CAE Briefing E39: 2020-02-23

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.

In this week’s video https://youtu.be/RB9DStj5Ri8 I’m talking more about putting on your “investment manager hat” so we start acting and being perceived as an investment center instead of a cost center.

I also want to let you know that I’ve made some improvements to the CAE Forum to give the same result, but make it much easier to join.

There were many of you that were interested in joining, but just needed to get through the year-end rush or thought it was a little outside your budget.

If you have budget to attend a conference or seminar, plus travel, you have budget to join the CAE Forum.

Check out what’s new, and book your call today: https://jasonmefford.mykajabi.com/caeforum

Did you know the CAE Forum also comes with a $100,000 guarantee? That makes it a no risk investment.

There’s no obligation to book a call, but joining the CAE Forum may be just the thing you need to elevate internal audit in your organization.

I look forward to our call.

Have a great rest of your week 🙂

Transcript

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Jason Mefford: Welcome back to another episode of The chief audit executive briefing. Welcome back. My friends, and this week I want to pick up

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Jason Mefford: Kind of the discussion that we’ve been having for the last couple of weeks. And that’s around budgeting and kind of going from a cost center.

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Jason Mefford: To an investment center one where we’re actually showing a return on investment for what we’re doing that will make it much easier for you to be able to get the resources and budget that you need.

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Jason Mefford: Now before we get into that, though, I just want to, to talk to, just for a minute or so about the chief audit executive forum.

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Jason Mefford: Now I know a lot of you are interested in joining, but several people can reach out to me and said, you know, Jason. Now’s not really the right time.

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Jason Mefford: And, you know, maybe it was a little bit outside of some people’s price range. So I took that feedback.

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Jason Mefford: And I’ve looked at the program because honestly, folks. I made a mistake. So I’m here to apologize for that. Because really what I was trying to do is, is create

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Jason Mefford: A program that was just absolutely amazing. But the problem was I was creating the, the equivalent of a Ferrari.

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Jason Mefford: When many of you didn’t need a Ferrari or couldn’t afford a Ferrari. So I’ve gone back and taken a look at the program and have modified it.

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Jason Mefford: I’ve actually, you know, made it so that it’s easier to join, but gives you the same outcome.

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Jason Mefford: And so the reason that I’m telling you this is, again, if you know what I was talking about it before and we opened up.

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Jason Mefford: If you were saying it’s a little bit too much for me or I don’t really have the time, because again, I apologize. I’ve split sending out some of these messages.

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Jason Mefford: During one of the busiest times of the year for many of you that work in a publicly traded company and have a calendar year in so

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Jason Mefford: What I’m going to ask you to do is if you just do me a favor. Down below is the link just click on the link go out and take a look at it.

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Jason Mefford: And if it’s something that sounds like it’s it’s a fit for you just click on the link schedule a time for us to talk we’ll just set aside 30 minutes

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Jason Mefford: And just go through and talk about what you’re going through your situation and we’ll see if it’s something that’s right for you.

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Jason Mefford: Like I said, it’s much easier to join. And in fact, you know, if some of you are a little concerned. Let me tell you this.

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Jason Mefford: If you can afford to go to a conference or a seminar during the year and pay for travel expenses you can afford to be a part of the chief audit executive forum.

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Jason Mefford: Where you not only get support for just a couple days, but you get support for the whole year. So go out, check it out and just schedule a time for us to talk. It’s no no obligation.

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Jason Mefford: Just to get on the phone for 30 minutes. See what you are going through right now and whether or not this is something that you would like to join.

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Jason Mefford: Okay, so now let’s switch gears and go back and let’s put on our investment manager hat. Now there’s lots of reasons why I wear hats and maybe at some point, I’ll get into it but

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Jason Mefford: One. One reason is I can make funny jokes like that. So we’re going to switch. We’re going to put on our investment manager hat.

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Jason Mefford: And think about, you know, again, carrying this discussion forward on how we can become seen as an act like an investment center.

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Jason Mefford: Okay, now you know one of the things about this is it’s kind of a tie in with one of the earlier messages that I shared with you.

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Jason Mefford: But a lot of times we will budget for things and then something comes up during the year, and it would be a better use of our time and money.

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Jason Mefford: To spend it on something else. So as an example, example right let’s say that you know in your in your budget, you put in what take training is an easy one. Right.

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Jason Mefford: That you had said you had in your mind that you were going to go to maybe these two conferences. This next year or you were going to go to a conference and to a seminar on a particular topic.

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Jason Mefford: You’d set that aside as a line item in your budget and it totaled up to whatever your total budget is for training, let’s say $100,000 just to keep it simple.

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Jason Mefford: Now, during the year, things may change. And so even though you have scheduled or budgeted to go to those two particular events. It’s completely within your control to say, you know what things have changed.

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Jason Mefford: I think I need this more than what I had planned at the beginning of the year. In fact, that’s exactly what you should do. You should not set a budget, a year or 18 months ago and then never changed from it.

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Jason Mefford: The reason I’m bringing this up is there’s going to be opportunities that come along, during the year where that money could be better used

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Jason Mefford: Or you could get a higher return on that investment. So again, if something else comes along, during the year and you decide, you know what, instead of going to that maybe that seminar on a particular topic that I was planning to

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Jason Mefford: It would be better for me to use that money for something else, because I can get a higher return on investment, okay. It’s okay for you to do that, you have complete control over that.

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Jason Mefford: Again, the idea behind the budgets, is to make sure that you are staying within your total budget so that the company can manage its cash flow.

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Jason Mefford: And the other budgets that it has to deal with. Okay, now let’s talk just briefly about ROI. Okay, return on investment.

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Jason Mefford: The more that you can start thinking about yourself as an investment center and trying to calculate the return on investment of what you’re doing.

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Jason Mefford: The more others in your organization are going to see you, that way as well. Now, sometimes people say, Well, I don’t really know how to do that. Well, I’m going to give you a to really kind of simple examples.

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Jason Mefford: In as I told you before, where my team is putting together a more detailed resource on this that will have out probably within the next month.

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Jason Mefford: That goes into more detail, but I want to give you some information right now so that you can get started.

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Jason Mefford: So the first one, you know, we

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Jason Mefford: Back, one of the companies when I was chief audit executive, we went out to one of our minds. So we had mines where we would dig.

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Jason Mefford: You know material out of the earth and and take out the, the, the information or the the product that we needed to go into our product. Okay.

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Jason Mefford: So we were out of this mine. And it’s, it was a smaller operation in comparison to the total company.

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Jason Mefford: But as we got out there. It was a little bit isolated right but we haven’t we haven’t been out there for a while. There were a couple of reasons why we decided from a risk standpoint that we needed to go out there.

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Jason Mefford: So we went out and we started going through the audit. We were looking, you know, one of the things we were looking at was accounts payable.

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Jason Mefford: Because we had just implemented a an ER P system. A lot of the processes and accounts payable had changed, and we just wanted to make sure that the the mind was actually doing this as well.

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Jason Mefford: So as we went through, we started looking at it, we started to realize we mapped out the process, but there was a lot of duplication and in this accounts payable process.

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Jason Mefford: So I remember sitting down with the with the AP manager and you know the team had come back and kind of said what what was going on. And I said, you know, as, as we look at the process.

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Jason Mefford: You’re having an accounts payable clerk do a vouching so they’re looking at the you know the the the

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Jason Mefford: Purchase Order the receiver and the invoice doing a three way match on that. So you’re having one of your clerks do that.

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Jason Mefford: Then you’re having another supervisor re perform that match. And then the accounts payable manager would also review that before any payments were issued, so three different people.

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Jason Mefford: Were actually going through and doing this manual three way match. And so I said, you know, we noticed that you’re doing this three way match three times with people. Why are you doing that.

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Jason Mefford: And so she responds back. Well, it’s because it’s our policy that we do that, we have a policy at the plant at the mine level that we do that.

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Jason Mefford: And I said, Okay, well that’s interesting. Did you, you know, do you realize that we just spent about $30 million

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Jason Mefford: On this era P system. Yeah. Yeah. And we’re using it, you know, but we just go through and do this manual match anyway. Okay and here’s, here’s what happened. Folks, the system was already doing the match. There was no reason for three separate people to do an additional match.

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Jason Mefford: Three way match. And so as we started looking at that, you know, and explain to her. Well, you know, did you realize that the system is doing this. Yeah, but we have this policy will do. You know, you don’t need to have the policy anymore. In fact,

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Jason Mefford: You know, corporate wide we’ve kind of changed the procedure on how we do that. So we went back and we looked at it and we and we kind of figured out that based on the workload.

