How Internal Audit Can Strengthen Cost Management
Many managers have been forced to contemplate making some budget cuts as a result of the outbreak of the Coronavirus. In fact, as they struggled to make ends meet, many firms were compelled to postpone capital expenditures, lower inventory levels, furlough and fire employees, and carry out other cost-cutting measures. In how businesses implement such procedures, internal audit has a role to play. For instance, a number of my most recent internal audit tasks dealt with the efficient administration of operating expenses.
Managers and audit committees have been requesting assurance on their cost control procedures over the past few months. The subject has a broad range of work that includes benchmarking cost structures across entities, examining the existence of adequate policies and dashboards, identifying quick wins for cost reduction, reviewing bidding and supplier selection procedures, and—on a more tactical level—the analysis and recovery of past-due payments.
Most cost control strategies are carried out as "one-off" operations with no structural mechanism in place to prevent expenses from skyrocketing again after the impacts of the epidemic diminish, with a few exceptions, such as those businesses who adopt a tight Zero-based budgeting discipline. In essence, cost management remains tactical and not a core component of most companies’ operating model. Although COVID-19 has sparked significant cost-control efforts, management usually lacks a clear understanding of how and where they spend money.
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