Rob Berry: Welcome to audit bites, the show where we give you bite sized chunks of information and education to help you excel in your audit career. Join our host, Robert berry as we tackle another tough auditing topic this week.
Hey, guys, welcome to episode number three of audit bytes. G
Three reasons clients hate your audit reports.
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Today's topic, 3 Reasons Clients Hate Your Audit Reports.
Now, you know, I'm willing to bet that some of you are probably thinking hate is a very, very strong word. But think about it like this. You guys go out and perform audit engagements, you come back with what you think is the objective truth. And with that objective truth, you write up an audit report. You hand that report to the client and the next thing you know the client is upset at you. And you for the life of you can't figure out why the client is upset at you. But the last thing that comes to your mind as far as the reason why they could be upset at you is your writing probably sucks.
You've never even thought about that you've blamed the client, you finger pointed, but you've never thought about the quality of your own writing. But I'm going to tell you for some of us our writing, it does, it sucks.
You see, the problem is many of us were taught writing in an academic setting. And the academic settings are all wrong for the business setting where people bring facts and emotion into the thought process.
You see, academic writing sometimes requires you to write for the sake of sounding smart. Whereas business writing is done for, well, the sake of solving problems. And that's what your audit reports should be doing.
So your clients are probably mad at you because your audit reports suck.
But that's not one of the three reasons we're going to be talking about today.
Here's what we're going to do today. Today, I'm going to pull an example from a real audit report that I got off the internet just a few months ago. Now I will say I blacked out the name of the organization because my goal is not to shame anyone. My goal is to use this as an educational tool. But again, seeing a real example shows something that is happening in the real world with audit departments.
So let me just lay the foundation for this report. This report is from an organization that has individuals that are using fuel cards to purchase gas for company vehicles. So that's what this audit was on. The fuel card purchasing process within an organization.
Alright, so let's dive right in. This issue is number three, finding number three on their report. And it's titled inappropriate fuel purchases. And it reads like this, well, hopefully.
First, hopefully, you guys can see it on your screen. For those of you watching live on LinkedIn or on YouTube or on my website, thatauditguy.com. Hopefully you can see it. And for those of you listening to it on the podcast, available on your favorite podcasting platforms. Here's what it says.
Employees purchased the incorrect fuel type in 146 of 35,500 instances during the audit period. See details below. And then there are four bullet points, discussing the 146 times they found something out of 35,500 instances. Now that's pretty interesting.
So I'm going to take a pause right here because we got some of our friends coming in Richard is here. Richard says everyone loves his reports. But see, not everyone is Richard Fowler, though. So I mean, that just stands to reason that everyone loves your reports. Heather is here, Heather. Hopefully you guys are past that hurricane that came through Jacksonville.
Now Joe is here. Joe says Who doesn't love audit reports with recommendations on how they should do their job. For those of you who don't know, Joe, that is so very sarcastic and funny. I can just see him saying it as I'm reading it. And my man who's some of his heroes some of what's going on, man. What? What is going on?
Heather, you hit it. Wow, that's a crazy number. Right? Okay, Heather, let's just let's just talk about this number for a minute, right? Let's just dive right into this because they tested 35,500 transactions and found that 146 were wrong. So I did the math kind of slowly in my head. I'm just kidding. I used Excel.
That came out to be .4%. Not even 1% my friends. Not even half a percent. Point 4%.
All right. Now Hal. Hal is saying, "I wrote audit reports just like that in the in the 1980s". Right. Right. Hal. Exactly? Now Raven, hey, Raven, how's it going? We need to catch up sometime my friend.
Raven said, Why even use numbers? Raven I don't know. But with a point 4% error rate, Why even? We'll get to that in just one minute. We'll get to that in just one minute. Now, Joe says wouldn't the wrong gas type ruin the vehicles? Isn't that the bigger issue?
Man, Joe, you want to finish the show for me, man. I'm gonna step away for a minute and just pull up your comments. Now. I'm just, I'm just kidding. But yeah, all of these things are very valid. And you guys have seen them, just like that. So okay. Let's take a look at this though. Let's take a look at what point 4% looks like.
So this is a progress rings on a scale of zero to 100 out of the 35,500 transactions. This is what point 4% looks like from an error rate. Now that looks pretty small. But you know what I thought I said, Okay, well, let's just take a look and see what does 10% look like. So even if there was a 10% error rate, here's what that would look like, visually to someone. Now. Okay. Um, let's just take a look at both of these side by side. And let's take a look at what they look like side by side. Now. Without I'm trying not to be mean here. But if I looked at the one on the left, this is the actual error rate. And if I were management, a member of management, I would probably look at the otters and say, so what? No environment is perfect. And
we can't expect it to be perfect. So I would probably be satisfied with a point 4% error rate out of 35,500. transactions. So now, let me also say this issue in the audit report, it took up not one, but two pages, almost two and a half pages. Okay, so let's get back to the finding, though. Let's get back to the finding and take a look at it. Alright. So let's look at the four bullet points that they had where they described the 146 transactions out of 35,500 that were wrong. what they said was 28 fuel transactions indicated unleaded fuel was purchased when the assigned vehicle requires diesel. So that kind of goes back to Joe's point, wouldn't that ruin the vehicle and that's kind of your bigger risk here. 16 fuel transactions indicate
diesel fuel was purchased when the vehicle requires unleaded fuel. Okay. 39 fuel transactions indicate mid grade fuel was purchased. 20 of these transactions were made by one employee, so 20 of the 39. So that means it looks like one employee has a big issue here. Right? So it sounds like one employee has a problem, right? 63 of fuel transactions indicate premium fuel was purchased. And then 24 of these transactions were made by one employee and another 12 were made by another individual. Okay, so it sounds like a small group of employees accounted for the point 4% error rate again, I'm saying point 4% error rate. So let's just be frank here. At this point. This issue seems pretty pointless, and it's actually making the auditor's
look a little petty, in my opinion. Okay. But again, that's just my opinion. But wait, there's more to this issue.
It also says that according to the Pew Your current manual, only regular unleaded fuel or low sulfur diesel fuel is to be used in vehicles, the type of vehicle will determine the fuel type. In addition, the use of the fuel card for anything other than fuel for vehicle is prohibited. I didn't see anything when we talked about them using the fuel card for any thing else. Maybe I missed it, maybe you guys saw it and can tell me where that came from.
It also says that the review process for fuel card purchases is not properly functioning, which allows inappropriate fuel purchases to go unnoticed. Now, I think that's a separate issue. That was an issue number one of their reports. So now we're combining and mixing two different things in one report. But then it also says, although the identified inappropriate fuel charges are low, in comparison to the total number of transactions, the lack of supervisory review could allow many other irregularities to occur that are not noted in this audit, including frequent Philips by employees indicating a personal use of the card. So now, frequent Philips by employees mean that somebody may have purchased, okay, I'm confused there. It might
be a red flag, but how does that definitive definitively indicate personal use of the card? So now I want to go back to my friends, because you guys are really in the comments here. Hell says, isn't the issue, not the numbers, but the consequence is the consequence material thinking and here the consequence probably is not material, right? I mean, Raven says, Wait, what? two pages? Yeah, two pages dedicated to Yeah, man. Now, Richard is still here. And Richard says probably could have been addressed as a verbal comment. That's where I'm going with it in a few minutes, Richard, and not make the report at all. Joe says lucky the cars did not come. I'm sorry. I should not be laughing at that. Now. Heather says putting gas in their own
cars. I don't know heaven. I mean, did we? Did we definitively say that in the report? I didn't read that in here. Any were? And so poser was asking did the employees fuel their personal vehicles? I don't know. You tell me. Did you read it? I didn't read it. I don't know. I don't know. This is why clients hate our audit reports. How says well, it does say it is finding number three. I'll bet number four was material. Yeah. Don't bet your life on that. Hell no sama is dropping fire in the chat. Thank you, my man. Hell says I can't wait to see what the recommendation is. Oh, hell we are getting there you are. You're a spot on my man you are spot on. But while we're here, let's just get to the first reason. audit clients hate your
