How to Improve Audit Effectiveness

Gaining oversight of the performance of your organisation is central to any FCA authorised firm, not least ensuring compliance with the Senior Management Arrangements, Systems and Controls (SYSC) section of the FCA Handbook. This article focuses on simple steps that can be taken to improve effectiveness when auditing any type of organisation.

At RB Compliance Consultancy we are lucky to have the opportunity to audit multiple firms and gain insights into effective auditing techniques from both our own auditing experience and that of the firms we work with. Using this experience we have noted five steps, or improvements if you like, to conducting an effective audit.

The five improvements we recommend are:

1. Communication

You were probably expecting me to begin with “planning your audit” which is an important step, but, instead I’m going to talk about communication, both of the plan and throughout the audit. It may seem obvious but where I see many firms falter is the communication of their audit plan.

Think about how audits are received by staff within your firm. Are they hated? Do staff see it as a way to catch them out or show where they are not doing their job well? It may not, and should not, be the message you try to convey but often the communication around the audit results in staff viewing the audit as a stressful experience. I have even seen remuneration impacted on the back of audits, think about how that changes the openness of the audited staff and ultimately your intelligence of what is happening within the firm.

So, how should it be done? If you were not to have a plan and went instead with surprise audits, the message that is given from senior management is “we don’t trust our employees.” By publishing the audit intentions with the right wording and explanation - the message is that this is meant as a support to the process owners and the auditors are there to help.

2. Conducting the audit

An audit should start with a meeting of the process owner to make sure that the audit plan is complete and ready. Then there are many avenues for the auditor to gather information during the audit: reviewing records, talking to employees, analysing key process data or even observing the process in action. The focus of this activity is to gather evidence that the process is functioning as planned, and is effective in producing the required results. One of the most valuable things that an auditor can do for a process owner is not only to identify areas that do not have evidence that they are functioning properly, but also to point out areas of a process that may function better if changes are made.

3. Closing meeting

A closing meeting with the process owner is a necessity to ensure that the flow of information is not delayed. The process owner will want to know if there are any areas of weakness that need to be addressed, but will also be interested in knowing if any areas exist that might be improved. This should be followed with a written record as soon as possible to provide the information in a more permanent format to enable follow up of the information.

4. Remuneration

Under no circumstances should the process owner be rewarded for positive audit results as such remuneration packages breed a negative relationship between the process owner and audit. The risk is that the process owner may see audit as a hurdle which must be overcome to obtain their bonus and as such honesty and openness are not encouraged, thus undermining the effectiveness of the audit. Equally, I have seen a sharp decrease in the challenges brought against audit findings once any such compensation is removed, saving time and resource.

5. Friendliness

A strange tip but one I swear by. Let's assume there are broadly two audit methods; we’ll call one of them the “firm” approach and the other “friendly”. I have tried both with the latter producing significantly more results. Whether it is giving people a sense of security that opens them up when using the friendly approach, I’m not sure, but, from practical experience I notice process owners visibly raise their defences whenever I have tried the firm approach.

Friendliness coupled with good communication and well thought out compensation packages are fantastic steps to a successful audit.

You may also be interested in our template audit checklist containing all areas you would look at when auditing an FCA regulated firm.

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