Re-Imagining the Organization 2008 Financial Management Institute of Canada – Manitoba Chapter...

Re-Imagining the Organization

2008Financial Management Institute of Canada –

Manitoba Chapter Professional Development Day

Presented by: David R. Hancox, CIA, CGFMCo-Author: Government Performance Audit in ActionFaculty: Siena College and USDA Graduate School, Washington DCDirector of Audits: NYS Comptroller’s Office

Financial Management Institute

Copyright 2008 David R. Hancox, CIA, CGFM

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Kudos to Tom Peters

• Re-imagine: Making the Compelling Case for Radical Enterprise Change … and then Doing Something about It!

• The Audit Profession is failing and not meeting the public’s expectation – dramatic change is needed

• All we do is tinker – Incrementalism is the death of innovation Nick Negroponte



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• Peters was inspired to write Re-Imagine! because he is "madder than hell." He rants about organizational barriers and the egos of "petty tyrants" thwarting the good intentions of enterprising people in numerous ways. He sets out to reinstall the will, passion and know-how into every executive and employee who is ready to take on a renewed sense of individual responsibility.



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“If you don’t like change, you’re

going to like irrelevance even less.” —General Eric Shinseki, Chief of Staff. U. S. Army



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• “Good management was the most powerful reason [leading firms] failed to stay atop their industries. Precisely because these firms listened to their customers, invested aggressively in technologies that would provide their customers more and better products of the sort they wanted, and because they carefully studied market trends and systematically allocated investment capital to innovations that promised the best returns, they lost their positions of leadership.”

Clayton Christensen, The Innovator’s Dilemma



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PASSION! ENTHUSIASM!

Passion & Enthusiasm have to be at the

Head Table



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Static/Imitative

Integrity.

Quality.

Excellence.

Continuous Improvem

ent.

Superior Service (Exceeds Expectations.)

Completely Satisfactory Transaction.

Smooth Evolution.

Market Share.

Dynamic/Different

Dramatic Difference!

Disruptive!

Insanely Great! (Q

uality++++)

Life-(Industry-)changing Experience!

Gam

e-changing!

WO

W!

Surprise!

Delight!

Breathtaking!

Punctuated Equilibrium!

Market Creation!

The Auditors

Today

Where

the Auditors

should

be today!



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• “The ‘surplus society’ has a surplus of

similar companies, employing similar people, with similar educational

backgrounds, coming up with similar ideas, producing similar things, with

similar prices and similar quality.”

Kjell Nordström and Jonas Ridderstråle, Funky Business



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• Experience: “Rebel Lifestyle!”

“What we sell is the ability for a 43-year-old accountant to dress in black leather, ride through small towns and have people be afraid of him.”Harley exec, quoted in Results-Based Leadership



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• “This is an essay about what it takes to create and sell something remarkable. It is a plea for originality, passion, guts and daring. You can’t be remarkable by following someone else who’s remarkable. One way to figure out a theory is to look at what’s working in the real world and determine what the successes have in common. But what could the Four Seasons and Motel 6 possibly have in common? Or Neiman-Marcus and Wal*Mart? Or Nokia (bringing out new hardware every 30 days or so) and Nintendo (marketing the same Game Boy 14 years in a row)? It’s like trying to

drive looking in the rearview mirror. The thing that all these companies have in common is that they have nothing in common. They are outliers. They’re on the

fringes. Superfast or superslow. Very exclusive or very cheap. Extremely big or extremely small. The reason it’s so hard to follow the leader is this: The leader is the leader precisely because he did something remarkable. And that remarkable thing is now taken—so it’s no longer remarkable when you decide to do it.” —Seth Godin, Fast Company/02.2003



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• “The Bottleneck is at the Top of the Bottle”“Where are you likely to find people with the least diversity of experience, the largest investment in the past, and the greatest reverence for industry dogma?

At the top!” — Gary Hamel/“Strategy or Revolution”/Harvard Business Review



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•Innovation!

