There may be errors in spelling, grammar, and accuracy in this machine-generated transcript.
Abdullah Mansour: Welcome back to Auto Smarter. I'm your host Abdullah Mansour, joined by Sam Mansour, CPA. Today we're tackling one of the most frustrating parts of audit engagements time budget blowouts. Sam, why do so many audits go over budget?
Sam Mansour: Yeah, well, um, it's great to be back and and talking about, um, [00:00:30] you know, how to improve audits, um, budget blowouts. I mean, this is a like, I don't know, it's such a great topic. It's such a big topic. It in my opinion, it really affects the audit efficiency, the audit quality. Believe it or not, the budget can have an impact on that. Uh, actually a huge impact. Um, and so it's probably. How so? Well, I mean, curiosity. Yeah. I mean, that's a good question because if if you have a budget that's inappropriate [00:01:00] for the audit. So let's say it's a really small budget. Let's say it's $5,000 for the audit, but realistically it should have been 10,000. You're cutting the amount of time allocated to that job. Potentially you're cutting it in half if you're trying to hold a certain billable hourly rate. So bad budgets can have an impact on quality, because people are maybe rushing through a job when they shouldn't be. So most audits go over [00:01:30] because of poor planning. I mean, that's that's a kind of a pretty common and easy thing to, to, to figure out if you plan well, you structure everything well. It's really easy to stick to your budgets. But a lot of people, unfortunately, uh, kind of skip proper planning, right? They see planning as more of a check the box kind of thing and not as a, you know, a benefit to the audit. So they kind of rush through it. They see it as more of a textbook. Oh, yeah. Okay, [00:02:00] I'll just do this.
Sam Mansour: Uh, also, there's kind of an unclear scope of this engagement when they are thinking about their budgets. So a lot of firms will just be wanting to grow revenue. And so maybe the the extent of how deep they need to go into these, into their audit procedures isn't really clear to the person that's bidding or proposing on the audit. So the scope isn't well defined. They get in, they're surprised by additional items that, uh, [00:02:30] let's say they should have figured out. Um, so the scope expands significantly, which shrinks their time budget on the job. If they were trying to maintain a certain hourly rate, uh, and then they put pressure on the team, or they don't put pressure on the team, and then the budget, you know, quote unquote, blows out. Uh, and so then, you know, from a firm perspective, it's not good. Or maybe from a quality perspective, it's not good. And then, you know, they have more reactive project [00:03:00] management rather than proactive project management or audit management, which that comes back to, uh, the poor planning. So you're more reactive as things come up and you're surprised by them. That's another big area for for why these budgets can kind of go out of hand, get out of control. And again, uh, these, you know, mismanaged budgets again, really, really, really do have an impact on quality. Because if we push our [00:03:30] team, if we rush them, they cut corners, they skim through areas where they should be taking more time. It can cost the audit significantly. So many teams.
Abdullah Mansour: They.
Sam Mansour: Also.
Abdullah Mansour: Oh sorry, could could the team also be a little bit nervous to dig too deep because they know the budgets not that big. So I mean would that maybe that's kind of a bad question to ask about an audit. But is that something that in your mind that could happen where they're a little bit nervous to keep going?
Sam Mansour: Yeah. I mean, it's a very, um, [00:04:00] good question to ask, actually, because it is actually a very common thing that I've seen where I will actually hear from team members who complain and they say, wow, you know, the budget on these audits is so small. Like, it's just we don't feel comfortable, uh, doing the audit because we don't have enough time to dig into some of those critical areas. Oh, wow. Yeah, they I've heard that from other firms. Um, it's kind of a, you know, a thing when you get to know auditors in the industry and you start chit chatting and, you know, how are things at your [00:04:30] firm and, and some of them just, you know, they say, yeah, I feel really uncomfortable because we price this so low. I mean, in some cases it's the, you know, to the credit of the partners and the people bidding these jobs. Sometimes you have people that are on the audit team that operate more like academically minded people, like almost like professors and researchers. Right? They're not they're not thinking about production. They're not thinking about efficiency. They're not, you know, they're wanting to spend ten hours looking into an area that really should take [00:05:00] two.
Abdullah Mansour: Um, okay.
Sam Mansour: So they're they kind of have unexpected, unrealistic. Um.
Abdullah Mansour: There's a balance.
