Six Sigma internal audit and what an operational audit covers
Auditors use Six Sigma to measure variation and show whether a process fix worked. We apply it in an operational audit of the process you pick.
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What is the Six Sigma approach to internal audit
Motorola developed Six Sigma in 1986 to reduce variation in repeatable processes, as Motorola records in its own history timeline. Auditors can use its DMAIC sequence and the statistical tools suited to the work: define the problem, establish a baseline, analyze causes, improve the process, then control the process to keep the improvement in place.
Under Standard 15.2 of the Global Internal Audit Standards, internal auditors must confirm that management implemented the agreed actions. In the Control phase, auditors add one step: they take the same measure they took at the baseline and report the number before and after the change.
Ask for the Control phase in the scope. Without a baseline and the same measure after the change, you cannot tell whether an eleven day close became a six day close, and you have paid for a six sigma internal audit without the evidence.
DMAIC applied to an internal audit
| Phase | What we do | What you receive |
|---|---|---|
| Define | We agree the process, its objective and the one measure we track. | A scope naming the process and the measure. |
| Measure | We record the baseline before the change. | The baseline figure and how we took it. |
| Analyze | We trace the variation to its causes and test the controls in the process. | The causes, ranked by their effect on the measure. |
| Improve | Your managers make the changes; we review the design of each one. | A change list with an owner and a date against each. |
| Control | We repeat the measure after the changes. | The after figure set against the baseline. |
When to use Six Sigma in an internal audit
Use it where your team repeats the same work enough times to measure it. A team in a shared service center with a high invoice volume holds enough data for statistical analysis.
With fewer transactions, keep the discipline and choose simpler measures. You can run a sigma audit in a twelve person accounting team if the team holds reliable process data for the tools you pick. A smaller team may lean on process maps and root cause analysis before adding statistical tests.
A six sigma audit of a finance process is a method question rather than a separate service. You buy the review, and we choose the method for the process in front of us.
How we run an operational audit
We review one finance or accounting process at a time, from the month end close to payroll. We do not review operations outside finance.
Scope
You name the process. We agree its objectives, the policies and controls we assess it against, and the measure we track.
Baseline
We map what your people do now, time each step, and put a cost on the rework.
Analyze and test
We trace the time and the errors back to their causes and test whether your team performs the controls in the process as designed.
Report
Your managers receive findings, a conclusion on the process and a list of changes with an owner against each. Where you asked for the Control phase, we repeat the measure after the changes.
Commission one when you cannot explain a number: your team takes eleven days to close and gives a different reason each month, two people produce different figures from the same system, or two staff members unknowingly reconcile the same account.
Operational audit vs financial audit
Financial audit
We test the period's transactions and balances against the accounting framework, sign an opinion, and give people outside your business a report they can rely on. We set the scope around the numbers that could be materially wrong.
Operational audit
We assess how your team performs a process against its objectives, policies and controls, and we report to your own managers on efficiency and effectiveness. We give no opinion.
What we look at in a business process audit
In your month end close, we measure process efficiency at these points:
Cycle time
How long your team takes from start to finish, including the time between steps.
Handoffs
Who touches the work, and how many people handle it before it is done.
Rework
How often your team repeats a task, and why someone sends it back.
Approvals
Which approvals add time without reducing risk.
Systems
Where your people do the work outside the software.
Measurement
What you track today, and what you would need to track to see the problem yourself.
Operational reviews in an internal audit plan
What we can recommend and what we can put in place
We can find the problem and write the fix, but implementation is a separate service. For an attest client, your management must oversee the work, evaluate the results and accept responsibility for them under ET 1.295 of the AICPA Code, and we stay out of management roles. If we perform no attest work for you, the AICPA does not impose those independence rules on us, and we confirm that before we quote.
Related services
- Internal audit services
- Financial statement audits
- Agreed-upon procedures
- SOX compliance audits
- How often internal audits should be conducted
- Internal audit outsourcing
- Internal audit report
Treat the information as general, not advice for your circumstances. Ask a CPA to review your own facts before you commission either kind of audit.
How we set the cost of an operational audit
We set the fee on four things:
Steps and transactions in the process
We charge more for a ten step close with high volume than for a three step approval.
People and systems
We add hours for each person we observe and each system we pull data from.
Control testing
We charge less to measure the process alone than to measure it and test its controls.
Control phase
We add a second visit to take the after measure.
Tell us which process you want reviewed
Name the process, say what you spend to run it today, and tell us who owns it. We will come back with a scope and a price.
Contact
Connect with Dimov Audit
Our dedicated team is ready to assist you on your path to financial success.
24 Mercer St, 2nd Floor, Suite 214
New York, NY 10013
United States
Reviewed by George Dimov, CPA. Dimov Audit reviews operational processes and controls for owners and managers across all 50 states. George brings 20+ years of accounting and consulting experience. Profile