- On March 17, 2021
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- audit, CEO, increase efficiency, internal audit, reduce cost
Small and Midsize Business Leaders Conduct Audits
Business leaders use various strategies to ensure their companies are running optimally, whether they are taking a close look into production processes, financial reports, or product quality. Audits are examinations of existing systems, products, organizations, or processes and can be powerful tools to make sure a business is running as it should, as well as identifying opportunities for improvement. Integrated information on all areas of your business allows for more accurate, actionable insights, and reduces the amount of time and money spent on conducting an audit. This allows you to implement rapid change and get back to running your company as efficiently as possible.
What are common types of audits?
Audits can be external (conducted by a separate entity or organization like the IRS) or internal (conducted by someone within or hired by your organization). Internal audits are beneficial to identify nonconformities, errors, fraud, safety hazards, and other potential problems, as well as uncovering potential improvements. They also help to prepare your team in the case of an external audit by providing the appropriate reports and audit procedures.
Two common types of internal audits conducted by small and midsize businesses are:
- Financial audits: Investigations of the accuracy of an organization’s financial reports, comparing financial statements to real data, including inventory and tax information
- Operational audits: Detailed analyses of company goals, planning, processes, procedures, and results, including safety protocols and quality checks
What are the benefits of conducting audits for business leaders?
Besides meeting regulations and requirements, internal audits can be incredibly beneficial for business leaders. Financial audits give you a deeper understanding of your cost and profit breakdown, including where the most money is being spent, where you are making the most revenue, and where costs may be reduced. They also reduce fraud and theft since an audit on your financial data will uncover any discrepancies and allow you to investigate where they are coming from.
Enterprise Resource Planning (ERP) technology that gives you full visibility into all your financials, including automatic accounting updates as soon as a business transaction occurs, makes conducting a financial audit quick and easy. You can track your cash flow, budgets, and inventory, comparing your actual to your planned figures in real-time. This allows you to identify any inconsistencies or opportunities for change swiftly and easily. You can also see exactly how much inventory you have at any given time and which raw materials and orders are tied to each batch of inventory. Therefore, you can identify exact costs and revenue tied to each product, enabling you to identify market opportunities and reduce inefficient spending.
Operational audits ensure everything is working as intended to uphold quality and safety, catching any issues or non-conformances at the source. Furthermore, operational audits help identify areas for improvement, uncovering opportunities to increase efficiency and cost savings. For example, layered process audits (a system of process audits conducted by multiple levels of management) have been shown to reduce internal defects by as much as 73% and cut scrap costs by over 50% in less than one year (1). Benefits of conducting an audit on a particular operational process include greater product quality and customer satisfaction; reduced waste and rework; faster corrective actions and enhanced safety; and boosts in productivity and profits.
Full visibility into operational processes within your ERP system allows you to identify exactly how and where a particular process may not be running as smoothly as it should, and where to improve productivity and safety. You can view exactly which employees work on which products, schedule quality and safety checks, and more. Having all your production data in one “single source of truth” allows for accurate, actionable insights and allows you to easily track results, so you can see the effects of the changes you implement post-audit.
Internal audits have multiple benefits for manufacturing companies. Technology streamlines the audit process with planning, collaboration, updates, and accurate data and reporting across each part of your business so you can focus on making continuous improvements.
Learn more on audits in the manufacturing industry:
Learn more on audits in the food and beverage industry: