Comparing time to physical inventory is an excellent analogy. Just as many corporations' cost of goods sold are comprised of inventory, an audit department's cost of goods sold is comprised of individual hours - our time.

Let's take this comparison further. If an outside auditor examined how we monitor our inventory, i.e., our time, the resulting audit opinion would probably be very dismal. Unsatisfactory. Material weakness. Unauditable.

You may be shocked to learn that audit budgets around the country are virtually worthless.

Condition One: Auditors don't know where they spend their time
Auditors often maintain fairly detailed budgets, but they frequently don't post their hours in the proper categories. This occurs because the categories are vague and/or inconsistent with other audits in the office. The result? Lots of guessing.

More common are the games that auditors play when keeping track of hours. If an individual is exceeding the budget in a particular area, it can be quite easy to avoid the overrun by shifting the excess hours to another budget category, especially if it's a "black hole."

What are black holes? Categories like the following

• Workpaper review
• Supervision and training
• Planning and administrative
• Start-up-costs (for new audits)
• Clearing review notes

These categories are black holes because nobody knows exactly how long the vague tasks should take. Consequently, they become a dumping ground for overruns from other areas.

Why care? You must know how time is spent if you are going to improve efficiency. Without accurate budgets, you can't assess the cost-benefits of procedures. Without accurate budgets, you can't prepare process flow maps to analyze which steps add value. The world's best-managed companies know exactly how long it takes (and how much it costs) to produce their goods. It appears that auditors usually don't.

Conditions Two: Scrutiny of budgets is weak
New Gingrich's book, To Renew America, describes assembly line experiments conducted by quality-guru Edwards Deming. Gingrich writes:

"If they increased the lighting, productivity improved. If they dimmed the lighting, productivity also improved. It was all very puzzling until the experimenters realized that lighting was not the problem. It was the attention paid to the workers that was improving productivity. Workers were subconsciously motivated to perform better because important people were looking at what they did."

What's the implication for auditors? Not only do you need detailed and accurate budgets...but someone needs to monitor and care deeply about them. This alone should inspire your staff auditors to work more efficiently.

Oh yes, many auditors feel intense budget pressures. But, it is usually not at the individual task level. Supervisors and managers should ask more questions like, "why did this audit are take eight hours instead of six?" After all, it's a 25 percent overrun!

In too many cases, supervisors view the budget in the aggregate.

Individual line items don't matter as much as the overall result. But unless you roll up your sleeves to carefully scrutinize all budget categories, major efficiency gains are not going to happen. Why did the assignment take eight hours instead of six? What could have been done differently to avoid the overrun? What can we do to ensure it does not happen next year?

In short, too many auditors don't take the budgeting process seriously. It's an administrative hassle that is ignored or done inaccurately.

Finally, one more point. Don't blame the higher-ups if your department does not require strict accounting for hours. You can keep detailed budgets right now, even if you maintain the data on a manual spreadsheet. Use this information when searching for future efficiency gains. The most efficient auditors do this. You should too.