audit reports. And that first reason, my friends, oh, wait a minute, let me go to it up. The first reason is you have irrelevant issues. The first thing you have to ask yourself is are the report contents valuable to stakeholders, you see this issue serve no real value to stakeholders saying inappropriate fuel purchases at an error rate of point 4% is is miniscule. There primary issue that they were trying to target was the lack of review. But they covered that in issue number one or two in the report. So that was a totally separate issue. So look, this, my friends is an irrelevant issue. And again, it made the auditors look petty, at least if I were the client, that is what I would think. Let me let me just give you an example what
this is kind of akin to, let's say you were in school and you got your report card, and on your report card, you had five A's. Now when I was in school, 92 to 100 was an A. So let's say you got five A's on your report card, and four of those A's were 100. But one a was a 92. And somebody said to you, you barely got that a man, you better do better next time. That's kind of what that is akin to. So again, irrelevant issues are one reason that clients hate your audit reports. Now hell, since you asked my friend, let's go ahead and move to the recommendation. And it reads as follows. We recommend transportation remind fuel card users their personal use of the fuel card is prohibited and also reiterate strong word there
right reiterate the importance of purchasing the correct fuel type for their vehicle. We also recommend again instituting a better review process for the fuel for the fuel car purchases. We recommend transportation incorporate a simple, not a complex one, but a simple data mining review.
A simple data mining review to check for wrong fuel types. Okay, let's just jump right in here. This brings us to the second reason that clients can't stand your audit reports. That second reason is you have the wrong recommendations. Look, my friends perfection is a myth. And auditors need to be pragmatic. So let's go back to this recommendation for just one moment and take a look at it. You see the issue that they were saying was inappropriate fuel purchases. Okay, inappropriate fuel purchases. Now, if you look at the recommendation, they're saying, we recommend transportation remind fuel card users that personal use of the fuel card is prohibited, which they didn't really prove that there was personal use, but okay, and
reiterate the importance of purchasing the correct fuel type. That is important because the real risk here is the car could blow up while somebody is in it, and have legal liability. But let me ask a question. With that kind of recommendation. What kind of reminder is sufficient to satisfy the risk at hand? Now hear me out for just one moment? Just Just hear me out for just one moment? So is it okay for management to simply send an email to everyone saying the things that they committed to doing here? Or would you like for management to send an email where response is required from every single person to acknowledge that they read it? Or Or let's dig a little deeper? Or is it sufficient reminder to train everyone but have them
sign a sign in sheet when they come to the training course or or just call me crazy, is a sufficient reminder to have training where they take a test at the end to prove that they actually understood the things that they were being trained on. You see, these auditors did not help their clients at all, they wrote up a recommendation that was very ambiguous. And if the client performs an action, that still doesn't mitigate the risk down to an acceptable level, when the auditors come back in and do follow up, they're gonna have a problem with what management did. So as I said earlier, wrong recommendations is one reason why clients hate your audit reports, you got to remember that perfection is a myth. And auditors need to learn to be
pragmatic. Alright, so let's go back to our audience again, because how I love it when halos around because he brings up excellent points, how said mark your calendar calendars for the repeat yet? irrelevant finding. Now Heather is saying some training, that would be what you know, she would recommend. And Joe is saying that the recommendation is too generic. Right? We didn't help our clients out at all here. What we did was, we show them that isn't us against them. We're just gonna say there's, here's what you did wrong, and we're not going to help you at all. Now Richard is saying training should not be a recommendation. That's not the root cause. There you go. Richard is not. The point that I'm getting at here is this is the
