Water leaks, insurance claims and internal audit

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How your accountant can add value with internal audit

I missed a call from the agent who manages a rental property for me. The call was quickly followed by a text with the dreaded message: call me urgently.

Gulp.

I called immediately. I learned that there had been a leak that morning which has left a gaping hole in the living room ceiling.

The tenant had called the agent soon after it happened; the agent visited the premises shortly after. By 1pm I had been informed and advised to contact the insurance company. Efficient.

I was on the road when I got the news so couldn’t contact the insurance company until the next morning. 24 hours after notifying the insurance company I was contacted by the loss adjustor. I had requested that the loss adjustor contact the agent directly.

Two days after that I got a call from the insurance company asking for details of the claim, despite informing them previously that I had very little detail and that the agent would be able to provide more information. She also told me that a claim form should have been posted to the broker that will forward it to me.

Let’s summarise the inefficiencies in this process:

  1. I could have previously advised the agent of the insurance details who could’ve contacted the insurer directly.
  2. The person who took my call didn’t record the details correctly.

This resulted in:

  1. The loss adjustor contacting me unnecessarily (wasting his time & mine).
  2. The unnecessary call from the insurer to me.

The process has other inefficiencies:

  • No online claim facility
  • Paper claim form sent to me via the broker.
  • The claim form isn’t sent via email.

These are just observations I had as an outsider, with limited interaction with the company.

But what has all this got to do with accounting?

Accounting is a multi-faceted discipline. What most people see as accounting is the end product:  a tax return.  Let’s take this back one step: a set of accounts is required to prepare a tax return.  The accounts must accurately reflect the financial transactions of the business.  To achieve this the business must have appropriate recording and reporting mechanisms.  I say appropriate because the must be appropriate to the size and complexity of the organisation.  Complexity will be determined by the operational activities: what the business does, where it does and who does it.

Therefore accounting is also concerned with the policies, processes procedures and controls necessary to help ensure the accurate and timely recording and reporting of the financial data.

I still don’t know where this is going?

The Accountant’s knowledge and experience of the fundamental controls and efficiency of processes and procedures in finance can be easily transferred to almost any business operation.  In addition, financial audit skills can also be adapted to other operational areas to test processess and controls.  This is known as internal audit.

The 2 key inefficiencies noted above were failures in operations: the people conducting the process didn’t operate it as intended.

The 3 further inefficiencies I noted are inadequate processes. These are 3 very simple measures that could be implemented which should make the process more efficient, for the user (ie me) and internally. If less internal resources are being used then there will be a financial saving.

So if all this is so glaringly obvious why doesn’t the company do something about it?credit unions internal audit

Well, we’re all human. Sometimes we mindlessly go through certain procedures without giving it much thought. Sometimes we need an objective observer to highlight inefficiences.

To give an other example, I was once doing an internal audit and the office I was using was beside the switchboard. I often leave the door open when I’m on an internal audit so I can observe how the staff operate and to get a feel for the general mood of the organisation. On this occassion the noticed that when the receptionists received calls from potential customers they took their name and address and posted a form to them (this was a necessary requirement and one which the customer expected). This is what happened:

  • Can I take your name and address so I can send you out a form?
  • How do you spell that?
  • Okay that’ll go out this evening.

Then

  1. Get the pre-printed form
  2. Put it into an envelope
  3. Prepare address label
  4. Stick label to envelope
  5. Frank the envelope
  6. Put in post

The number of occurances of this was reduced by at least 50% simply by asking this question first:

Do you have access to the internet?

If the answer was yes the customer was advised to download the form, complete it and send it in.

This is how internal audit can add real value. It also demonstrates how internal audit deals with the present and the future more than the past: what’s happening now; what could go wrong.

Of course, the abiltiy to complete the form online would be better, but that’s a story for another day.

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