By Daisy Njoroge
I have worked in audit for over four years now, and one thing that stands out to me is value. What value do I bring to the client? My highlight, I would say, is system and process improvement through the implementation of audit findings and recommendations. When a client gives me positive feedback on how the audit helped them improve in so many areas, some of which they were not even aware of, that gladdens my heart. Now that, that to me is value addition. And that’s the whole point of being an auditor. You might think that I want us to have a conversation on audit, and while that’s true, allow me to burst your bubble. I want us to take a different tangent. Let’s talk about audit, but from a different perspective. Self-audit.
Audit is a process. One that starts with planning and understanding the entity, involves risk assessment, determining materiality, analytical review, substantive testing, evidence gathering, evaluation of findings, and concludes with reporting and recommendations. When I examine the process, I notice that one step is a determinant of the other. You cannot do a risk assessment of an entity without a prior understanding of the entity and its environment. Evidence gathering is reliant on the risk assessment that has been done. The process must flow systematically. Recommendations are based on the evidence gathered and findings evaluated. You miss one step, and the whole process could crumble.
Now, how does this relate to the subject matter of self-audit? An audit is a process of taking stock of the financial year. What are some of the issues that occurred that require the attention of the management, those charged with governance, and what are the recommendations moving forward? In the same way an organization takes financial stock, individuals also need to take personal stock. The same audit process also plays a crucial role in self-audits. To take individual stock, one should understand the entity and its environment. This comes in as self-awareness. Understanding oneself. Who are you? What are your value and belief systems? Are you firmly grounded in your values? For this to take place, emotional intelligence is crucial. Simply put, emotional intelligence encompasses self-awareness, awareness of others, self-management, and social management. This gives us the ability to understand, use, and manage our own and other people’s emotions.
Self-awareness means that I understand myself, what triggers me, and what my traumas are. Self-management speaks to self-regulation, how do I handle my triggers, do I understand my traumas well enough to know when I am projecting some of these traumas onto other people? How do I process emotions? Grounding techniques play a huge role in self-management. Some issues just need you to breathe in and out, even when you feel like reacting right away. Social awareness and management encompass a range of essential skills, including good social skills, understanding nonverbal cues, active listening, and empathy, among others. Take a moment to review how you are faring in the various facets of emotional intelligence. This will help in the next process, i.e., risk assessment, as well as performing a materiality and analytical review. The three go hand in hand.
Risk assessment is identifying where misstatement or fraud is likely to occur. Materiality, on the other hand, determines how significant an error must be to affect financial decisions, and analytical review involves the use of comparisons and ratios to identify unusual trends. An analytical review of two financial periods is likely to highlight changes that have occurred during the period under review. This then provides a clear picture of the specific line items that require a closer examination. Why did the revenue or expenses significantly reduce? Is that a cause for alarm? Is this then a risky area that requires evaluation in terms of identifying the risk, conducting risk analysis, implementing risk mitigation, and ultimately treating the risk? If income is significantly reduced, I would question ‘why’. In a not-for-profit setting, did the donors pull out? Given that this is an inherent risk of any not-for-profit. Does this then raise a going concern issue for the not-for-profit that the management really needs to look into? When income significantly reduces, the going concern risk is inevitable.
What does this look like in a self-audit? Reviewing how your year has been. Comparing the quarters in terms of the goals you set. Compare the last two to three years. Ask questions like Why is there a certain trend in my life? Does this require me to introspect and dig deeper? How material is the issue at hand? Does it affect how I relate with my family, friends, and colleagues at work? When you are not achieving a particular goal, is it due to procrastination? Is it fear of the unknown? Do I feel like it is such a big goal, and I am probably not fit enough for it? Maybe I need more time, I will do it later. No, you don’t need more time; you need to confront the imposter syndrome head-on. If you have conducted an analytical review and realized that there is a trend of setting goals that don’t really materialize year after year, then the risk could be fear or imposter syndrome, and the best possible risk treatment is to face the underlying issues head-on. Because the truth is, time waits for no man. And the fear you have is holding you back from achieving so many goals in life. Growth is uncomfortable, but you only have this one life, and you wouldn’t wish to reach your sunset years regretting all the things you didn’t do, such as ‘I wish I did this; I wish I did that.’
You have been meaning to grow in so many facets of your life, whether that’s financially, spiritually, emotionally, or physically, but you just don’t get to achieve the goals you have set. This analytical review highlights areas that require further analysis. You have always wanted to save; in an emergency fund, a Sacco, sinking funds, invest in shares, REITs, government securities, or have a solid retirement plan, but all that fades away in a wish list you created five years ago. Going deeper, conducting a root cause analysis, and asking yourself the five whys could reveal an underlying issue. You don’t save because you are caught up in a lifestyle creep, spending every penny you get. And why is that so? Because you want to keep up with the Joneses. You want to live a lifestyle you can’t clearly afford. The third ‘why’ reveals that you always felt, as a child, that you lacked something; perhaps you grew up in a poor family. And so you spend it to compensate for the lack that was there. The third ‘why’ already reveals childhood trauma. Growing up meant living hand to mouth, so you respond to that trauma as an adult by spending too much. I get it, you want your inner child to feel secure, to feel like there is financial safety. But is it really financial safety when there is no emergency fund? The other extreme side of this could be holding on to money so tightly because you feel as if letting it go will never bring it back. But is that really true? By the time you ask yourself the fourth why, you already know that not saving is not really a procrastination issue, but a childhood trauma that needs to be dealt with. Now treat that risk. Otherwise, in my opinion, it is material; a “fraud” may not occur now, but your future is at stake.
You have always wanted to grow spiritually, but it seems you’re not grasping the concept. You pray today, then the next time you pray is when you are at church and the priest talks about spiritual sickness and how not intentionally building a relationship with God is a form of sickness, and you realize you are on your deathbed. Maybe it’s not an issue of procrastination. Maybe you fell in sin, and the shame and guilt have been holding you back, even when you clearly know that he whom the Son sets free is free indeed. Analyze the shame and guilt through reconciliation with God, because that’s the underlying issue. When you are not physically fit, analyze the why behind that. Getting fit doesn’t have to start with the gym; creating healthy eating habits and going for a walk are great places to begin.
And once we are done with the second phase of the audit, we proceed to the last phase, which involves gathering evidence, evaluating findings, and making recommendations. Now that the analysis has revealed what needs to be done, set up recommendations for yourself. Heal your childhood traumas and confront your fears. Treat the root cause. Get an accountability partner, a friend you trust who could keep you in check. Because we don’t want a situation where findings are rolled over year after year. We aim to implement the findings from the prior year as auditors. So why not do that for yourself?
The author is an audit semi senior at Crowe Erastus & Co.
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