Small business owners invest countless hours establishing processes to create products and services. These entrepreneurs have a passion for what they do and trust that the people they employ will share that passion.
Business managers hire employees and spend time training them on how to do their job. This training is a summary of the organization’s policies and procedures that define process steps.
For instance, let’s assume you own a small florist and you have specific guidelines for answering the phone when a customer calls in. These guidelines help to ensure that every customer is given the same courteous treatment.
Check By Auditing
Organizations use an internal auditing process to ensure consistency in practice and to identify improvement opportunities.
Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization’s operations.
Businesses use policies and procedures to maximize efficiency and create consistent practices.
However, policies and procedures are only as effective as an organization’s ability to enforce them.
An internal auditing process helps ensure policies and procedures are followed and noncompliance is reported to management for corrective action.
Policies are often written to ensure an organization is legally compliant, but policies also ensure consistency in practice and quality of internal processes and services.
Quality management systems use auditing to measure compliance with internal policies and procedures.
All business processes should be audited for compliance.
9 Areas Your Organization Should be Auditing
1. Cash Handling
The digital age has allowed businesses to use less cash, however, some customers prefer to use cash.
But the digital age has also made it easier for savvy thieves to embezzle money.
It is also estimated that it takes an average of 14 months before the fraud is detected. This reality makes it crucial to inspect how cash is handled within the organization.
Areas within an organization that deals with cash registers, petty cash, or money transactions should be audited to ensure compliance with internal cash handling procedures.
2. Credit Card Usage
When I started my career, the only way to make a purchase on behalf of the company was to submit a PO to the purchasing department and wait for them to approve the transaction and order it on my behalf. That approach has changed with the ease of business credit cards.
Small business credit card use has become more common because of its ease of use and necessity for online purchases.
Ensure accountability for credit card usage by auditing for compliance with spending policies.
For instance, a credit card policy should clearly specify allowable purchases as well as spending limits without approval.
When auditing, make sure you audit all credit card statements and ensure that all purchases have a business purpose explanation.
3. Vendor Billing
Billing errors are common so it is important to double-check the accuracy of all vendor invoices.
Vendors have humans behind the scenes and unintentional errors do happen. Trust through inspection.
Vendor bills should be verified and approved for payment. This is done to ensure that vendor charges correspond to the service provided.
4. HR Compliance
The world of human resource management has become complicated because of many labor laws.
There are many laws that govern the HR function.
Organizations should be aware of those laws and have auditing procedures in place to ensure that the HR department is legally compliant and maintains accurate employee records.
5. Budget Control
Small business budgets dictate spending. This important business practice ensures that money is spent only on those things that support strategic objectives.
However, budgets are only as good as the process that manages them. A budget review process can monitor budget spending and oversee large expenditures.
Management should be aware of how budget dollars are spent and of all budget variances.
6. Process Improvement
We all look for ways to improve. Businesses focus on improving internal operations with the goal of efficiency in practice.
Organizations improve how their products and services are delivered by focusing on improving internal systems and processes.
When these processes are changed, as part of the quality improvement initiative, ongoing monitoring of new processes helps to ensure compliance with improvement effort changes.
7. Customer Service
Small business owners realize that they need customers because it is those customers who pay the bills.
Audit the customer service function so you can determine training needs, customer expectations, and improvement opportunities.
8. Vendor Comparisons
We need our vendors to fill in the gaps for our business. And a good vendor is one who feels like a friend. Of course, you want to maintain a close relationship with someone who is a supplement to your business.
However, it is easy to fall into the vendor “relationship” trap.
There should be strict conflict-of-interest policies that determine how the purchasing function interacts with vendors.
Vendors should be chosen because they are the best service provider for the organization, not because they have a relationship with someone.
This area should be audited to make sure multiple bids are submitted for large purchases to ensure the organization is getting the best value for its money.
9. Cost Savings
All organizations are being challenged to do more with less. This means reducing spending and managing costs.
Use the FOCUS PDCA methodology to identify cost savings opportunities by improving internal processes for how work gets done.
For instance, frontline employees see it all. Gather a group of employees and ask them where there may be savings opportunities. You might be surprised at the many observations they have.
Auditing Is A Necessary Business Function
Internal auditing is how many organizations improve the way they do business. This intentional practice helps to ensure compliance with policies and helps to guard valuable business resources.
Spend the time and resources to track how work is done and use what is learned to improve quality, save money, and manage employee performance.
What internal processes does your organization audit?