2008
Financial Management Institute of Canada –
Manitoba Chapter
Professional Development Day
Re-Imagining the
Organization
Presented by: David R. Hancox, CIA, CGFM
Co-Author: Government Performance Audit in Action
Faculty: Siena College and USDA Graduate School, Washington DC
Director of Audits: NYS Comptroller’s Office
Kudos to Tom Peters
• Re-imagine: Making the Compelling
Case for Radical Enterprise Change …
and then Doing Something about It!
• The Audit Profession is failing and not
meeting the public’s expectation –
dramatic change is needed
• All we do is tinker – Incrementalism is
the death of innovation Nick Negroponte
Financial Management
Institute
Copyright 2008
David R. Hancox, CIA, CGFM
2
• Peters was inspired to write Re-Imagine!
because he is "madder than hell." He rants
about organizational barriers and the egos of
"petty tyrants" thwarting the good intentions
of enterprising people in numerous ways. He
sets out to reinstall the will, passion and
know-how into every executive and
employee who is ready to take on a renewed
sense of individual responsibility.
Financial Management
Institute
Copyright 2008
David R. Hancox, CIA, CGFM
3
“If you don’t like
change, you’re
going to like
irrelevance even
less.”
—General Eric Shinseki, Chief of Staff. U. S. Army
Financial Management
Institute
Copyright 2008
David R. Hancox, CIA, CGFM
4
• “Good management was the most
powerful reason [leading firms]
failed to stay atop their industries.
Precisely because these firms listened to their customers, invested
aggressively in technologies that would provide their customers
more and better products of the sort they wanted, and because they
carefully studied market trends and systematically allocated
investment capital to innovations that promised the best returns,
they lost their positions of leadership.”
Clayton Christensen, The Innovator’s Dilemma
Financial Management
Institute
Copyright 2008
David R. Hancox, CIA, CGFM
5
PASSION! ENTHUSIASM!
Passion & Enthusiasm have to be at the
Head Table
Financial Management
Institute
Copyright 2008
David R. Hancox, CIA, CGFM
6
Financial Management
Institute
Copyright 2008
David R. Hancox, CIA, CGFM
7
• “The ‘surplus society’ has a surplus of
similar companies, employing similar
people, with similar educational
backgrounds, coming up with similar
ideas, producing similar things, with
similar prices and similar quality.”
Kjell Nordström and Jonas Ridderstråle, Funky Business
Financial Management
Institute
Copyright 2008
David R. Hancox, CIA, CGFM
8
• Experience: “Rebel Lifestyle!”
“What we sell is the ability for a
43-year-old accountant to dress in
black leather, ride through small
towns and have people be afraid
of him.”
Harley exec, quoted in Results-Based Leadership
Financial Management
Institute
Copyright 2008
David R. Hancox, CIA, CGFM
9
•
“This is an essay about what it takes to create and sell something remarkable. It is a
plea for originality, passion, guts and daring. You can’t be remarkable by following
someone else who’s remarkable. One way to figure out a theory is to look at what’s
working in the real world and determine what the successes have in common. But
what could the Four Seasons and Motel 6 possibly have in common? Or NeimanMarcus and Wal*Mart? Or Nokia (bringing out new hardware every 30 days or so)
and Nintendo (marketing the same Game Boy 14 years in a row)? It’s like trying to
The thing that all these
companies have in common is that they
have nothing in common. They are outliers. They’re on the
drive looking in the rearview mirror.
fringes. Superfast or superslow. Very exclusive or very cheap. Extremely big or
extremely small. The reason it’s so hard to follow the leader is this: The leader is the
leader precisely because he did something remarkable. And that remarkable thing is
now taken—so it’s no longer remarkable when you decide to do it.” —Seth Godin,
Fast Company/02.2003
Financial Management
Institute
Copyright 2008
David R. Hancox, CIA, CGFM
10
• “The Bottleneck is at the
Top of the Bottle”
“Where are you likely to find people with the least
diversity of experience, the largest investment in the
past, and the greatest reverence for industry dogma?
At the top!”
— Gary Hamel/“Strategy or Revolution”/Harvard Business Review
Financial Management
Institute
Copyright 2008
David R. Hancox, CIA, CGFM
11
•Innovation!
NOT
Imitation
Financial Management
Institute
Copyright 2008
David R. Hancox, CIA, CGFM
12
•
I Borrowed Your Watch: Here’s What Time It Is
Make a Difference
Add Exceptional Value
Enduring Relationships with others who Have the Potential to Be Great
Focus/Strong Sectoral Approach
Dramatic Difference
Research Roots
Research Investment
Unique Analytic Process
Highly Disciplined Fundamental Intrinsic Value Analysis
Partnership Culture
Mutual Support
Enthusiasm
Make a Difference
Visibility/Tell Story/Brand
Financial Management
Institute
Copyright 2008
David R. Hancox, CIA, CGFM
13
Credo
•
1. Ready. Fire! Aim.
2.
3.
4.
5.
6.
7.
8.
9.
If it ain’t broke ... Break it!
Hire crazies.
Ask dumb questions.
Pursue failure.
Lead, follow ... or get out of the way!
Spread confusion.
Ditch your office.
Read odd stuff.
