It's All About Agreement (Part 1)

Let's talk about things you probably already know. ("If I already know it, why do we need to talk about it?" Because I think we can all agree that knowing is not always doing.) Over my many, many years of working within internal audit I have seen every one from entry-level auditor to seasoned CAE (which sounds like something that should go with a fine wine — but I digress) fall into a trap. It is well-hoed, but not always sufficiently reaped, ground.

That trap is moving forward without really understanding where agreement must lie.

Last week I did a quick snippet about negotiations and how the groundwork for successful resolution has to start with an alignment of objectives and outcomes — the parties involved first having to agree where that alignment exists. I even shared the story of a mother who, after going through the negotiation training, achieved successful negotiations with her teenage daughter — surely a sign akin to the lion lying down with the lamb or the Republicans and Democrats voting the same way on any resolution. (Unfortunately, I did not learn what common ground they were able to identify. Had I done so, I might have abolished eons of agony for parents of teens everywhere. Ah well, we must soldier on in our ignorance.)

Shortly after writing the piece, I saw a post by Seth Godin titled "What 'No' Means," which includes this statement. "What it doesn't mean: I see the world the way you do..." 

Put 'em together and what have you got? Well, in this case it wasn't Bibbidy-Bobbidy-Boo or anything particularly magical. Rather it was realizing how often auditors face the word "No." And it was realizing how often we seem to be taken by surprise by that word.

That surprise — the utterance of "No" rather than complete acceptance of our side of things — is generally caused by our assumption that agreement already exists– that we are in alignment with our auditees/customers/clients, that they see the world the way we do. It generally arises because we have either assumed a state of unity that does not exist, or are just pretended it wasn't important.

Here is the thing you already know and we so often forget. If we have agreement up front, we will have fewer challenges throughout the audit process.

I know, not exactly brain science. But, as I said, it is something we all seem to forget. And it is going to lead to some interesting ideas. But let us first start with our favorite love/hate relationship — the audit report.

I still vividly remember the meeting I was involved in a few years ago where we were presenting the results of a consulting project to the director of a department. To facilitate the discussion, we had put together a PowerPoint presentation of approximately 30 pages. The slides weren't hugely detailed, but we had a lot of important stuff to discuss.

We got past the title page — no problems. On to page two where we started by laying out the basic objectives for the first area we wanted to discuss. The director stopped us and told us we were completely wrong about the objective. We stuttered and stammered and tried to defend our position. He refused to relent and went on to say that we didn't know what we were talking about, the review had no value, and internal audit was wasting his time. He refused to talk any further.

Let me repeat what we all know and our little group forgot that time. If we have agreement up front, we will have fewer challenges throughout the audit process.

Everyone knows the five C's of Audit Observations, correct? Condition, criteria...

Wait!! Stop there. Criteria.

Criteria is nothing more than the first agreement that has to occur if audit is going to be successful: agreement on acceptable error rates, agreement on which policies and procedures the department uses, agreement on what we will be testing, agreement on how we will evaluate that testing, agreement on (pay close attention as I show you where we went wrong) the objectives related to the area under review.

I could go on and on about the reports I have seen that were doomed to fail before they were even written because something as simple as basic criteria had not been agreed upon.

But, really, reports are the easy target. We face "No" in many different circumstances. Which means there is a need for agreement in many different areas. Which means, if we face no, then we forgot that agreement.

But, as I mentioned, this is going to be a rather lengthy discussion. So we will continue later. (At the very latest, next Monday — but, maybe, sooner.) So join us next time, because there is a lot more to say on this subject.

Posted on Nov 11, 2013 by Mike Jacka

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  1. Mike. You're right that agreement up front is vital and you've mentioned the agreements that have to occur if audit is going to be successful but you've not mentioned risks. I would have said the most important agreements were: the objectives of the proposed audit areas; the risks that threaten these objectives; that these risks are sufficiently serious to have an independent audit check that they are properly managed by internal controls; agreement on the practical aspects (when, who, how). I think that if you can establish an agreement about the risks, it's a lot easier to discuss what controls are necessary and whether they are sufficient. (I haven't mentioned the ultimate agreement: that internal audit are responsible to the Audit Committee who don't look kindly upon directors who refuse to co-operate - also known as the nuclear option).
  1. Good points David.  In fact, you're jumping ahead of me.  Some of what you are talking about is what I want to start exploring in subsequent posts on this subject.  I just started with the easiest one first - report writing.  But an excellent segue.

    Stay tuned - I've got a bit more to say on the subject in the next few days.

    Mike

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