Sam Mansour: There. Absolutely. Yeah. Balance. Yeah. So so many teams start without fully understanding the workload or whether the client is prepared. So that's another area where budgets can really be negatively impacted if the client is not fully prepared. It's a big problem because, you know, we go out, we start the audit process and it's like it's like [00:05:30] it's like you're it's like driving a car and it's like you stop and then you kind of pick up a little bit more, a little bit more momentum, and then you stop again, get a little bit more. You know, it's like you just keep doing this because the client is not prepared. Um, and so it's really frustrating because you are you become very inefficient in doing your, your, your, your job. And this is actually something that, you know, maybe we can talk about in this, in this episode or maybe in future episodes, but I have some, you know, tons of great experience with how to [00:06:00] manage the client better so that you are not in that drive, drive drive scenario, which a lot of auditors, auditors could can get into. And it has a negative impact on the budget because the you know, I always tell our team that the client is going to prioritize what's most pressing ahead of them. So let's say you're working with the CFO in an organization and the board wants reports from them. They have to file federal, um, reports to the government, whatever [00:06:30] it might be. Those are going to be really pressing the audits kind of something in the background. So so it's like it always kind of keeps falling to their box, to the bottom of their list. They keep deprioritizing it. Um, and unfortunately when they do that, it sneaks up on them and all of a sudden it's like, oh, shoot, fieldwork is next week, and we owe the client a lot of information. Uh, sorry, the client owes us a lot of information. It snuck up on them, and now they're surprised.
Abdullah Mansour: So they have to rush through it.
Sam Mansour: Yeah. [00:07:00] So teams also. Yeah. So teams also underestimate how long review and documentation will take. So we talked about documentation in prior episodes. We talk about reviewing and review procedures. You know we think okay we do the planning. We do the field work. And then that's it. We're all we're we're all we're all great and done. But then you have to factor in the time that it takes to document all those inquiries, as we talked about in the prior episode, and you have to factor in the time that it takes for review. Reviewers sometimes can be slower, they can be nitpicky, they can have questions. That's kind of unexpected time [00:07:30] sometimes that people don't account for in their budgeting, and then they get and it kind of gets blown out on the other end once you get out of field work.
Abdullah Mansour: That's a great answer, Sam. Um, my next question is, what's the financial and reputational cost of a blown budget?
Sam Mansour: Yeah. You know, on the financial side, it can be pretty Impactful to the business. So if let's say you're trying to maintain a certain margin, right. So you sell the shirt for $100, [00:08:00] you have labor costs, you have material costs and you have overhead and you have a net. Okay. Um, that's the same for, uh, you know, an accounting firm doing an audit where you have a certain desired net profit on that job, on those, you know, even on the hours that your team puts in. So let's say you pay someone 50 bucks an hour and you have to pay overhead costs and other things. Let's say another 50 bucks an hour and you need to have a profit of, let's say 50 bucks an hour. [00:08:30] So 50 for, for the the employee cost 50 for overhead and 50 for net profit. That's 150 per hour. So you're shooting to bill $150 per hour. Now um, if you are due to budget constraints or inefficiencies, You're only able to put in. You're confined on a number of, you know, on what you can build. Right. So if you have a lot of hours [00:09:00] that could reduce then how much you're able to build per hour, right. So let's say you had 100 hours and you had a $5,000 budget, right? Versus you put in 200 hours against a $5,000 budget.
Sam Mansour: That that definitely impacts how much per hour you are a you are making off of each person. It affects your metrics. It cost you 50 and you have overhead of 50. The rest is net. Well, how [00:09:30] much you can build per hour actually matters is essentially your margin. So if you should be at 100, uh, hours, but you're actually at 200 or you're at 250, it just blows that out completely. And it throws off your metrics quite significantly when it comes to the reputational side of things. You know, you don't want to be known as in the industry, the person that built that bids five grand for a job when everyone else is bidding 15,000. So it's like, well, how is that? How is that [00:10:00] person bidding 5000 when everybody else in the industry knows that it should be between 10 to 15, right? Uh, people do gain that reputation. They gain a reputation of severely under bidding. And when a normal firm with normal rates, you know, average rates, average time into the job, they're bidding 12, five, for example, and you're bidding five. You gain this reputation for being low quality because they're just like, I don't know how the heck they're doing it at that [00:10:30] price.
Abdullah Mansour: So that makes sense. Yeah. Yeah.
Sam Mansour: Yeah. Reputation wise, you're really hurting yourself. Um, financially, as we talked about, if you're trying to maintain certain metrics, you're really hurting yourself too. So what's really dangerous? Um, from a from a partner, you know, manager perspective to not have good budgets. And then from a person maybe running a job or an entry level person, it's really good to be mindful of this dynamic because you want to be considerate of [00:11:00] the business model that this firm has.
Abdullah Mansour: Well, how can firms improve their their budgeting process? It sounds like a lot is on is at stake if they they underbid or if they, you know, blow their budget.
