Surviving an Internal Audit - Part 1 of 3

Facility Managers and Construction Managers

Internal audit is part of the governance system in a large organization. Whether public or private, non-profit or for-profit, there has to be a mechanism to ensure that policies and procedures are followed. For facility managers and construction managers responsible for managing a capital program, internal audit is as much a part of the process as selecting an architect, going out to bid for construction, or occupying the facility.

Yet these audits typically go one of two ways - really good or really bad. There doesn’t seem to be any in between. Early in my career, working for a large environmental services company, I had the opportunity to conduct several internal audits of environmental facilities and construction projects. What I learned is that the outcome of an audit is based more than anything else on the auditors’ perception of you and your operation.

Auditors cannot review every single thing you and your staff do. That should be obvious – a relatively small audit team working for a defined period of time typically represents 1-2% of your staff resources. To conduct an effective audit within their resource and time constraints, they pick a sampling of information and use this data to paint a “picture” of what they think is really happening in your organization or with your projects overall.

They also rely heavily on your behavior – their perception of your reaction to their requests for information. If they develop a perception that you are lying, trying to hide something, or don’t know what is required of you – the audit has the potential to go down a “really bad” path. Once the auditors latch on to a perception – it’s very hard to change it. You have to work twice as hard to overcompensate for it and you may never recover.

In the early nineties, I was part of a five-person team that conducted a one-week internal audit focused on environmental and construction compliance. My employer, Waste Management, had just purchased this facility 6 months earlier. From the moment we arrived, we perceived an attitude from the facility leadership. One hour into this five-day audit, I could tell this audit was going to go really bad. And it did. Once the perceptions formed – each side dug their heels in. As the week progressed, things got uglier and uglier. At one particularly low point, the general manager refused to allow us on the property – keep in mind, we all worked for the same company.

I was new at this ”audit thing” at that time, and my personal perception was that the audit leader had the report findings written in his head within 1 hour and our team spent the rest of the week validating those findings. To be clear, there were issues at this facility – very serious ones. To give you an idea of how things turned out, one week after we issued our final audit report the entire leadership team at this facility – a big multi-million dollar operation - was fired.

So how do you avoid the possibility of a really bad audit? You have to take some specific steps at the beginning of an audit – the first hours of your working relationship – to ensure that the auditors form a good perception of you and your operation. Their perception is reality. Once they form that good perception, they will work just as hard to validate it. So what are the specific steps? Tune in to the next post to find out.