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Jason Mefford: In that particular department they because of that duplication. There was really one person in their department that they no longer needed.

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Jason Mefford: If they just stopped doing that three way match manual three way match three times that the system was already doing. They could actually reduce their headcount in that department by one person.

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Jason Mefford: So that’s a very easy one to calculate return on investment. You know, I think in this, we went back and we looked at the person

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Jason Mefford: You know what their total gross wages were benefits load everything up and it remember it was somewhere around a 50 to $60,000

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Jason Mefford: Annual investment for this person. So at the end of that audit on my little list that I was creating I could go back and say,

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Jason Mefford: Hey on that particular audit we came up with a recommendation, change your policy do it the way corporate suggest that we do it.

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Jason Mefford: And by doing that, what would end up happening is you would be able to reduce costs by 50 or $60,000 so that audit had a return for that particular recommendation 50 $60,000 okay

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Jason Mefford: It took a little bit longer than that than I expected. So this next one I’m going to make short

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Jason Mefford: But another audit that we did there was, again, a reason for us to believe because of some of the stuff we had found in our retirement benefits.

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Jason Mefford: That some of our employees may be undocumented, meaning they were in the United States illegally, they may be submitted some fictitious information pretending that they had the right to work.

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Jason Mefford: But did not. And so we went in and again because we noticed that that was a high enough risk.

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Jason Mefford: And the Immigration and Naturalization Service who monitors that was actually doing a lot of enforcement actions around that in our particular part of the country.

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Jason Mefford: So we went in. We did the work. And we realized that, you know, part of the problem was we didn’t have some of the documentation and the files that we needed to

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Jason Mefford: So there was a recommendation to update that and to verify and re get copies of all of these peoples document documentation to be able to work in the country and some of the people had been working for us for maybe 30 years. And so we had to go back and kind of get stuff updated.

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Jason Mefford: Now the reason I bring that one up again as well. How do you calculate the return on investment on something like that. It seems like you’re you know now making a recommendation for the organization to go out and do a lot more work.

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Jason Mefford: Because we’re going to have to set up a process, you know, somebody’s going to double check every time somebody starts that we have the information

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Jason Mefford: There’s going to be time to go back and make sure that all you know 11,000 employees files are actually updated the way that they’re supposed to be.

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Jason Mefford: So again, we had to calculate what it was. So we went out we calculated if the government had come in if they found the same results, we did in our audit.

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Jason Mefford: We could see very quickly what the fine would be if that percentage of our employees really didn’t have this piece of paper in their file.

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Jason Mefford: That government regulator could do what’s called a paperwork violation. They could charge us for every single piece of paper that we did not have

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Jason Mefford: In the file, regardless of the if the person was, you know, you have the right to work or not.

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Jason Mefford: They could find us. So it was very easy for us to come up with a range, and I believe the range ended up being somewhere between about one and a half to $3 million

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Jason Mefford: That they could find us. So again, you can go back to management and show look as a result of our audit you know if the government comes in.

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Jason Mefford: They would probably give us a one and a half to $3 million fine. It was a range that we were dealing with

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Jason Mefford: So that made it very easy for management to say, okay, well, what are you suggesting that we do. Well, we probably should hire somebody go through change the processes we talked about some of the different things figured out that it was probably $100,000 investment.

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Jason Mefford: To do the work. But the benefit was we could avoid a one and a half to $3 million fine.

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Jason Mefford: Now for the executive management in our company that’s a pretty easy decision to make, right, hey, if we spend $100,000 we could avoid at least one and a half million dollars worth of fine.

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Jason Mefford: Boom slam dunk no issue. Right. And what that does is it also showed because I added it to my list. Hey on that particular audit.

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Jason Mefford: We save the company a potential $1.5 million right now that went a long way and justifying the whole budget of my department, just from that one particular project. Okay, so

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Jason Mefford: I’m gonna wrap up this week. But again, I want you to put on your investment manager hat and start thinking about how you can quantify.

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Jason Mefford: And start seeing the return on investment that you’re actually providing to your company, it’s going to make a huge difference. With that, my friends, I will see you next week. Have a great rest of your week and we’ll talk later.