Sam Mansour: Yeah. Um, and actually, before we get to that question, because I know I was talking about like the, the $5,000 budget and, you know, 100 hours. So of course, that comes out to be, you know, $50 per hour. And so, so [00:11:30] the math, right. If we're thinking about a 150 per hour, let's say that let's say you need to put 100 hours into a job. You cannot bid $5,000 if you expect for it to take you 100 hours. And your average hourly rate, your billable hourly rate is expected to be 150 because 5000 divided by 100 billable hours is $50 per hour. Let's say you're paying your person 50 bucks per hour. I mean, you're losing money because you still have to pay overhead, right? Yeah.
Abdullah Mansour: So. [00:12:00] Yeah.
Sam Mansour: So. So what you want to be thinking about is if you need to achieve $150 per hour billable so you can pay your person, pay overhead and have a net profit. You can't be bidding 5000. You need to be bidding that 15,000. Okay. So if we here industry standard rates are 150 an hour on average. And and in the industry it's known that we should be doing 100 hours on this engagement. You know, let's say 8100, 120 kind of in that range. And [00:12:30] you're coming in and you're saying, no, I'm going to do this job at 5000, then a reasonable person could calculate and say, well, if it takes you 100 hours roughly and you're paying your people 50 because we know rates in the industry. How the heck are you doing it in 100 hours? You're probably maybe doing it less hours cutting corners or or you're just a really bad business.
Abdullah Mansour: There's something there. Yeah.
Sam Mansour: There's something there. There's something wrong that someone kind of does the math. And so I just wanted to add a little bit more clarity on, you know, what I was what I was saying when it comes [00:13:00] to like, the hourly rate and budgeting. But to answer your question, um, how can firms improve their time budget processes. So start with detailed scoping that includes expected client readiness. It sometimes and I know you and I have had this conversation with different clients. It's like what's the scope. And are we sticking in within within the scope.
Abdullah Mansour: Hell yeah definitely.
Sam Mansour: It's a big concern. But but you want to try to scope it out as much as humanly possible, especially [00:13:30] in an audit. It should be fairly known to you what the scope of the engagement is. And if it isn't, you maybe need to ask some questions to gain a deeper understanding. And then if the client goes outside of that scope where they didn't communicate with you properly, right, it's not your fault, but it's theirs. There's something that they should have told you about, but they didn't. Then you have to be brave enough to go to the client and say, hey, this is outside the scope for our engagement letter. We have a clause that basically says if we're outside of scope, we have to include it in our audit. It's going to be X per [00:14:00] hour.
Abdullah Mansour: Is that is that tough to do or is that pretty a pretty straightforward conversation in your mind? It's like, hey, we're just this is not within the scope.
Sam Mansour: I mean, I think it's pretty straightforward. And I and I think that then comes, it comes back to how you set the initial tone with the client. Right. If you're if you're if you're professional, if you're reasonable and you know, people don't like to be hit with like, quote unquote change orders, right. We bid 5000. But oops, it's going to cost us 15, you know, because really that's what it takes, right? [00:14:30] You can't do that. But but if you come in and say, look, based on everything that you told us, right. Like let's say, for example, it really is a $15,000 job based on everything that you told us, you're you, the client are claiming to us that it's x, y, z things, which fine, maybe it's not 15, it's actually five based on what you're saying. But we have a feeling that maybe there's some other things that you're not including like this, this, this and that. Um, and if we run into those, we're going to bill you for them beyond that. Five because [00:15:00] we have a feeling that, you know, if we get get into this, this is what we're going to find.
Sam Mansour: A lot of times the client will be reasonable and say, okay, fine, you know, we get it right and say, and so am I. Yeah, my engagement letter would say 5000, you know, plus some kind of an hourly rate if we go outside of the scope. And so then we get into it, we uncover that sure enough, we were right. We need to audit these areas. We go back to the client, we say, look, you know, we did tell you initially that we thought that these would probably need to be audited. And you said no, like for a perfect example of this would be, uh, [00:15:30] let's say a client receives federal money. So there's a threshold that if you spend over that threshold, and I don't want to say the number on here, because sometimes that could change over time. But let's say there's you're, you're let's say just say for the purposes of the conversation right now. If the client spends more than $750,000 in federal money, then they're subject to a single audit. Okay.
Abdullah Mansour: Okay.
Sam Mansour: So, yeah. So I'll you I'll I'll use that. Um, like I'll that, that that that threshold because it is current now but it [00:16:00] might change in the future. So let's just say it's 750,000. So they say oh we don't believe that we spent more than 750,000 because maybe they don't have the greatest records. Now you come in, you do the audit. You look at how much they spent in federal money and you're like, uh oh, you spent 800,000. Dang it. That converts the audit into a basic financial statement audit to now a single audit where there's significant, um, more work to be done. And [00:16:30] then in that scenario, maybe you would have originally bid 5000, but it's not just 15, maybe it's 20 or 25 because of, you know, the now the added complexity that this single audit brings.
