A Clear Audit Objective

November 2003

Without a clear audit objective, your team will likely lose their way. Think of a clear audit objective as the yellow brick road in the Wizard of Oz. As soon as Dorothy and her crew got off the road, they were attacked by crabby apple trees and weakened by a field of poppies.

If your team does not have a clear sense of where they are going, how are they ever going to get there? What many audit managers blame on poor report writing skills actually begins with the manager's poor objective setting skills. An audit report simply answers the audit objective. Without a clear objective, it is nearly impossible for a report to be clear and focused.

Here is an example of a stinky audit objective:

Examine internal controls at the entity.

That is an OK place to start—but you can't set your team loose on something like that. No telling what they will come back to you with. The objective is much too vague and broad.

On my first performance audit, we suffered from a stinky audit objective. The Texas Department of Criminal Justice had just released several prisoners from death row. (Huh?) After these parolees killed a few people, the legislature called our office and asked us to go see what was going on. So, several of us loaded up in our cars (four to a car—per state travel regs!) and drove off to Huntsville. When we met with the management at the prison, we posed our audit objective—the question that drove our audit. We asked the laser-focused question, "Whas' up?"

Any guess how that audit progressed? I'll tell you, it was chaos! I, having a financial audit background, assumed that it was all about the money. So, I went and investigated the budget system. Another team member examined parole procedures, another looked at how inmates were being cared for, and on, and on, and on. Each one of us took a different direction!

When it came time to put the audit report together, we had a heck of a time. The whole process took us more than a year to complete, and it was excruciating. The report was disjointed and heavily criticized by the client. Don't let this happen to you!

To tighten it up a stinky audit objective—you need to do two things. First, you need to break the universe, this entity you are auditing, into a smaller, digestible piece. In other words, what specifically at the entity are you going to look at? A specific program, a specific control system, a specific department?

Secondly, you need to more clearly define the criteria you are using. The three deadly e words are no help. Whenever I see efficient, economical, and effective in the audit objective, warning bells go off in my head. These words need to be replaced with more specific, concrete, and auditable criteria. For example:

You can replace effective with "Are they achieving their objectives?"

You can replace economical with "Do the benefits outweigh the costs?"

You can replace efficient with "Are services provided in a timely manner?"

Here is an example of an improved audit objective:

STINKY: Determine if the entity is safeguarding assets.

BETTER: Is St. Mary's Hospital guarding the medical equipment from theft?

The stinky objective could lead us anywhere. Say we were auditing a major university with several teaching hospitals. We could miss the teaching hospitals all together with the first objective. We might end up examining investments of the school's scholarship fund. Who knows?

What was Dorothy's objective for most of the movie? "We're off to meet the wizard, the wonderful Wizard of Oz." For the first chunk of the movie, she wasn't even concerned about getting home. This makes for a fun, entertaining movie adventure, but on an audit we are not out to entertain (not intentionally anyway!).

When you think about it, Dorothy was misled by a bunch of dwarfs to follow the yellow brick road to meet a fake wizard when all she had to do was tap her heels.

STINKY: Determine if the Wizard is effective.

BETTER: Is there a quick and easy way to get home?

Now how do you get to this more specific objective? How do you get to heel tapping as fast as possible? That is a topic for next month's newsletter—risk assessment.