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Project P Example cont’d
Audit for project P—revenue was expected to increase over forecast by 2.5%
Note how in this case as actuals are consistently lower than planned amounts, the difference between the two increases over time.
Audit: Targets not met
Potential CausesFailing economyOverall malaise within the company
Need to look at “significant” ratios/numbers in detail
Project not successful—intended scope/quality/cost not delivered
Forecasted company income incorrect (as per forecast)
Audit: Targets not met cont’d
Potential Causes cont’dEstimated benefits (inflows) incorrect (as per
npv analysis)Estimated Outflows (costs) incorrect (as per
npv analysis)Fraud—is someone tinkering with the
numbers somewhere?
Creating an Audit Plan
If you ignore performance of your investment it will (most likely) get worse with time
You need to:Plan how performance will be measured
It should be an assigned process
Plan responses to performance
Audit Plan
How will performance be measured? If the project promises increased revenues:
Look at revenues first
If the project promises decreased expenses: Look at expenses first, including ratios (e.g.
revenue:net income); choose figures depending on what expenses are to be decreased
…and so on…
Audit Plan cont’d
How will performance be measured? cont’d
If the numbers being audited look “good” More investigation—are they being generated by
the project? If not, why not—look for causes.
If they don’t look “good” What are the causes? Is project failure a cause?
Responses
Targets Not Being Met:Ascertain causePlan response
This might entail reworking the NPV analysis, as well as forecasted values
It might entail “reworking” the project to get the quality/scope required
It might entail changing company practices that might be hindering attainment of targets
Q1 2006 Q2 2006 Q3 2006 Q4 2007 Q1 2007 Q2 2007 Q3 2007 Q4 2007 Q1 2008 Q2 2008 Q3 2008 Q4 2008
Expected Revenue 235.99 235.99 235.99 235.99 259.59 259.59 259.59 259.59 280.36 280.36 280.36 280.36
Actual
% difference
Audit Plan for Project P:
I. Quarterly Review of Revenue:
II. Review of Limits:Situation ChecksActual revenue >= expected revenue
Check financial statement transactions:Is P responsible for the increase as planned? If yes, great, no changes required.If P is not responsible, ascertain
o Causeo Response (see table)
Actual revenue 1% or more lower than expected revenue
If this is the only quarter that this has happened:Is P responsible for the increase as planned? If yes, great, no changes required.If P is not responsible, ascertain
o Causeo Response (see table)
If this is not the first quarter that this has happened:Is P responsible? If yes, ascertain cause and response (see table)If P is not responsible, do forecasts need to be redone? Does the financial analysis for P need to be redone?
Audit Plan for Project P cont’d:
III. Potential Responses:Cause Response
Economy Rework forecasts and analysis as per company executives.
Overall company malaise Rework forecasts and analysis as per company executives.
Project scope/quality not delivered Create plan for correction (another phase to the project; another project)Adjust analysis as requiredRecommend steps to prevent recurrence
Company forecasts incorrect Adjust analysis as requiredRecommend steps to prevent recurrence as per company executives
Estimated Project Inflows incorrect Can inflows be increased?Adjust analysisRecommend steps to improve estimating process
Estimated Project Outflows incorrect
Can outflows be decreased?Adjust analysisRecommend steps to improve estimating process
Numbers tampered with in some way
Involves company responseRecommend steps (perhaps amendment to security policy) to prevent recurrence