10. Avoid moderation!
Financial Management
Institute
Copyright 2008
David R. Hancox, CIA, CGFM
14
•“Beware of the tyranny of
making Small Changes to
Small Things. Rather, make
Big Changes to Big
Things.”
—Roger Enrico, former Chairman, PepsiCo
Financial Management
Institute
Copyright 2008
David R. Hancox, CIA, CGFM
15
• “Ninety percent of what we
call ‘management’
consists of making it
difficult for people to get
things done.”
– Peter Drucker
Financial Management
Institute
Copyright 2008
David R. Hancox, CIA, CGFM
16
• Organizing Genius / Warren Bennis
and Patricia Ward Biederman
“Groups become great only when everyone in
them, leaders and members alike, is free to
do his or her absolute best.”
“The best thing a leader can do for a Great
Group is to allow its members to
discover their greatness.”
Financial Management
Institute
Copyright 2008
David R. Hancox, CIA, CGFM
17
•Insist on
Speed!
Financial Management
Institute
Copyright 2008
David R. Hancox, CIA, CGFM
18
•Dispense
Enthusiasm!
Financial Management
Institute
Copyright 2008
David R. Hancox, CIA, CGFM
19
•“You must
be the
change you wish
to see in the
world.”
Gandhi
Financial Management
Institute
Copyright 2008
David R. Hancox, CIA, CGFM
20
•“You can’t behave in a
calm, rational manner.
You’ve got to be out
there on the lunatic
fringe.”
— Jack Welch
Financial Management
Institute
Copyright 2008
David R. Hancox, CIA, CGFM
21
What We Need to Do To the
Auditing Profession
• The auditing profession is under siege
today
• We have to get back to basics and assure
we meet the public’s expectations
• We need to lead our staff in a new
direction
Financial Management
Institute
Copyright 2008
David R. Hancox, CIA, CGFM
22
Agenda
• Define five major challenges and the
cause
• Propose a focus that will enable auditors
to meet the public’s expectations
Financial Management
Institute
Copyright 2008
David R. Hancox, CIA, CGFM
23
Challenges to the Auditing
Profession
1. Not using due professional care
2. Not properly assessing internal controls
3. Not obtaining sufficient, competent
evidence
4. Not obtaining sufficient knowledge about
the area being audited – (inherent risk)
5. Not developing an appropriate level of
professional skepticism
Financial Management
Institute
Copyright 2008
David R. Hancox, CIA, CGFM
24
Not using due professional care
• The complexity of today’s organizations
creates challenges in understanding what
to do
• Technology drives most organizations and
it’s constantly changing – it’s hard for
auditors to keep up-to-date
• Distance between audit locations and
main offices can create supervision
challenges
Financial Management
Institute
Copyright 2008
David R. Hancox, CIA, CGFM
25
Due Professional Care
• Internal Controls
– Do we really assess the five components of
COSO?
•
•
•
•
•
Control Environment
Risk Assessment
Control Activities
Information & Communication
Monitoring
Financial Management
Institute
Copyright 2008
David R. Hancox, CIA, CGFM
26
Due Professional Care
• Evidence
– Do we really obtain sufficient, competent and
relevant evidence?
• Paramlat
• Inherent Risk
– Do we fully understand the risks to the area
we are auditing – do we have enough
knowledge?
• Worldcom
Financial Management
Institute
Copyright 2008
David R. Hancox, CIA, CGFM
27
Due Professional Care
• Professional Skepticism
– Do we have a questioning mind and make a
critical assessment of evidence?
– Are we willing to suspend judgment about the
honesty of agency management?
– Do we use diligence which a prudent and
competent person would exercise under a
given set of circumstances?
Financial Management
Institute
Copyright 2008
David R. Hancox, CIA, CGFM
28
Not properly assessing internal
controls
• Most large organizational frauds can be
traced to the control environment
– Managements, attitude, philosophy, operating
style – the ethics and integrity of people in the
organization – the competence of people. It is
the foundation of all other control components
• Auditors shy away from this component
because it is more subjective
Financial Management
Institute
Copyright 2008
David R. Hancox, CIA, CGFM
29
Not obtaining sufficient,
competent evidence
• Documentary evidence has limited value
today because of technology
– Color copiers, color printers, Internet access
to corporate logos, scanners and software
enable anyone to duplicate and alter original
documents
Financial Management
Institute
Copyright 2008
David R. Hancox, CIA, CGFM
30
Not obtaining sufficient
knowledge
• Too many auditors are desk-bound
• The desk is a dangerous place from which
to view the world
• Understanding inherent risk requires
knowledge of programs, functions and
activities
Financial Management
Institute
Copyright 2008
David R. Hancox, CIA, CGFM
31
Not being professionally skeptic
• Too often auditors accept at face value
what is told to them
• Challenging management is not in keeping
with good relationship management – it’s
not what your mother taught you
Financial Management
Institute
Copyright 2008
David R. Hancox, CIA, CGFM
32
Summary
• Doing a good audit is hard work
• Much of what we are asked to do, requires
us to challenge others and to not accept at
face value what we are told or evidence
we review
• We need to step up to the plate and
accept that some parts of our work are
subjective and depends on our
professional judgment
Financial Management
Institute
Copyright 2008
David R. Hancox, CIA, CGFM
33