The book ‘Lean Auditing’ was published at the beginning of January 2015 and I have been pleased to have positive feedback, including various invitations to do work in Norway and Brussels in February, Germany in March and the US in June.

Here are some high level reflections on the lean auditing mindset:

‘The most important waste is the waste we do not recognize’

This is a quote from Shingo Shigeo, who championed lean in Toyota. The mindset shift to make is to see waste is often so prevalent that it has become invisible and ordinary to the audit team. Waste (or Muda) is spelled out in lean and includes:

• Waste from producing something that is not needed:
• Waste caused by defects or rejects;
• Waste caused by inappropriate processing;

Based on this list (which is just a subset of all of the Muda wastes), one can clearly see the importance of having a clear purpose to each assignment and the need to have a staggered approach to each assignment so ensure that additional work (e.g. testing) is merited. Thus audit methodologies that are lean pay close attention to when testing is merited and how much testing should be done. One of the more controversial points is that if management disclose that there is an issue with a process, audit should not necessarily carry-out further testing. Another lean practice is to allow for different types of assignment – wide and shallow (reviews), narrow and deep (focused audits), or comprehensive audit assignments. Many audit teams have just one type of audit assignment – resulting in too much work in some assignments or too little in others – or take an informal approach to assignment resourcing which can still result in a gap between the assurance or advice that is really wanted by stakeholders and the assurance or advice given by the audit team.

‘The easiest of all wastes and the hardest to spot is the waste of time, because wasted time does not litter the floor like wasted material’

This is a quote from Henry Ford (founder of the Ford Motor Company). Consider waiting for information before starting an audit or waiting for a draft audit report to be reviewed before it is issued. Audit teams that are lean take proactive steps to eliminate any delays in getting information, typically by implementing greater disciplines in notifying that an assignment is starting and being very clear up front what information is needed. In addition, the best audit functions often have direct access to key systems and folders, which can also give useful insights during the assignment (i.e. how are systems actually used, how easy is it for management and staff to find key information). Towards the end of audit assignments audit teams that implement lean ways of working pay close attention to the assignment review process, paying close attention to instances where the progress of the assignment is delayed because audit staff are waiting for audit managers or the head of audit to review what has been done. Often this review will only take an hour or so, but in terms of elapsed time, the assignment may be delayed by a few days, a week or even longer!

Of course adopting the lean mindset can be a challenge for some audit staff. Here are some observations how this challenge can be overcome. In relation to getting a better a more value adding perspective on audit work, consider the observations of one CAE: ‘For an audit function to really add value to the business it has to be able to look at things from the perspective of the business’.

I personally think it is very beneficial for auditors to spend time working in an operational environment as part of their personal development and I think when we talk about the difference between traditional and modern auditing, I think it’s not so much in the processes, it’s more in the skill sets and experiences of the people that should be attracted and involved in the audit profession.
Increasingly boards and senior management are recognizing the value of this sort of experience because of the beneficial way it impacts the business and the relevance and added value of the work that is done. It’s easy to criticize audit functions that don’t have this experience, whereas in reality they have perhaps gone through a process which has been right up to a certain point in time, but not for the current challenges. So businesses need to support them in getting broader experience. At the same time auditors need to really value what they will get from this sort of wider experience, and that’s not always the case.’

Inevitably training the audit team can help to unlock a mindset of greater productivity and value-add. However, Norman Marks (GRC thought leader) emphasizes this must be done in new ways compared to conventional audit training:

‘When you hire people you need to train them. Not only do you have to train them to think but you have to break the shackles that bind them. They are actually weighed down and handcuffed and chained to stop them from thinking for themselves, and exercising their own judgment. We’ve got to tackle this as an internal audit profession’.

I think a key fear for some audit staff is that lean auditing equates to low quality auditing, but this is not the case; indeed with its focus the importance of adding value, lean ways of working actually enhance the impact of assignments and the contribution internal audit can make to an organization.

For further information, read Lean Auditing: Driving Added Value and Efficiency in Internal Audit by James Paterson.