Abdullah Mansour: So sure.
Sam Mansour: You would have set the tone with them initially that, hey, you're probably close to that single audit threshold, but maybe the client just doesn't know and we don't know until we get in there. And so we agree on a preliminary fee, but with the understanding that it's going to significantly change if we do get to this, if we do pass this thing.
Abdullah Mansour: That makes sense, because it sounds [00:17:00] like if they spend more than 750, then the the whole scope of the job changes is what it sounds like, right?
Sam Mansour: Exactly. And that does happen there. There are some clients that receive this amount of just enough federal funding. We'll say they do receive 750,000 in a year. They have to spend. The key here is they have to spend, not receive, but spend more than 750,000. So in a given year, maybe they are going to spend above that. Maybe. And then maybe the next year they won't. And they may be due to improper accounting tracking. They don't really [00:17:30] know in a given year what they did. And and that can happen. And I have heard of a lot of audits converting to single audits. And so it's very unreasonable to think that your, your original quote that does not include doing a single audit would be the same fees as what they would pay if you were doing a single audit. So it's just a communication. You need to be crystal clear about that, and it has a massive impact on the budget because it completely changes. So as far as improving the budget process, I'd, you know, building contingencies [00:18:00] based on prior years and team feedback, you know, build in a little bit of a cushion. You know, I think a lot of times we're trying to be competitive on price and we're trying to come in, you know, sometimes clients are just evaluating us based on fees. But you have to be a little, you know, be brave enough to build a little bit of cushion because you don't want to try to just purely bid on, you know, fees alone and come in as low as bidder, but shrink your budget to the point where if something does come up, you have no, no, you know, there's nothing left for [00:18:30] you, right? Um, you're, you're you're cutting into that hourly rate that you're trying to maintain and then assign responsibility for tracking actual time against budgets as frequently as possible.
Sam Mansour: So what you want to do is make sure that that we're looking at it by maybe sections of the audit engagement or maybe, you know, like maybe break it out into planning, field work and wrap up. And we have some budget budgets expected for each of those phases. Or maybe, maybe we want we want to be a little bit more detailed [00:19:00] or cash auditing of cash has a budget. Auditing of are has a budget. Capital assets has a budget. And then we compare, um, you know, okay, we've completed the balance sheet section. What was our budget versus our actual time into this and cost. Are we on track. So just kind of keeping a pulse on it and not just waiting until the end and it gets issued and you go look at it a month later and you're like, oh shoot, we did a horrible, a horrible job on that.
Abdullah Mansour: Yeah, that totally makes sense. Well, so that's kind of what the firm that's kind [00:19:30] of on the firm side of things. What can seniors and managers do to keep audits on track?
Sam Mansour: Yeah, I mean, there's a lot of Different things that that that could really come into this. I mean, first, I think properly staffing a job can, can, can make a big difference. So, you know, you want to staff your jobs where you have the appropriate level of experience. So sometimes, you know, you might find that it's a pretty easy job, uh, where not a lot of expertise [00:20:00] is needed. You don't want to over staff it, staff it with, you know, people that have really high billable hourly rates because it's nice to have them on the job and they're quick, but their average billable rates just blow the budget because they're because they're so high. You kind of kind of I would say maybe a little bit of overkill. And you want to have a blending of, you know, new people but also experienced people. So let's say you have a job where you need three people. Maybe you have an entry level person, you know, kind of mid, you know, and you have a mid level person, maybe someone that has 3 or 4 years of experience and you have kind of an [00:20:30] upper level person eight, nine, ten years. Um, so the staffing of that properly by the senior manager, um, really helps keep us on track with the budget. And then, um, setting clear priorities and communicating with the team along the way.
Sam Mansour: You kind of have to keep your team, you know, reined in a little bit. Um, you have to make sure that you're communicating with them, that you know where they're at. If there's certain areas that are, you know, let's say, unexpected, [00:21:00] as we've discussed, they need to be able to communicate that immediately because you don't want to hear about it after the audit report has been issued. And then, uh, you go back and you say, shoot, why did that happen? And we found out that one of our team members discovered something that was completely out of scope, but we did it anyway for the client, and we didn't communicate it at the time, and we didn't build them appropriately. So the issue is that if you, you know, don't properly communicate that quickly, you can't come back to the client three [00:21:30] months later after it's out the door and done and final billing has been completed and say, oh, by the way, you know, you did go out of scope and now we're telling you about it. So so setting those clear expectations, communicating with the team that's that's really important. And then holding brief check ins during field work is really important because those check ins also kind of help keep you on track. Sometimes we get out into the field and we just start.
