It is indeed a pleasure to have the opportunity to contribute to the improvement of organizations in the Waterloo Region through this Blog.  Viral tools such as a Blog help us all develop our skills in these times of rapid change and increasing demands on our time.

I have had the opportunity over the past few years of contributing thoughts to the ASQ whose remit is continual improvement in all types of business.  In one of our submissions, we explored the advantages of integrated self audit as a way to further break down silos in organizations.  Below, I will share the first part of a paper that was presented to the World Conference on Quality in Houston.

In the weeks to come, we will add to the article and of course respond to questions/comments.

PART 1

INTRODUCTION

General Electric, Toyota, Bank of America, and many other recognizable names have regularly and consistently provided excellent results.   Year after year, they find ways to increase the value of their organizations, where it counts the most, the bottom line.   Many books have been written on these and other successful organizations’, analyzing what each has done to become successful.   We are not about to recreate that valuable work, but instead, looked at that body of information for commonality.   One area where there is significant consistency is in the cross functional or team approach taken by these organizations.   We are convinced that combined internal audit activities can be employed to push this further.

Consider Toyota as an example where team work is almost legendary.   From the initial concept for a vehicle through detailed engineering and production, every function in the organization is engaged.   The teams that form have one goal, to ensure that once production starts, the best possible product results, first time and every time.   Production does not start until the individual elements of manufacturing are capable of producing a highly consistent result.   That result is less than 10 defects per million items produced.   Of course, this takes enormous time and effort.   One cannot argue with the result as Toyota approaches the top rung of world wide vehicle manufacturing.

When personnel from quality, production, reliability, maintainability, administration, finance and so on, actively participate in a documented process, why would the controls be audited down the functional silos?   The expectation within the organization is that the ‘team’ process is successful and must be followed.   The question then falls to management: how does one plan an effective audit to ensure the multi-functional process is followed?   The answer would be equally simple: with a multi functional audit team.

Let’s consider an example.   An organization sends out a financial audit team to determine the effectiveness of the controls over inventory.   The team audits the financial controls over inventory: order authorization; receipt accuracy; credits for returns; inventory count; and vendor payment.   They determine that all is as it is supposed to be, provide a favorable report and complete their work.

Meanwhile, another audit team is at work looking at the procurement process as it relates to operational quality.   They look at the quality control over inventory: vendor selection; order placement; receipt quality and timeliness; inventory condition and deterioration; rejections; and vendor rating.   They determine that for every 100 parts ordered; the vendor is only able to deliver 82 acceptable ones on time.   This audit team recommends working with the vendor to improve performance while simultaneously searching for an alternate source.

Our illustration identifies two different audit outcomes from assessments of the same area of the organization.   Were the audits combined, they could have had a more powerful impact in the following ways:

1.  Financial impact of vendor performance. The financial audit team has information that will put a price to the deficiencies noted in the quality audit.   Putting a price on nonconformance provides management with additional information to determine appropriate action.

2.Improvements to both financial and quality controls.  When the audit teams operate together assessing the process, the functional controls are scrutinized from the perspective of the desired outcome:   optimal inventory valuation.   Gone are the individual functional agendas solely focused on the financial accuracy and quality performance.   The audit teams will identify improvements to the procedures used within each function, solidifying the team approach.

3.Optimization of audit effort.  While the team still needs to be comprised of experts from each functional discipline, there is opportunity to ‘lean’ the audit.   Instead of looking at inventory twice, a single focused assessment takes place.   Entities that have done this kind of optimization have reported a minimum 30% reduction in over all audit effort.

4.Organizational learning.  Perhaps the single greatest advantage of undertaking such a combined audit is that the personnel involved increase their level of corporate understanding.   There is no better way to learn than to assess a set of process steps against specified criteria with a view to determining effectiveness.

While the concept is difficult to argue against, let’s get practical.   How does one go about building an integrated audit approach?   We believethat the following subjects need to be addressed in the journey to integration:

1. Personnel Selection

2. Training

3. Planning the Audits

4. Reporting

5.   Follow Up