Process Review

Introduction-

Process review or process audit is an examination of significant process/processes i.e. business and operational key risks and the controls established to mitigate those risks, including compliance with laws, regulations & established policies.

Process audit stages & deliverables-

Core content

Pre-planning : Understand the objective of process to be audited & review available audit documents such as prior year work papers, IFC etc

Planning & Evaluation : The audit team interacts with the client in order to have a thorough understanding of the process in order to understand how the process functions in order to achieve its objectives.
Post walkthrough, the next step is identifying key risks-
- For each major process/functions, brainstorm as to what can go wrong & highlight the areas with greatest potential vulnerabilities
-Identifying gaps between expected & existing controls by applying various audit procedures & test results are required to be adequately documented & testing documentation is required to be sufficient to support conclusions reached.

Reporting & issue tracking : Potential audit findings should be discussed as they are identified to ensure timely communication with the management. Potential findings are required to be carried forward to the Audit report as an issue or Process Improvement Opportunity (PIO) after analysing the root cause of the issue.

Case Study

S Limited is one of the leading manufacturers of Games & has 3 major segments - Sporting Games Division, Board Games Division & Computer Games division. The management of S Limited was quite unhappy from its payables management process of the organization as it had no proper internal process followed & hence had affected the working capital cycle of the company too.

The top management of S Limited approached MASD & Co to have a thorough process review and audit in regards to the payables management.
The MASD team approached the assignment as follows-

I. System/Process Walkthrough - In-depth understanding of the entire process followed for the payables management in the company was done. Also, the policies with regards to the payment terms etc were referred & the entire process right from PO creation till final clearance of payment was understood. Further, discussion with the relevant SPOCs from PO creation team, accounting team & Payment team was done so as to have a thorough understanding.
So to recapitulate, the entire payables process was segregated into various sub-processes for detailed analysis.

II. Applying the review procedures - After the walkthrough/process understanding, MASD & Co also had a detailed report developed & designed from the IT Team of S Limited for the payments made from the period Sep’20 to Sep’21 to identify the issues & suggest controls.


The MASD Team then started applying their review procedures to figure out the areas of significant risks. Here, the intention was not only to highlight the issue but to find out its root cause. For e.g. If there is postponement, find out where the issue actually lies & then determining its root cause as postponements could be due to any of the following issue-
a. Delay in receipt of invoice copies/supporting documents from the Vendor itself
b. Invoice received in time but accounting skipped
c. Incorrect due date getting captured in the system
d. Inputting error while accounting the invoice or creating PO
e. Prioritising certain payments in case of shortage of funds etc.


III. Findings/Conclusion -After performing the review procedures, MASD Team not only highlighted issues to the management but found out the root causes & suggested Process Improvement Opportunities as follows-

As evident from the table above, the top management of S Limited now had a proper process followed in relation to its payables since not only the lapses in the process were highlighted but also with the root causes & process improvement opportunities at system level, process level & policy level, the company will be able to function more effectively & efficiently.

Conclusion

A thorough in-depth analysis of the processes enables an organization’s functioning in the most efficient and effective manner so as to achieve its mission, goals and objectives.

Process reviewers should be viewed throughout an organization as a valuable independent resource, comprised of experienced individuals with specific skill sets to solve problems, analyse the processes and help develop potential solutions.


Authors:

CA Aakash Mehta

Partner | Email: aakash.mehta@masd.co.in

Poojan Joshi

Associate Consultant | Email: poojan.joshi@masd.co.in