Sam Mansour: We just start cranking. You assign out the sections of the engagement, [00:22:00] people start getting to work and time flies and you're out of field work. You're you're back in the office, you're doing review of the engagement or you're on to the next one. And so, so time can fly quickly. So maybe kind of pre scheduling those check ins uh, is a really good idea to kind of keep people on track. We've also discussed, you know, reining in the client and managing that client relationship. That's really important because the client [00:22:30] can have a very significant impact on the budget. Right. You set a budget of, let's say, Let's say $10,000 you bid and your assumption is that the client is going to maybe be 90% prepared. So, you know, they're not going 100% prepared, but they're going to be 90% prepared. You base your budget off of that. You talk to the client and they seem, you know, very willing to give you what, what, what you asked for. And I always tell people, you know, in the [00:23:00] early stages of before the audit begins, the clients are always optimistic. And that's something people have probably heard is, oh, next year is not going to be this way. It's going to be better next year.
Abdullah Mansour: Yeah. It'll get better.
Sam Mansour: Yeah, yeah. So so maybe you base some of your budgeting and planning on what their claims are. But then when you actually get into it, you find that, yeah, they're not ready for field work when they claim they would be. Um, they didn't get you the stuff in planning when they said they would, you know, so everything kind [00:23:30] of starts to get compressed into a short amount of time.
Abdullah Mansour: Yeah, I can I said how it happened very, very quickly, kind of all at once.
Sam Mansour: Yeah. And I think that happens a lot. And so client management is such a gigantic thing in my opinion, that really impacts audit efficiency, audit quality budgeting, you know. And actually I think a lot of unfortunately, I think a lot of auditors are not really great at [00:24:00] kind of reining in and controlling the client, if that makes sense.
Abdullah Mansour: Oh, okay. Yeah.
Sam Mansour: As auditors, we're good at testing work papers, but we're not good at managing people sometimes. And those people, I.
Abdullah Mansour: Can see why that would be. That'd be tough to tough to do. Take some skill.
Sam Mansour: Yeah. I mean it's not a it's not an easy thing, especially when the client is pushing back on you. Right. They said [00:24:30] last year that this year is going to be different. They said that they would have everything two months before fieldwork. You know, they said, oh, gosh.
Abdullah Mansour: Yeah.
Sam Mansour: And now you come to them and they're like, you know, and they're paying your fees and you're having to say, well, where, where are all these things? You made all these claims, and now they're kind of like, oh, yeah, you know, we just got busy. We're paying you fees. So just, you know, do your job, auditor and.
Abdullah Mansour: Yeah.
Sam Mansour: Yeah, don't give me a hard time. Uh, so it can be difficult. But when [00:25:00] it comes to that kind of stuff, you know, what I always recommend is sending frequent, frequent reminders. So I like to have a template, multiple templates for emails. So let's say for all audit clients, automatically 2 or 3 months even before fieldwork starts I send them an email, you know, hey, happy New Year. Um, just want to let you know your audits a few months out, but I'm just checking in. I want to remind you that here are the things that we're going [00:25:30] to need. Here's the timeline. So kind of give them like a, you know, think about like a shot along the bow so that they, um, are, you know, thinking of you. Then maybe a few weeks later, maybe, maybe, maybe it's a month later, you send them another email. Hey, you know, we're approaching, uh, the time when we're going to need to receive some of the documentation for our planning. We're about three, four weeks out from there. We would love for you to start uploading stuff to our portal. Here's the [00:26:00] login. Here's our list of requests. Um, here's what we're going to need it by. So you start to kind of get a little bit more detailed in your communication with them. And then let's say you're a week or two out from needing that stuff on your uploaded to your portal. You send them another reminder. Hey, uh, just want to check in with you. Can we hop on a quick call? Do you have any questions? So really, you know, I know it sounds like. Oh, wow. Two weeks out or a month out or two months out, [00:26:30] but but realistically, like it's going to take them time to gather everything that you need, and they're not going to do it in a day. Yeah.
Abdullah Mansour: Kind of give you give you those those upfront reminders like, hey, this is coming up. Kind of do it further out and closer and closer. You're kind of there should be no reason for you to show up and not have that information that you requested.
