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Financial or efficiency (productivity) audit?

February 23, 2017
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Taking into account the organizational structure of any business, generally we can define two sides, where one part is a “front part” (sale, marketing, activities associated with involving customers) and the other one is  “back-office” part, designed to ensure the functioning of the Company by maintaining the life support processes and provide relevant information for management. Thus, the mentioned processes are accounting, management accounting, procurement etc.

It is worth thinking about the effectiveness (productivity) of each of these areas. Among different types of audit (financial, human resources, security, etc.), productivity audit is used to assess the efficiency and effectiveness of company’s existing resource use.

The closest to the efficiency audit is a financial audit. What is a difference you can find in the table below.

Financial or efficiency (productivity) audit?

Efficiency audit increasingly becomes a part of the company’s daily life because the procedures are able to point out where the funds are spent and whether it brought a desired result.

The use of performance indicators makes possible for us to track the patterns of connections between specific types of costs and achievement of goals. However, it should be noted that it is necessary to begin with an efficiency audit for the “back office” processes, as they carry a greater threat on the costs. For example, if a company has 5 accountants and a chief accountant from a total of 50 employees, 5 accountants it’s not very effective. At the same time having analyzed the costs they generate you can get confused, as they may significantly exceed the costs that are generated with the front lines of business. Costs of “back office” consist of: salary plus taxes, additional benefits, trainings, penalties, consultants, the cost of subscriptions to specialized publications, recruiting, adaptation and control etc.

Moreover, such back-office processes as accounting and logistics, demand very professionally trained specialists and continuous monitoring to meet the highest standards in order to minimize risks and financial losses in the future. The efficiency audit can identify business processes that consume more resources than bring value to the business.

Studying the different business models and analyzing the business process optimization practices, you will undoubtedly need to get acquainted with Paul Harmon matrix that tells you how to manage business processes effectively. The Matrix is ​​a strategic nature for the company taking into account the importance of the process and takes into account the complexity of the process itself.

Financial or efficiency (productivity) audit?

If the company uses a process approach to management, it becomes obvious that to have significant costs of the accounts is not effective. The information, which is provided by operational/management accounting helps quickly intervene and adjust the control to the right results oriented direction.

The trend of the past 10 years in Europe and developed countries is to have the financial analysts, who on a daily basis provide information to management about results and efficiency indicators, while the financial accounting function is outsourced to professionals for whom this is the main business. Moreover, through the using of a certified provider of outsourcing, the Company has the ability to keep the commercial and financial information in its entirety. Among the most popular areas for outsourcing are also personnel administration function, the internal audit function and logistics. In Ukrainian reality is really difficult to single out the payroll process from general accounting, but in Europe the process of payroll outsourcing is separately exist.

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