of conflict of interest.

Summary

In short, auditors possess many of the attributes needed of consultants and their use can on projects with clearly defined role definition on projects can have many benefits. The attributes listed below shows why Auditors are useful to organisations..

• Impartiality, competence and experience
• Experience in project management and giving deliverables on time.
• Advantage of internal profile and knowledge and understanding of the business.
• Ability to get senior management and key stakeholder engagement when required
• Knowledge of controls and understanding of the analytics required to interpret data
• As a facilitator or watching brief /oversight, the use of auditors can help reduce or even eliminate fears of “take your watch and tell you the time” syndrome often associated with management consultants

Key challenges

Any project whether it has the auditor involved or not will face its challenges. 

• Conduct and culture : High Profile cases of corporate scandals in the Far East involving Toshiba and Olympus, were clearly prolonged by the Country culture. There are similarities between the culture in India and the whole subcontinent as well as the Far East when it comes to the impact of the country’s culture on organisations. There is a hierarchical culture ingrained into daily social life which people appear to take into their offices and results in unwillingness to be the one to put their head above the parapet to expose corruption for fear of repercussions. The absence of women in senior positions which also affects company culture and can be analysed in length separately. Nothing stays shocking for long in India.  In India, the situation is mopped up and moved on and most likely to reoccur again as the root cause is often left untreated.

There is a long way in which companies have got to go to get it right. Auditors can assist in reviewing the Company culture and making suggestions to good elements of a code of conduct. Internal Audit Consultants can use their expertise to identify areas where culture is weak and therefore risks are heightened.

Customer service- managing the needs and perceptions of stakeholders

It is important to persuade./convince/remind and reinforces the organisation that whilst the output of the project may be a new process with a revised IT solution, effective consultancy is not simply the domain of the IT department. You don’t have to be an expert in IT to be an expert in good project management.

Too many people still see it as this. It would be better if the project manager is not an IT guy and IT is simply a stream/project team member.

Getting the balance between data and information right. Internal Audit’s knowledge of analytics can help avoid information overload, filtering out data and turning it into information and then reporting it in a way people can understand

Other benefits of an Audit Consultant:

In the Tech space- from an audit perspective- all the research being done points to the fact that technology related risks now form part of the main strategic risks most organisations now consider as part of their top priorities. Internal Audit can be actively involved in these areas conducting reviews of cyber security especially with many companies now operating on cloud based systems, application controls in the General IT controls environment, Business Continuity Planning and Disaster Recovery as well as providing assurance on 3^rd parties used by organisations e.g. logistics providers or outsourced payroll providers.

The benefit of a strong Audit function that offers both assurance and consultancy is obvious- there is a strong value adds to the organisation not only in Business and Commercial terms but also in terms of management of reputation risk and improvement of corporate culture. Auditors can strike the right balances between business partner/consultant being both critical friend and policeman and can make the project successful in a controlled way.