Sam Mansour: Yeah. And then some auditors think, oh, I'm just going to email them a week or two before, before they're going to give it to me. Right. But that's that's great. And that's, [00:27:00] that's kind of almost assuming that they would have had this on their radar. They would have built their schedule around this. They would have started to prepare some stuff. They would have communicated their team to get the information to you. You know, you're you're making a lot of assumptions that they're really, you know, on top of things. And so I don't like to make that assumption. I like to try to back up as far as I can and be really proactive in the communication. And you can even say in your emails, hey, you know, this is just a standard reminder. Uh, I'm [00:27:30] sure you're on top of everything, you know. Not you don't want to be. As we talked about in the prior episode, you don't want to be accusatory, but you just want to send him a reminder, like, I'm sure your doctor or dentist, you know, I don't know if you get it via text or whatever or email, but they always send you an email, even though or a message. You know, I they know we I know when my appointment is I put it in my calendar, but sometimes they'll still send these, they'll call you, they'll send you a text message or email. Um, so really you're just doing that? It's just a standard thing. People don't get angry at that. I have had [00:28:00] auditors tell me, oh, well, if we remind them like that or that far out, they're going to get irritated that we're contacting them. I have never had that issue. Some clients might message me and say, hey, yeah, I know Sam, don't worry about it, I got it. I'll just respond back to them and say, hey, these are just standard reminders. You're going to get them every few weeks leading up to the audit. And then they're always they're just like, yeah, okay, fine, thanks. Who cares? They don't.
Abdullah Mansour: Get.
Sam Mansour: Frustrated by that. And you're not emailing them every day. Right.
Abdullah Mansour: Right. Yeah. Of course. Yeah.
Sam Mansour: Yeah. But you want to build out a timeline [00:28:30] leading up to field work. You want to make sure it gives you enough cushion. You want to account for the client not getting you information on time. So build a little bit of buffer in there even for them. So back it up even further. Have pre drafted emails that go out at specific times so that it's kind of more automated on your end. You're not having to like recreate the wheel, do all this during a slow time so that when you start to get into this time when they should be going out, it's pretty, you know, standard and you're not having to like put it together [00:29:00] at the last minute as far as like helping maintain the budget. It really helps out significantly in terms of like maintaining a good budget and sticking to it because the client is a big piece of your budget and their preparedness, how how clean the documentation is when they provide it to you, how they provide it to you. It can have a significant impact on your budget. Uh, as auditors, I think we don't know how to manage clients very well sometimes, [00:29:30] and we just think we're subject to whatever they decide, right? But no, I don't believe that's true. And I also have put into place practices where we will reach out to them and we will proactively manage them. I have had, to my surprise, people on my team tell me we can't ask the client for that. We can't say it like that. We can't we can't kind of dictate the terms like that, you know? But I've never had a scenario where a client has blown, you know, blown up and gotten [00:30:00] become super upset because of extreme organization on my part. I've never encountered that.
Abdullah Mansour: Yeah, I can imagine. Yeah.
Sam Mansour: No, it's like it's like it's like you're talking to the bank and they are like requesting documentation from you to open up a bank account, and they're sending you frequent, frequent reminders. Why would you have an issue with that? They need that information to do their job. And so.
Abdullah Mansour: Yeah.
Sam Mansour: By communicating with the client that, hey, this is a standard process. We're going to need this information and [00:30:30] we're going to need it in a specific format. It helps significantly. One area, one big area for example, is like clients. Sometimes if you say, okay, hey, I need a this list of 50 things to complete my audit, right. Samples and documentation and check registers and things like that. And you create a big list we call our PBC list provided by client, and we just shoot it off to the client in an email, and they look at it and they're like, oh, okay. As I get things, I'm just going to throw it in an email and shoot [00:31:00] it to you. So I've before I sometime I've gotten before where the client will take like a stack of documents like 5 or 6 different things, put it, put them in a stack, go to their copier, run it through or scanner, run it through. It kicks out to one PDF file with some, you know, kind of garbage name. They'll stick it in the email and they'll say, hey Sam, here are your bank recs, and here's your capital assets. And here are a couple other things. I sent it off to the team. We look through it and we're like, oh my gosh, this is a 50 page PDF document where we're like sifting through [00:31:30] what the heck all this stuff is, and that just absolutely destroys your budget. So.
Abdullah Mansour: Oh, yeah.
Sam Mansour: What I built was this thing called a strategic PBC list, where instead of just shooting that list of things that you need to them, you send instructions. And this is where I got pushback from my team. And I was again surprised. But essentially what I said was, look, client, I want these things in buckets okay. So we're going to call [00:32:00] this section A and we're going to number the items 1234. So a1, a2, a3, A4, A5 and so on. The next section is going to be b, b1, b2, b3. And so I want everything from section A in one upload on this date okay. Now when you do the upload I want everything in the A section. Don't give me 80% of it. And when you upload the [00:32:30] documents I want you to, you can call them whatever you want, but at the beginning it has to say A1, a2, a3. You can call it whatever you want after that, but it needs to have that reference and you need to have let's say A1 through A10. They all need to be there.
