Marketing Communications Specialist at ERP Maestro.
5 Ways to Cut Annual Audit Fees
Annual access audits are akin to death and taxes. Their appearance is always certain, no matter the uncertainty of everything else. While your business can’t avoid them, you can strive to avoid the high fees they often command. In early 2018, Audit Analytics published a study indicating that audit fees have continued to rise slightly from 2010 to 2016 and the ratio of audit fees over revenue increased to $541 per $1 million of revenue.
That’s a big chunk of change, but that’s not to say the work external auditors do is unimportant and undeserving of the costs. It’s critical in order to maintain clean internal controls and prevent instances of fraud from occurring. In fact, the Association of Certified Fraud Examiners (ACFE) reports that companies lose up to 5 percent of their annual revenue to fraud and that internal control weaknesses were responsible for almost half of frauds. However, there are some ways companies can not only reduce costs for their audits, but also make the jobs of the external (and internal) auditors much easier and less headache-inducing. Here are the five ways companies can save on fees before and during their yearly access audits:
Recruit Internal Auditors
One way to reduce costs is to lessen the amount of labor done by external auditors. That is why companies should consider hiring their own internal auditors to not only help the external auditing staff, but to keep things running smoothly year-round. Even the additional staff of a small team can make a big difference cost-wise and save the company on audit fees on the long run.
Stick with the Same Audit Team
The saying goes that if something is broken, don’t try to fix it. The same goes for employing auditing firms. Companies benefit from having a smoother and quicker auditing time when they employ the same auditing team year after year. The same external auditors will already know your company’s processes and personnel, saving time otherwise spent bringing new auditors up to speed. And if you’re happy with your external auditors after a few years, you have more leverage to negotiate fixed fees with the auditing firm.
Be Prepared Before Auditors Arrive
Time is money, which means the second you contact your external audit firm, the costs of the audit begin to accrue. One way companies often rack up audit fees is by doing prep work after the external auditors have arrived, adding more time to the audit itself. When time is billable, costs will creep up.
So how can more time be saved? The trick is to complete prep work before the external auditors come through the door. Employees should take care of the logistics first: designate a space for the external auditors to work and hold meetings, arrange for the security or front desk staff to assist them to right place and make sure they have access to the internet, your ERP system, and other tools if necessary. When generating reports for your auditors, be sure they are in the format that they want and contain proof that they are extracted completely from your ERP system. Keep the files in one place so you can retrieve them easily when they need to be examined. It’s little measures like these that can go a long way in saving time, which ultimately saves costs. If you can easily generate accurate reports and conduct your periodic access review in advance of your auditor’s arrival, you’ll be way ahead of the game.
Continuously Monitor and Improve Internal Controls
This seems like a no-brainer, but some companies have the perspective that internal controls and GRC are a “set it and forget it” process that should only be examined when the external auditors arrive. Let’s be clear: the job of the external auditors is to verify that internal controls are already properly maintained and are aligned with regulatory standards. Companies are setting themselves up for not only a failed audit, but a much costlier audit if internal controls have not been routinely monitored, improved for deficiencies, or documented accurately. Gregory Wilson, Former Deputy Director of the PCAOB Inspection Division once said, “Show me a company with weak internal controls and I’ll show you an expensive audit.”
Use Automation and Reporting Tools
Today’s technology has vastly improved the way internal controls can be automated and monitored. Manual processes, Excel spreadsheets and emails are no longer the best methods for internal and external auditors. Instead, more and more companies are relying on automation tools to streamline their internal controls management and reporting. In terms of cost savings, automation tools absolutely cut down on auditing time by replacing manual processes and giving external auditors a much quicker way to review and test internal controls. Why spend hours generating a report when it can be done with the click of a mouse? Automation tools are worth investing in, as over time the savings in audit fees will pay for the tool itself.
As you prepare for your annual audits, consider these five ways to cut down on your company’s audit fees, while at the same time reducing the amount of stress annual audits can bring. If all else fails, address the fees with your external auditors and see what practices can be improved to better streamline processes and reduce time spent in the audit.