The Value of Using the Process Approach for Internal Auditing Frank Sidorowicz TL 9000 Program Director Orion Registrar, Inc.

2 Why are internal audits conducted? Obtain factual input for management decisions? ---or--- Produce data needed to receive certification? Improve documentation? Enforce conformity?

Orion Registrar, Inc. 3 The Old-Fashioned Way of Auditing Quality audits focused on procedures and not on quality Auditors did not examine costs or OTD “Quality” was how well an outcome met the needs of those for whom it was provided  Good quality = satisfied the needs  Bad quality = failed to meet the needs

Orion Registrar, Inc. 4 The Old-Fashioned Way of Auditing Companies ignored outcomes and customer satisfaction when auditing Auditors were looking to “check the box” leaving performance ignored and unchallenged Conformity auditing looking to establish if specific requirement had been met Requirement may have focused on a task, not performance result or output

Orion Registrar, Inc. 5 Document Review and Approval Auditor looked to see if documents had been reviewed and approved by authorized person Did Auditor look for:  Competency of approver  Why change was made  Did change improve performance

Orion Registrar, Inc. 6 Clause Approach to Internal Auditing

Orion Registrar, Inc. 7 Clause Approach to Audit Plans Planned and conducted against clauses (sections) of Standard Matched with person or department within organization Looking for conformity with clause requirements

Orion Registrar, Inc. 8 Company XYZ TimeElementClause 8:30 amOpening Meeting / Plant Tour 9:00 amDesign Control :00 amInternal Audits :30 amPurchasing 7.4.1, :00 amReceiving Inspection :30 amPreventive Maintenance 6.3 NOONLUNCH BREAK 1:00 pm Training :30 pm Preservation of Product :00 pmCalibration 7.6 2:30 pmStatistical Techniques :00 pmPreparation for Closing Meeting 4:00 pmClosing Meeting

Orion Registrar, Inc. 9 Clause Approach to Checklists Turn “shall” statements into questions  Requirement = “Organization shall establish and maintain a documented procedure for…”  Checklist question = “Is there a documented procedure for…”

Orion Registrar, Inc. 10 Clause Approach to Auditing Does procedure cover requirements of Standard? Are employees following procedure? Are records being kept? Auditor is looking for nonconformities  If found, write a major or minor  If none are found, move on to next clause

Orion Registrar, Inc. 11 Overall Result of Clause Approach Little added value “Paper chase” correcting minor problems has little impact on organizational effectiveness

Orion Registrar, Inc. 12 Department Approach to Internal Auditing

Orion Registrar, Inc. 13 Department Approach to Audit Plans Based on the organizational chart Departments are allotted timeslots in schedule Evidence of conformity may be gathered from more than one department

Orion Registrar, Inc. 14 Company ABC TimeDepartment 8:30 amOpening Meeting and Plant Tour 9:00 amSales & Marketing 10:00 amEngineering 11:00 amScheduling NOONLUNCH BREAK 1:00 pmProduction 3:00 pmMaintenance / Calibration 3:30 pmPreparation for Closing Meeting 4:00 pmClosing Meeting

Orion Registrar, Inc. 15 Department Approach to Checklists Arrange clause checklists to follow trail through department Identify general company procedures and departmental procedures Determine questions from requirements of both Standard and departmental procedures Focus on checking conformity with procedures

Orion Registrar, Inc. 16 Department Approach to Auditing Auditor asks questions of department manager and employees, jumping from requirement to requirement May follow trail through department but will stop at department boundary

Orion Registrar, Inc. 17 Task Approach to Internal Auditing

Orion Registrar, Inc. 18 Task Approach to Audit Plans Auditor will:  Identify work areas to visit  Establish tasks performed there  Gather facts about tasks in terms of personnel performing or supervising tasks, equipment used, and information generated  Take notes of items to be checked elsewhere (e.g. training records, calibration status)

Orion Registrar, Inc. 19 Task Approach to Checklists Focus on particular tasks and identify questions related to person, item, equipment, and information May use flowchart in planning checklist

Orion Registrar, Inc. 20 Task Approach to Auditing Auditor interviews individuals to establish tasks being performed are compliant with requirements Audit may start with contract or project and proceed toward completion, or start with end result and trace backward through relevant work areas

