CAE Briefing E37: 2020-02-09

The Chief Audit Executive (CAE) Briefing is now a FREE course for all CAEs. If you are the CAE in your organization, or you report to a CAE in a large organization, you may register for this course at: 

https://jasonmefford.mykajabi.com/offers/ezsxLzjQ

If you are NOT a CAE, this course is not for you.

For those of you who completed the CAE Survey 2020, a very big THANK YOU!

My team is still analyzing the data and I will have more to share with you soon … including some action oriented materials to help you with the challenges expressed.

One thing we noticed very quickly is how many of you are challenged with a lack of resources and budget, so I’m going to starting sharing somethings over the next several weeks to help you with this now.

In this week’s video https://youtu.be/sCNOQUUR28w I discuss some basics about budgeting to set the context, including: budgets are not set in stone. They are actually fake numbers that represent estimates we have about the next year, but those estimates must change when opportunity and threat events happen.

Take a listen, since there are a couple of take aways you can start doing this week.

Stay tuned for next’s weeks message where I talk about how to move from being a “cost center” to an “investment center.”

Have a great rest of your week.

Transcript

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Jason Mefford: Hello my friends and welcome to another episode of The chief audit executive briefing.

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Jason Mefford: Hey, I wanted to give you a little update. And a big thank you to all of you that actually filled out the chief audit executive survey. So I sent out

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Jason Mefford: About three or four weeks ago or request to provide some information about some of the challenges and opportunities that you see.

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Jason Mefford: For 2020. So actually, my team is going through the information right now. But one of the things that we saw very, very quickly.

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Jason Mefford: Is a lot of you are challenged with the lack of budget and resources. And so while we’re still analyzing the rest of the survey and I get you those results.

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Jason Mefford: I want to take some time and actually address a few of these items related to some of the pressure that many of you feel for having a lack of budget and a lack of resources.

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Jason Mefford: So today I want to. And like I said, this is going to be over the course of a few weeks. And in fact, I’m actually going to put together.

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Jason Mefford: A resource that I will get out to you here probably within the next month or less that goes into this in more depth and actually gives you some practical things that you can start doing today.

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Jason Mefford: To get more resource and budget for what you need. So the first thing that I want to talk about today is that budgets are not set in stone.

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Jason Mefford: Okay, so let me, let me explain what I mean by that budgets are estimates that your accountants need so that they can estimate the cash inflows and cash outflows

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Jason Mefford: In your organization. Okay, so there’s there’s a very good business reason for them but budgets are not real numbers.

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Jason Mefford: They are an estimate and you don’t end up ever coming in exactly on budget, it’s usually under or over depending on how things actually change.

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Jason Mefford: And those numbers will change and should change over the year. So one of the mistakes that some companies make is they set a budget and then they do not deviate from it.

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Jason Mefford: Now, the world is changing around you, and there’s new opportunities. There’s new threats that come along.

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Jason Mefford: And so you’re constantly needing to every month, every quarter actually kind of refine those budgets and do a different forecast.

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Jason Mefford: Now tell you story. I was talking with one executive and he actually made a comment about, well, you know, my budget was actually sat

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Jason Mefford: In July of last year for the whole of 2020 and I’m sitting here thinking, I just a minute. We are in January of 2020 and so you’re telling me that for 18 months you have a static budget.

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Jason Mefford: That’s not right. Okay, that’s just not how you do it. If that’s the way you’re doing it. And that’s what you’re trying to stick to

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Jason Mefford: I’m guessing you’re probably also not doing risk based auditing you’re doing like an 18 month plan and then you’re just doing that. That doesn’t make any sense. Okay.

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Jason Mefford: So in this first video. Like I said, I wanna, I want to share with you a few things. And then we’re going to get into some more detail and even at the end of this, I’m going to give you a couple of tips. Now,

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Jason Mefford: I want to share another story with you about budgets. So a lot of Accountants do believe budgets are written in stone, and so

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Jason Mefford: One of the places where I was chief audit executive, we had an accountant who would call me every single month. And when I looked down at the phone and I could see it was her name.

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Jason Mefford: Sometimes I just let it go to voicemail because it was the same discussion every month and it went like this in our budgeting process.

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Jason Mefford: You know, we had obviously line item budget items, but there were certain things. I knew I was going to spend over the year I just didn’t know which month they were going to be in

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Jason Mefford: So in our budgeting software. Let’s say I I was assuming you know I was going to spend $48,000 let’s say

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Jason Mefford: On something or about $50,000 on something during the year, but I didn’t know which month that was going to be in. If I knew which month I would budget, the $50,000 for that particular month

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Jason Mefford: If I didn’t then it just automatically spread that 50,000 out over each of the 12 months. So again, we’ll use 40,000 because that goes into 12 to 4000

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Jason Mefford: So in my budget every month. I had a $4,000 line expense for this particular item. Okay. And each month.

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Jason Mefford: The person from accounting would call me and say, Jason, how come you are under budget on this line. And I would say

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Jason Mefford: Well, this is a $48,000 expense. I don’t know which month I’m going to spend it in and I haven’t spent it yet.

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Jason Mefford: And so, oh ok ok the next month, she would call back again. How come you’re under budget in this particular line item, and I would explain the same thing again.

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Jason Mefford: I don’t know exactly which month I’m going to spend it in, but I’m going to spend this in the year.

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Jason Mefford: probably six months into it. I actually spend the $48,000 and now she calls me and says, Jason fire you over budget on this particular item.

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Jason Mefford: Again, each month, I would have to explain. I knew I was going to spend $48,000 over the year I didn’t know which month. It happened to be the middle of the year, which means on a monthly basis. I’m over budget.

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Jason Mefford: At the end of the year. It’s going to be fine. Okay. Now, a lot of Accountants don’t understand that. But you guys should as executives.

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Jason Mefford: Think about, you know, and so here’s one of the tips is focus on the total of your budget, not the separate line items and not the month by month but the total

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Jason Mefford: Because again at the executive level. Let’s say if you have a $2 million budget and I’m the CEO or the CFO.

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Jason Mefford: I’m going to trust that you are going to stay within your total $2 million budget, it may vary a little bit from line item to line item, but I’m guessing it’s going to be there. So again,

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Jason Mefford: If you may be you know overestimated in professional services, but you need more training.

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Jason Mefford: Will you move effectively some of that money from professional services into training or the other way around.

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Jason Mefford: So don’t look at it and say, oh, I don’t have the training budget for it. First, look at your total budget and see what you can move around within your total budget.

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Jason Mefford: Will go on and talk more about in future briefings about how to calculate ROI and let’s say you need more money. So instead of the 2 million

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Jason Mefford: Something else has come up and you need an extra $250,000 this year. Well, then we’ll talk about how you go back to the CFO and CEO and board and make that pitch on why you need that extra money.

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Jason Mefford: But that’s going to be a little bit more in depth. So we’ll talk about that in another video. So again, focus on the totals not necessarily the individual line items and also realize that when things change your budget is going to need to change. Okay, so that’s the first one for this.

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Jason Mefford: episode because like I said I’m going to get into more detail on this.

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Jason Mefford: But I first wanted to set that stage that you all realize budgets are FAKE NUMBERS. They’re just estimates to try to help you stay within a particular budget.

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Jason Mefford: For the cash flow purposes of your organization. You may be a little over, you may be a little under it’s okay, they’re not set in stone. Okay, so that’s all I have for this week I will talk to you next week. Have a great rest of your week