wrong recommendation all together. But I agree with you, Richard, and what you said. Alright, my friends. I'm Robert Barry, you're here with me on audit bites, the first and only live show about auditing. We're talking about why clients hate your audit reports. The first reason is irrelevant issues. The second reason is wrong recommendations. And let me just say, if you need a good audit trainer for your audit department, call me up. There are a guy calm, you'll get real role training, kind of like you're seeing here. I don't hold any punches and I give it to you real enrolled because I've been doing this for over 20 years. You can find on demand training on my website that audit guide calm as well. You can also find information about my
boot camp. He asked better questions boot camp, if you go to that audit guide comm backslash boot camp. You can see what it is about and getting ready to join our next cohort starting October the fifth team. You heard me right October the 15th. The ask better questions boot camp, which is a boot camp best based on my best selling book, ask better questions, get better answers perform better audits. Alright, so that's enough of the upselling for me here today. All right. So
let's go back to this finding for just one moment. Look, guys, there is a point 4% error rate from what I can tell. And for me, I find it odd that that was deemed to be big enough of a problem to dedicate two pages of an audit report to but let's dig just a little bit deeper. A 4% I'm sorry, point four error rate does not sound like a systemic problem throughout the entire organization. It actually sounds like a few people weren't using the cards appropriately. And to Rich's point earlier, couldn't you have just verbally told management that, Hey, you got a few people that are doing something wrong here. As a matter of fact, I think that you are eroding your relationship with your clients when you put things like this on an audit
report. And let me explain to you what I mean by that. This is akin to the entire class being punished and not getting to go on the field trip because two people acted bad during lunch. Right. So clients hate your audit reports because of irrelevant issues. I mean, a point 4% deviation rate, right. They also hate your audit reports because of wrong recommendations. Again, perfection is a myth. And auditors need to learn to be more pragmatic. So now let's take it take a look at the manager management action plan here. They actually call it a management response. But let's, let's take a look at this thing. All right. management's response was management concurs, transportation will reiterate to all fuel card users the importance of
purchasing the correct fuel type for their vehicle, and that personal use of a fuel card is prohibited. We will also improve the review process and communicate it to supervisors by October 1 2021. Now wait, the last time I checked, I thought this was a wasn't about the review process. It was about the Nevermind. Nevermind. Let me take another look at this. Again, it says that management responses that so So look, okay, let's talk about management response for a minute. Or response could be anything. It could be yes. It could be no, it could be maybe. Now this is just my personal preference. I prefer to say management's action plan, because it's kind of what they are going to do. But as I asked previously, is email Okay, like
exactly what are you going to do? Or should training be provided? This is the part where management spells out what they are going to do, and it needs to be clear, and it needs to be actionable. Now the other problem that I see here, again, if management sends out an email to everyone, regarding this audit, it's almost like they're punishing the 99.6% of people who, who got it right. And it's almost like the auditors are saying, no matter what you do, you're still going to be wrong. Now, if it were me, in this case, I would probably feel that way. So for management's response to say that they're simply going to reiterate to all fuel card users the importance of purchasing the correct type of fuel, and now that's going out to 99.6% of
the people who did the right thing that actually builds a bad relationship with your audit client. All right, my friends. Let's go back to our audience again, and see what you guys are saying. So pozo is saying the auditors need training.