NOT

Imitation



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• I Borrowed Your Watch: Here’s What Time It Is

Make a DifferenceAdd Exceptional ValueEnduring Relationships with others who Have the Potential to Be GreatFocus/Strong Sectoral Approach

Dramatic DifferenceResearch RootsResearch InvestmentUnique Analytic ProcessHighly Disciplined Fundamental Intrinsic Value Analysis

Partnership CultureMutual SupportEnthusiasmMake a DifferenceVisibility/Tell Story/Brand



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Credo•

1. Ready. Fire! Aim.2. If it ain’t broke ... Break it!3. Hire crazies.4. Ask dumb questions.5. Pursue failure.6. Lead, follow ... or get out of the way!7. Spread confusion.8. Ditch your office.9. Read odd stuff.

10. Avoid moderation!



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•“Beware of the tyranny of making Small Changes to Small

Things. Rather, make Big Changes to Big Things.” —Roger

Enrico, former Chairman, PepsiCo



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• “Ninety percent of what we call ‘management’ consists of making it difficult for people to get things done.” – Peter Drucker



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• Organizing Genius / Warren Bennis and Patricia Ward Biederman

“Groups become great only when everyone in

them, leaders and members alike, is free to do his or her absolute best.”“The best thing a leader can do for a Great

Group is to allow its members to discover their greatness.”



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•Insist on Speed!



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•Dispense Enthusiasm!



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•“You must be the change you wish to see in the world.”Gandhi



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•“You can’t behave in a calm, rational manner. You’ve got to be out there on the lunatic fringe.” — Jack Welch



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What We Need to Do To the Auditing Profession

• The auditing profession is under siege

today

• We have to get back to basics and assure

we meet the public’s expectations

• We need to lead our staff in a new

direction



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Agenda

• Define five major challenges and the

cause

• Propose a focus that will enable auditors

to meet the public’s expectations



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Challenges to the Auditing Profession

1. Not using due professional care

2. Not properly assessing internal controls

3. Not obtaining sufficient, competent evidence

4. Not obtaining sufficient knowledge about the area being audited – (inherent risk)

5. Not developing an appropriate level of professional skepticism



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Not using due professional care

• The complexity of today’s organizations creates challenges in understanding what to do

• Technology drives most organizations and it’s constantly changing – it’s hard for auditors to keep up-to-date

• Distance between audit locations and main offices can create supervision challenges



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Due Professional Care

• Internal Controls– Do we really assess the five components of

COSO?• Control Environment• Risk Assessment• Control Activities• Information & Communication• Monitoring



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• Evidence– Do we really obtain sufficient, competent and

relevant evidence?• Paramlat

• Inherent Risk– Do we fully understand the risks to the area

we are auditing – do we have enough knowledge?

• Worldcom



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• Professional Skepticism– Do we have a questioning mind and make a

critical assessment of evidence?– Are we willing to suspend judgment about the

honesty of agency management?– Do we use diligence which a prudent and

competent person would exercise under a given set of circumstances?



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Not properly assessing internal controls

• Most large organizational frauds can be traced to the control environment– Managements, attitude, philosophy, operating

style – the ethics and integrity of people in the organization – the competence of people. It is the foundation of all other control components

• Auditors shy away from this component because it is more subjective



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Not obtaining sufficient, competent evidence

• Documentary evidence has limited value today because of technology– Color copiers, color printers, Internet access

to corporate logos, scanners and software enable anyone to duplicate and alter original documents



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Not obtaining sufficient knowledge

• Too many auditors are desk-bound

• The desk is a dangerous place from which to view the world

• Understanding inherent risk requires knowledge of programs, functions and activities



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Not being professionally skeptic

• Too often auditors accept at face value what is told to them

• Challenging management is not in keeping with good relationship management – it’s not what your mother taught you



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Summary

• Doing a good audit is hard work

• Much of what we are asked to do, requires us to challenge others and to not accept at face value what we are told or evidence we review

• We need to step up to the plate and accept that some parts of our work are subjective and depends on our professional judgment

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