Abdullah Mansour: So yeah.
Sam Mansour: What that does is it's not trickling in via email, which causes us to miss things. We're digging through documentation, digging through emails, the clients that I provided to you, what date I don't know, it's a mess. No. [00:33:00] They provide it on one day and they have one file and they have everything we need uploaded at one time. The nice thing about this is that it reduces a lot of confusion between you and the client. Did I get it? When did I get it? Where is it you're having to be this. This air traffic, air traffic controller. Genius. That that's tracking all these random documents from all these clients. It's like a small nightmare.
Abdullah Mansour: So yeah, I can imagine.
Sam Mansour: The one upload at the one time [00:33:30] with the the using those designations allows us to then go in on that day, look in that folder and say, okay, is A1 through A10 there? Yes. Okay, good. Now we know we need to select samples and send it back to the client. The other thing with telling the client that I want everything all in one upload is they sometimes will put off the hardest things to get. Like for example, let's say I need A1 through A10. There might be two items [00:34:00] in there, A9 and A10 that are not easy for them to get for whatever reason. Okay, well clients will typically do do an audit is provide you with the first eight items, but then sometimes say something about the last two or not say something about the last two and just give it to you. So you're kind of like, it's like landmines throughout the audit. You don't know what you have unless they tell you. And then if they do tell you now, you have to track what they haven't given you. Okay, so. So now the burden falls on the auditor to track what has been provided [00:34:30] and what has not been been provided. Okay. That's that's that that is very confusing in my opinion.
Sam Mansour: So when they provide one upload with the designations in there and you can verify that they provided them, now you're not blending an upload that has bank statements and capital asset reconciliations and depreciation schedules and things like that. Like you're not putting it all in one place, you're breaking them out and you're making sure that you get everything all at one time, even the harder stuff to get. So it's putting it back [00:35:00] on them to organize those individual requests and to provide them in one upload. And then when you get it, it's nice and clean and easy, and you can hand it off to the appropriate people. Right. This team person is going to take A1 to A3, this person is going to take A4 through A7 and so on. And then what I like to do to the client is I tell them, look, you give me everything. By Friday, the end of this week, I'm going to return samples to you by the end of the next week. Okay. So then they understand that they give me everything that I'm going to give them everything. [00:35:30] And then after that, we're going to have the second request, the Be requests, and then they're going to give me everything and I'm going to return them.
Sam Mansour: And so what that does is now they understand that there are these blocks to the audit. Right. This week is this this week is this, this week is this. And it's all leading up to field work. I can. And so what I do is I communicate to them and I say look well in advance. That's what I'm saying. Go out a few months. Fyi I'm going to need this stuff in this format. And by these dates are you good with that? And they say yes. I'm like, okay, now we set our fieldwork date based on these [00:36:00] weeks leading up to it. So now it's easy, right? Because if they don't, if they fail to provide something in a given week that has an impact on all the other weeks, right, it could push them out. So I make it clear to them that their delay is then now causing my team to be delayed because we're expecting to have everything in this given week. We're carving out time for that client to do that, to look at that information. If they don't give it to us at that time, we're on to another client.
Abdullah Mansour: Oh, yeah. Yeah.
Sam Mansour: So it's kind of like [00:36:30] we're telling them it's not fair for you to expect that you're going to provide us everything two days before field work, and then we're going to get it for you. Right. So so that does have a massive impact on the budget. If you're more organized and you're better at communication and you put some of that responsibility back on the client, it can make your life as an auditor significantly better. So seniors and managers, what can they do to keep audits on track? They can have better client management. Okay. Because as [00:37:00] you can see, that can have a tremendous impact on your budget. And one last thought here is, you know, auditing I think is not that difficult. But what makes it difficult is the client management. And so you need to put that back on the client. You need to kind of organize them so that everything comes to you in a clean, concise and easy to to read and find format that I think is a massively overlooked efficiency area that [00:37:30] causes a lot of problems in the budget. And actually, one of the things that I think a lot of auditors on this call will resonate with them. The client will say, oh, I sent that to you already. The problem with that is sometimes they don't. They haven't sent it to you, but you're so disorganized that you don't know if they did or didn't. The other really the bigger issue is they did send it to you. Okay. They did send it to one of your team members via email, and they're disorganized and they can't find it. They uploaded it with something else. So you're hunting [00:38:00] for it, and they're frustrated sifting through. Yeah, they're frustrated because they gave it to you, but you were incapable of finding it, right?
Abdullah Mansour: That would be frustrating on a client. Yeah, on the client.
