Getting Procurement involved in Audit Services spend

Jason Busch at Spend Matters US has published a three part series (here, here and here) around procurement of Audit Services with the interesting title – “Slaying the Sacred Audit Cow”. Not only is it informative, it's an entertaining read as well and highly recommended.

Audit is often seen as a bit of a final frontier for procurement involvement – hence the “sacred cow” of Jason’s title. That’s because of the sensitivity of the area, and it’s almost unique status amongst spend categories in being owned by the main Board, including the Chairman and non-execs. The perceived difficulty of the market adds to the challenge – in the UK certainly, there are only four top-tier firms and they share the audit work for 99 of the 100 top FTSE firms!

Fiona Czerniawska and I covered the category to some extent in our book, Buying Professional Services (published in 2010 by the Economist Books). But we’d be the first to admit there are no magic solutions for procurement – it’s a tough area to get involved with and to achieve success.

Going in with a pure unit cost reduction goal is usually not going to work – looking for lower hourly / daily rates as the end goal is simplistic and proposing a move to Dodgy Auditors Ltd of Billericay is unlikely to impress the Board.  As Jason says:  “More important is managing internal expectations, needs and demand – and documenting and understanding specific current requirements”.

But just as in other more conventional spend categories, long-standing suppliers can, in their own way, create opportunities for procurement. Lengthy unchallenged relationships can lead to suppliers who get complacent, and maybe don’t think creatively enough about what can be done. So some of the promising areas we came across in our research for the book – and since then – include:

  • Focusing the audit on the most important areas and looking to reduce the overall workload (in a regulatory compliant and risk based manner of course)
  • Making sure auditors are making the best use of technology to reduce manual workload and improve potentially improve quality at the same time
  • Using the appropriate level of staff for different types of work – it doesn’t have to be Partner / Managing Consultant time
  • That may include using an offshored workforce for some types of work with consequent cost savings
  • Sensible use of fixed price contracts where that is appropriate

You can’t disregard the “switching cost” of course – a new Auditor will have to get to grips with the organisation, which is a non-trivial matter in most cases. That’s one reason why organisations don’t change often, and I wouldn’t recommend competing the work more often than, say, every 5 years, unless you have performance issues.

But competition in this market, as pretty much everywhere, is healthy and will drive value for money, as well as providing safeguards against firms and their auditors becoming too close – an issue which has contributed to some major scandals in the past.  That’s an issue that can help Procurement  make a strong business case to get involved in this area, where it isn’t as yet. But base your pitch on the broader perspective, not just  a tactical approach to pricing.

See our new Spend Matters search4 procurement website with great procurement job opportunities here!

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