The Effects of Employee Turnover on Internal Audit Teams
In over 35 years of business at Cavendish Scott, one consistent choice we see clients face is whether to develop a stable team of internal auditors or to engage professional auditors on a subcontracted basis to perform internal audits.
The economics of the choice can appear to be straightforward. Depending upon the size of the organization, holding an internal audit class where a dozen employees learn internal audit techniques is about the same cost as one year of internal auditing by professional auditors. Why pay a yearly subscription fee when a dozen internal people could audit year after year without writing a check?
Using visible budget and cash outlay indicators alone to determine the best approach to an internal audit program neglects the hidden risks of using internal personnel to perform internal audits. While it is unwise to ignore cash outlay, it is also unwise to fail to acknowledge the risks of internal personnel and the benefits professional auditors bring to an internal audit program. Remember, one of W. Edwards Deming’s Seven Deadly Sins of Management is, “Management by use only of visible figures, with little or no consideration of figures that are unknown or unknowable.”
One of the unknown and unknowable impacts of using internal personnel is turnover inherent in today’s job market, and how that turnover will impact the freshly trained internal audit team. US Department of Labor Bureau of Labor Statistics reported 30.4% turnover in manufacturing for 2017, with that rate rising. Turnover for professional and business services was 64.1% in 2017 and rising. Turnover for education and health services was 32.3% and rising. Turnover in all industries, including government, was 43% in 2017 and rising. Even a conservative evaluation of turnover rates indicates more than a quarter of the people trained to do internal audits may not be with the team next year, taking their knowledge with them when they leave.
Employee turnover also affects the processes subject to internal audits. As people change jobs more frequently than ever, those leaving are replaced by new people, responsible for operating processes in a manner that sustains current performance, tasked with continually improving processes they just learned. How does the organization control processes with new people at the reins? How do the processes remain viable when knowledge and experience keeps walking out the door?
Compounding increasing turnover rates are market pressures that create a whirlwind of activity just to get through a “normal” day for everyone in an organization (including those on the internal audit team). We have seen many organizations train a large batch of internal auditors, with the intent of having those team members perform internal audits. What typically happens is those part-time auditors do a fair (but not great) job when let loose to perform internal audits. There is nothing like experience when it comes to being a good auditor, and internal folks just don’t get enough experience, no matter how good the class or teacher was. In most cases, the internal audits simply don’t get done, since every organization is operating with resources cut to the bone. Competition in the market is just too tight, and customer pressure on price is too high to allow the bandwidth necessary for people to leave the daily whirlwind to perform internal audits (and perform them well). When the internal audits do get done, they are haphazard and imprecise, since the auditor’s focus is getting back to their daily responsibilities. Completing an internal audit could be lower on their priority task list.
Organizational priorities are reflected in the allocation of resources. One easy way to keep the management system budget low is to use internal personnel as internal auditors. If your organization currently uses professional internal auditors, cutting out professional auditors reduces the management system budget. Management system leadership would have fewer resources to call upon in pursuit of improving the organization, its reliability, and its results. It is harder for the management system to succeed with less. Reducing resources will impact performance, effectiveness, and the perception of commitment.
In an attempt to split the difference between expensive professional auditors and overwhelmed internal staff, organizations may be tempted to assign management or other “high-performing” personnel as internal auditors. While no separate check is written when taking this approach, management and high-performers suffer from the same lack of auditing experience and in-depth knowledge of management system standards as other internal auditors. Is it worth taking the attention of management and high-performing personnel away from their critical duties to avoid a separate line item cost for internal audits?
Everything that happens in an organization requires money in one way or another, even when that money is accounted for with people’s time. The objective for every activity is not avoiding cost; it is getting the best value for the money spent. Thorough internal audits performed by competent, experienced professional auditors provide that value for the management system.
Using professional auditors provides stability in the internal audit process. The steady eye of a professional auditor will help the organization overcome the dynamic nature of today’s workforce. Use internal people, and the management system risks the possibility of becoming a victim of today’s job market, not a force to overcome it.
Professional auditors outperform internal personnel in others ways:
- Audits get done when professional internal auditors are used because performing the audit is the auditors sole responsibility. There is no need to find internal people who are available and have the necessary process expertise.
- Internal personnel take longer to audit, up to 3 to 5 times what it takes professional auditors. Part time personnel need more preparation, are naturally slower gathering objective evidence, and usually take longer to write reports.
- Internal personnel will miss findings because they don’t audit regularly, and do not have the perspective of a third-party auditor.
- Internal personnel do not know the standard as well as professionals, and they could miss opportunities because they usually don’t have a broad business background.
- Professional auditors know how to audit top management. When it comes to strategy, management processes, risk, objectives, and allocation of resources, unless internal personnel come from top management, they are often intimidated by top management, and they won’t understand management issues and processes due to their lack of exposure.
- Professional auditors regularly interact with third-party registrars, and many have experience as third-party auditors. They know the standard better than internal people. They are familiar with how third-party auditors think, and they know what will get you through a third-party audit.
- The expertise of a professional auditor can teach your organization how to use management systems to make you better. We are not talking how to make more work. We’re talking how to improve your processes, your organization, and your results.
- Professional auditors see dozens of clients, and log scores of audit days every year. This full-time responsibility exposes them to diverse approaches which are then brought to you. Professional auditors see outside your box.
At Cavendish Scott, we are reliable, we are professional, and we perform internal audits like the registrars do. Your people will be challenged, practiced, and will prove conformity easily, because our audits give them the practice they need to perform well when the heat is put on by a registrar auditor.
As consultants, we’re passionate about knowing the standards inside and out, and applying them accurately and precisely to every organization under the sun. It’s what we do. We stand ready to teach you what you need to know about the standards, and help you understand how to run your management system in an efficient and intelligent way. Yes, this is a blatant sales pitch for our services. It may also be the best thing you can do for yourself and your organization. ISO is easy but doing well…you need us. You have a business to run. Give us a call and let us help you figure out how you can take care of your business while we guarantee you keep your certification.
Cavendish Scott, Inc. has been consulting, training and auditing in ISO and related standards for over 35 years. We are always accurate and professional and generate meaningful management system solutions. We guarantee successful certification in a non-bureaucratic, value added way. Our vision is for our customers to be intentionally successful, more so than their competitors. For more information contact us at www.CavendishScott.com.
By Matt Leiphart
Matt has been working with ISO for about 20 years – from all sides of the table. He is a qualified ISO Lead Auditor and has conducted hundreds of audits including third party registration audits and managed an accredited ISO certification body. He has filled the roll of ISO management representative and designed and defended his management system to customers, auditors and certification bodies. He is established now with Cavendish Scott providing expert consulting, optimizing client processes, advising on best practices and helping out clients with business and certification problems. He has designed and presented ISO Lead Auditor training and developed and presented customized training publicly and on site. He still audits and helps as he does. He is focused on the precise interpretation of ISO requirements, the optimal application of requirements and the intentional success of organizations. Matt may be contacted at firstname.lastname@example.org