Consultants began introducing Lean Six Sigma (LSS) principles to the accounting profession more than a decade ago, which has helped foster improvements in production processes throughout every department within accounting firms. For those who haven’t been exposed to Lean Six Sigma, it is a consulting methodology that combines the best features of Lean Manufacturing (targeting efficiency improvement by controlling the velocity of work) with Six Sigma (targeting overall quality and reduction in variation or errors), with a special emphasis on processes that add value from the client’s perspective. LSS consists of a very structured process (referred to as DMAIC) to “Define, Measure, Analyze, Improve, and Control” any workflow process.
This makes LSS ideally suited for accounting firms, as most have multiple departments using different applications that are updated at different times and interacting with different types of clients. Think about the difference in client interactions when a firm is producing an individual tax return, delivering a weekly payroll, or auditing an employee benefit plan. Add the unique applications required for firm time and billing, human resources, CPE, and transferring and archiving documents securely, and it quickly becomes obvious that accounting firms are among the most complex business entities, with many more production processes than virtually any other business. For this reason, LSS principles can be conscientiously employed to improve audit planning and workflow. In this article, we discuss six LSS principles that firms can apply to streamline their audit planning process.
Planning the Engagement
A common complaint heard in audit debriefs is that improper planning leads to over auditing in noncritical areas. Add to that a lack of collaboration that causes chaos at the completion of fieldwork and often delays delivery of the final report. Proactive planning with all team members present at the start of the engagement is one of the key LSS processes to make sure everyone involved understands their responsibilities and the purpose of their audit procedures. Having the client knowledgeable partner, field lead, and team members together in planning the engagement helps create a customized audit engagement, rather than the team lacking direction and replicating last year’s procedures when they are not sure what to do.
Managing the Client
Firms must rely on their clients to provide the needed information at the front end of engagement so that work can proceed on schedule. LSS principles point to controlling the velocity of work, meaning that sometimes processes have to slow down so each step can be completed properly before moving forward. This means that firms should work with their clients early on to ensure that the requested supporting documents are ready before beginning the work, or the client faces the consequences rather than the auditor. This requires partners to be firm with clients and to support audit team members, including the integration of change orders when clients do not meet their deadlines, requiring additional work outside the scope of the engagement for which the firm should be compensated.
Team Collaboration
Another common complaint is that team members are not aware that the audit process has gone awry until it is too late. LSS principles point to members being aware of the status of their projects through the use of dashboards that allow team members to monitor the status of engagements and to collaborate regardless of their location. Utilizing tools such as Skype for Business, Apple FaceTime, or Google Hangouts promotes real-time collaboration (including communication via instant messaging, telephone, video-conferencing, and screen sharing), while a practice management/workflow tool can provide the status of the engagement. There has been a noticeable trend in firms going to a single audit suite that encompasses the portal, trial balance, financial statements, and workflow management (such as Thomson Reuters AdvanceFlow, which operates entirely in the cloud), so all audit team members see the status of every project in real time and have access to all necessary audit resources.
Data Ingress
One of the primary tenets of LSS is to capture data at its root source and build quality control into processes to ensure that the resulting documents are reliable. For data ingress, this means having clients provide all necessary information via a portal and secure email before the audit team arrives at the client’s location. We sometimes hear complaints from firms that their clients don’t like or know how to use the firm’s portal. LSS review engagements have pointed to a lack of understanding as the primary reason for this, which more often than not was because the firm’s only direction to the client was emailing them instructions as a PDF attachment. LSS best practices point to an audit team member or a centralized administrative person proactively contacting the client and walking them through the steps on how to utilize the portal, including the use of a remote-control tool so the firm employee can see the client’s screen while providing instructions. Training a client to use the firm’s portal or secure email solution has long-term dividends, as it can then be utilized for delivery of electronic engagement letters, tax returns, and invoices. Each client document that is converted from being handled physically to being delivered in a digital format results in significant savings of time and hard costs.
Data Completeness
Not having all the necessary source documents before arriving at the client’s office can cause significant delays in audit production and report delivery. Today’s workflow/collaboration tools can ensure that all required data is available before going to the client’s office. This process begins by providing a comprehensive listing of documents needed to the client with details on when they must be delivered to the firm to meet the onsite audit schedule. This would also entail providing assistance to the client on how to provide your audit team with digital copies of all files in a format that can be optimally utilized for the audit. Starting with all source documents in an analyzable format (i.e., Excel, Adobe PDF, QuickBooks database) allows the auditor to utilize data extraction tools for audit testing.
Being Realistic
Another oft-heard complaint is that audit engagements are scheduled back-to-back with virtually no time for planning, wrap-up, or the impact of client delays. This causes work to be rescheduled or “touched and pushed” over and over again, never getting to the point of completion. LSS best practices point to having scheduled planning and wrap-up days between engagements so they can be completed, as well as integrating required administrative days to minimize staff burnout.
Conclusion
If your auditors describe your current audit practice as uncontrolled chaos, maybe it’s time to step back and look at the planning that goes into it. We have all heard the adage, “If you don’t have the time to do it right the first time, when will you have time to do it again?” Unfortunately for many auditors, it is during their lunches, late at night, and on their weekends, which leads to auditor discontent. Incorporating Lean Six Sigma best practices into the firm’s planning processes will help reduce firm bottlenecks and improve overall audit production, making for a less chaotic work environment.
This article was originally published in The PPC Accounting and Auditing Update. Copying or distribution without the publisher’s permission is prohibited.