Yeah, you're right pose. Oh, and now Joe says, and I'm going to be at the September conference. For the which chapter is it again, Long Island, I'm sorry, do I wasn't gonna make fun of you this time and say New Jersey for the Long Island chapter of the i i'm going to be presenting at their September. conference, supposedly, you're right. auditors need training. If you want to see me, you can check out the Long Island chapter of the Ise website and you can sign up for that. It is an eight hour session. I'm only doing two though. is an eight hour session for a good price. $150 I believe Joe correct me if I'm wrong in the chat about that. Now Raven says that pose Oh, that's so true. It all starts with understanding and identifying
the risk. And it appears that the auditors didn't start there when deciding what to look at and how how says did the finding ever articulate what the actual risk what No, man it didn't. This and how it says this is compliance work, not risk based internal auditing. I 100%. agree with you, my friend. And Joe again, says the auditors were probably justifying their audit by adding the additional irrelevant findings to the report. They obviously don't under stand. Yeah. And then how Again says, Not that it was a finding in the first place. Yeah, yeah. But the repeat finding is a shoot. Yeah. Oh yeah, this will be repeated 100%. And then Joe says the the AI conferences $150 for IRA members, and guess what? It is free to students. Now
Raven brings up another point, why bother providing recommendations and management response? Why not just sit down and agree on what needs to happen exactly. And then write it up as an agreed upon action. This saves the auditors and management from writing separate statements. Raven, I'll take this a step further. Because when I do this, it is to save time and effort. But it's also to help build that relationship. If you work with them. I'll get to that in just one moment, if you work with them. And now you're actually helping to solve a problem, especially with a point 4% error rate. So let's talk about a couple of things. It also says that we recommend transportation incorporates a simple data mining review to check for wrongful fuel
types. First, that's very condescending, but okay. But the question I would ask here is, what did the auditors use? Did they use a simple data mining review? And if they did, why would you not share some of that with management, there are several ways to do that. I'm not saying give them what you've done, because then if it breaks, they'll say audit did it. But there are several ways that you can help them develop something similar, or even hand off what you've done. As long as the appropriate sign offs are in place, hey, we're giving you this, you own this query, or whatever it is, from this point forward? No. Instead, they went condescending in the report and said, a simple data mining, again, what's simple to you may
not be simple to your audit clients. So now what is done is what has happened here is you failed management once again, with the wrong recommendation. All right, my friend. So let's go to the third reason why otter does hate your audit reports. Is unmanageable management responses. See the responses should be actionable. By saying they're going to reiterate to the employees the importance of fuel card usage. How are you going to do this? How is this even actionable? You know, how are you going to make sure that they retain the knowledge that they were supposed to get? and all that other good stuff? So let me just pause for one moment. I am Robin Berry, the show is audit bikes, the first live audit show about internal auditing, and
today we're talking about three reasons why audit clients hate your audit reports. Yes, I said hate. The first reason is you have irrelevant issues. The first question you must ask yourself is, is the report content valuable to your stakeholders? The second reason they hate your audit reports is that well, you got the wrong recommendations. See, perfection is a myth. And auditors need to learn to be pragmatic. And the third reason they hate your audit reports is you have the wrong recommend the unmanageable management responses, the responses should be very actionable. And Joe is still here with us. And Joe says that are the guys the best. Thank you very much, my friend. I just try real hard. Houses follow up. Did you do what you said you
would do? Yes. Issue closed issue addressed? Nope.
And that my friend is exactly what is going to happen. And so this is why clients hate your audit reports. I know a lot of people said you shouldn't use the H word. It's such a strong word. We have our client and I got this kind of report from you, I would absolutely hate it. Especially when you said all I need to do is simple data analytics. But you didn't help me to do what you did. Because if you looked at 35,500 transactions, there must have been some easy way to do it. Because an issue number one, which I didn't put here, you told me that my review process was bad. My review process was probably lacking and inadequate because I didn't know how to do it appropriately. Again, here, there was a missed opportunity to really partner
with your audit clients and be more of a helping hand with audit clients. Now because we have a delay here. I'm going to wait just a few seconds to see if anybody else is typing in anything else. Because we've come down to the three reasons why audit clients hate your audit reports. Mark Reynolds says strong words from a strong man. Oh mark, I appreciate that mark. I'm just a very opinionated person who's been doing audit for a very long time. And I'm very appreciative to have done it for so long and want to share whatever I know with as many people as I can And I appreciate you man. pozole says auditors should focus on value and action not below not budget and mechanical sampling. Wow, bozo. That is a mic drop moment right there, my friend.
I'm actually going to have to use that and actually quote you on and I'll give you credit but you won't get paid a royalty for it. So again, my friends, this is our it bites. I am Robert Berry. This is episode number three. We are also available on your favorite podcasting platforms. So tell all your friends, we're on Stitcher, we're on Spotify, we're on the podcasting platforms. If you go to my website, you'll be able to see the video and listen to the podcast as well. And you might see a CPE course based on this particular session, three reasons. audit clients hate your audit reports. audit bites, episode number three. I'm Robert Berry. Til next time.
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