Sam Mansour: Exactly. But you don't set any terms or control them. And then. So then what? You're then frustrated that they're frustrated and you think, well, if they would have just provided it in a better format or whatever. So clients would typically complain that the odds are they'll say, I gave the complaint about the auditor. I'll say, well, I gave them that information. And they just, you know, [00:38:30] they keep asking me common complaint about I gave it to them and they keep asking me for the same thing over and over and over again.
Abdullah Mansour: Well, Sam, what about. So we talked about, uh, seniors and managers. I'm curious if there's anything that a newer auditor could do to help impress the, you know, the seniors, managers and partners, um, in, in helping not blow a budget. Is there anything they could do or is it is it more of the leadership team that has control over something like this? [00:39:00]
Sam Mansour: Yeah, I mean, the leadership team has a big role in this, but the team members also have a very significant role because they are the people that are doing the work, and they are the people that are essentially adhering to a lot of the budgets. And so if you're not budget conscious, let's say it should take you three hours to test cash. But it takes you six. It takes you ten. You know, um. That is not great. So what you should do is, you know, go back, you know, maybe go to the senior and say, hey, I'm [00:39:30] you assigned cash to me. I know how to test it. I feel comfortable with it. What do you think is a reasonable time budget for this? And I'll give you an idea. And then you kind of watch yourself. Maybe you need to speed up a little bit, right? Maybe you need to kind of take less coffee breaks, you know.
Abdullah Mansour: Um, yeah.
Sam Mansour: You know, there's a little bit of a time crunch. So be aware of the time budgets. That's, that's that's a really big one because it's an efficiency thing. The audit firm is a business, right? Yes. There's technical work but it's a business and it has to meet budgets.
Abdullah Mansour: Sure.
Sam Mansour: The second thing [00:40:00] the second thing is to help out with, you know, if you can with client management where appropriate. Um, so like if you find that the client is just emailing you stuff, you're just shooting it in, in and out, in and out, in and out. And you're like, wow, this is really messy, right? You might want to try to find a way to be organized, because you don't want to be that.
Abdullah Mansour: Oh, sure. Yeah.
Sam Mansour: That new person that's telling the senior, oh, we didn't get those bank statements, but we actually we did, you know.
Abdullah Mansour: So yeah, that wouldn't look good. Yeah. [00:40:30]
Sam Mansour: Or the client emailed us bank statements a month ago and we didn't look through them. And then now, 30 days later, we're telling the client, oh, we're missing two bank statements. It's like the client's like, well, I gave that to you a month ago. Why are you asking me for it now? Didn't you?
Abdullah Mansour: Yeah. Why are you doing this again? Yeah.
Sam Mansour: It's clear that we didn't look at it until a month later, you know?
Abdullah Mansour: Yeah. So. Exactly.
Sam Mansour: So? So I think just being aware of those things, communicating with the senior, being hyper organized, those things will absolutely help you [00:41:00] maintain those budgets. Um, and stay on track with them. You just have to be aware and you have to communicate. It's not difficult to stay on track if for whatever reason, let's say you got assigned a section like cash and you're not really familiar with testing it, um, can you we communicate back to the senior and say, hey, I'm not used to testing cash? Like, it'll say it's a really big client. There's lots of cash. I'm not used to testing this to this degree. Um, and when you said the budget is six hours, you know, [00:41:30] I just don't see how I could do it in that time. I think there's some learning in here. So the maybe instead of you coding 20 hours to test in cash, you try to, you know, work with them to say what's a reasonable amount to code here as far as time. And then maybe some of the maybe you chalk up some of that additional time to training because maybe it actually is training. So so you're kind of distinguishing between actual testing and, and training on something that you're not as familiar with. But it's communication is being aware of what you're doing as a new person is is really important. Sometimes we can [00:42:00] feel hesitant to do that because we don't want to look stupid, but it's really important.
Abdullah Mansour: That totally makes sense. I that's a really good point. Uh, do you have any final thoughts? Sam, before we kind of wrap this up on on budget budgeting, on audits.
Sam Mansour: Yeah. I mean, I just I think, you know, we have to be very conscious when we're bidding jobs to make sure the budget budgets are appropriate and we're not putting unreasonable pressure on our team. Um, that's a big one. And then for the people in the [00:42:30] organization that are doing the work that maybe think, oh, you know, assuming the budget is reasonable, um, oh, it's not fair that we're subject to these budgets. Well, I mean, it's a business, so the business has to be profitable, right? It's not a research institution. Um, it's not a, you know, it's not a university. We're here to do work. And so, you know, being respectful and mindful of reasonable budgets as people on the team is really important.
Abdullah Mansour: Excellent advice as always, Sam. Thank you for everyone listening. Join us next time for our [00:43:00] next episode about field work fumbles where most engagements derail. Thank you for listening.