Orion Registrar, Inc. 21 Overall Result of Task Approach Focus remains on whether tasks have been performed according to requirements of procedures and Standard Evidence can be gathered resulting in nonconformities addressing trivia as well as major loopholes in system

Orion Registrar, Inc. 22 More Effective Methodology Needed Focuses on performance, not just conformity Management needs to know:  Does performance meet targets  Are there opportunities for improving performance

Orion Registrar, Inc. 23 Process Approach to Internal Auditing

Orion Registrar, Inc. 24 Process Approach to Audit Plans Based on processes that achieve organization’s objectives Requires auditor to know what the processes are prior to conducting audit  ISO/IEC (Stage 1 and Stage 2)  Code of Practice for Registrars

Orion Registrar, Inc. 25 Process Approach to Audit Plans Common processes, for example:  Business management  Marketing and sales  Resource management  Purchasing Product / service realization processes are different for each organization Plan shows audit trail through business processes and across department boundaries

Orion Registrar, Inc. 26 Process Approach to Checklists Does not require detailed checklist Auditor can be guided by their understanding of the Standard

Orion Registrar, Inc. 27 Process Approach to Audit Start with top management and business management processes Continue with resource management processes, establishing linkages  Effective resource management processes will provide competent employees and capable equipment to other processes Continue with other processes from marketing to delivery

Orion Registrar, Inc. 28 Value of the Process Approach Focuses on results, not procedures Determines effectiveness of the management system Evaluates the results the system delivers Tests linkages between departments and processes Follows flow of work throughout organization Determines if operations are under control and controls are effective Allows judgment on significance of findings Helps determine depth of problems across organization Focuses on benefits of correcting nonconformities related to improving organizational effectiveness

Orion Registrar, Inc. 29 The Process Approach requires a change in attitude across the organization!

Orion Registrar, Inc. 30 What the Approaches Provide Clause Auditing provides:  Evidence that procedures are being followed Clause Auditing does not provide:  Evidence that planned results have been achieved  Following procedures without regard to output is ineffective

Orion Registrar, Inc. 31 What the Approaches Provide Department Auditing provides:  Evidence that organization has interpreted the Standard with respect to departmental responsibilities and procedures Department Auditing does not provide:  Evidence that planned results have been achieved

Orion Registrar, Inc. 32 What the Approaches Provide Task Auditing provides:  Evidence that specific tasks have been accomplished Task Auditing does not provide:  Evidence that planned results have been achieved

Orion Registrar, Inc. 33 What the Approaches Provide Process Auditing provides:  Data for managerial decisions on growth, technology, staff development, products / processes based on current performance, not just current conformity  Information on whether performance meets targets  Information on opportunities for improving performance through better control of processes  Information on making processes more effective and more efficient

Orion Registrar, Inc. 34 Why Switch Approaches on Internal Audits? Eliminates many of the weaknesses of other approaches Enables internal auditors to help establish effective management of processes

Orion Registrar, Inc. 35 Five Basic Questions at Three Levels Basic questions can apply for all three levels even though the “specific questions” will be different  What are you trying to do?  How do you make it happen?  How do you know you are doing it right?  How do you know it’s the best way of doing it?  How do you know it’s the right thing to do?

Orion Registrar, Inc. 36 Five Basic Questions at Three Levels Business Level – Audit results should make the auditor confident that the organization:  Knows what it is trying to do  Knows how to make it happen  Knows that it is doing the right things  Knows that it is doing it in the best possible way  Is managing performance

Orion Registrar, Inc. 37 Five Basic Questions at Three Levels Managerial Level – Audit results should make the auditor confident that management:  Knows what the process aims to achieve  Knows how to design and cause processes to achieve results  Knows that it is doing the right things  Knows that it is doing it in the best possible way  Is regulating performance

Orion Registrar, Inc. 38 Five Basic Questions at Three Levels Operational Level – Audit results should make the auditor confident that individuals:  Know what they are supposed to do  Know they are doing the right things  Know they are doing them in the best possible way  Are regulating their own performance

Orion Registrar, Inc. 39 Summary Internal auditing using process approach  Can take internal audit team from mission statement to employee contributions  Identifies clear linkages between interconnected processes  Ensures requirements of the Standard fit with processes  Eliminates weaknesses of other approaches  Enables internal audit team to establish that the organization is managing processes effectively

Orion Registrar, Inc. 40 Orion Registrar, Inc Vance Dr., Ste. 210 Arvada, CO