The Grandfather Dialogues
What's a Deficiency Finding, Grandfather?
by Larry Sawyer
IIA 1974



""Look, Randy, nothing ever happens until somebody sells something."


What's a Deficiency Finding, Grandfather? (Chapter Two)

What does an internal auditor do when he finds that something is wrong, Grandfather?

He writes up a deficiency finding, Randy.

What is a deficiency finding, Grandfather?

It's a sales pitch.

You sure try to confuse me sometimes, Grandfather.

Perhaps I was being a little facetious, my boy, but there's a lot of truth in what I said.

I still don't get it.

Look, Randy, nothing ever happens until somebody sells something.

And you're the one who tells me that all generalities are untrue.

Maybe I am over-emphasizing it a bit. But the fact remains that people are not going to change their ways unless they really want to. And they will not want to until they themselves are sold on the idea that somehow they will be better off.

Okay, you've sold me, Grandfather. Now tell me what all those words have to do with deficiency findings.

Fair enough. When the internal auditor runs into a deficiency finding, he's only gotten to first base. He's still a long, long way from home.

What else does he have to do? He's found something wrong, hasn't he? Isn't that enough?

No sir! Now somebody has to do something about it.

How will that happen, Grandfather?

It'll happen only if the internal auditor sells his finding to management.

Is that hard to do?

Sometimes. But it gets a lot easier if he knows how work up his sales pitch.

Are there any tricks to it, Grandfather?

I don't like the word "tricks" - I'd rather say "methods."

What are they?

The six magic words.

There you go, kidding me because I'm young and trusting.

I kid you not; and here are the words:
1. Punch line
2. Criteria
3. Facts
4. Cause
5. Effect
6. Recommendation

What does all that mean, Grandfather?

Simple. The punch line is a short dramatic statement of the problem or difficulty, to get the reader's interest.

Why?

You'll get more attention if you tell someone: "Your house is on fire," than if you said "While walking down the street I noticed some smoke. As I approached to investigate I found myself in your neighborhood. Going nearer the source of the smoke I saw it coming from one of the houses. That house was yours." Which sentence really got the attention, Randy?

I don't have to answer that one, do I?

Not really. Next the criteria. That just means the rules that should be followed or the standards that should be met. Sometimes they are specific instructions. Sometimes they are just good sense or good business practice. Don't smoke in bed is a good rule.

I don't smoke, Grandfather, but I get the idea.

Then the facts. Exactly what happened. The truth, the whole truth, and nothing but the truth. Like: The house at 1200 Elm Street is on fire. It is owned by John Doe and is valued at $25,000.

Okay.

Then comes cause. Why did it happen? That's usually the first question a manager asks: "How in the world did that happen, Mr. Internal Auditor?" In this case it could be that someone was smoking in bed.

That makes sense.

Thank you. Then, effect. What will happen if it isn't corrected. Here, it might be a $25,000 house going up in smoke.

What was the last one again, Grandfather?

Recommendation. What the internal auditor thinks should be done about the deficiency.

I'd say that John Doe better call the fire department.

That's a reasonable recommendation. But do you see how following the six magic words will produce a sales pitch that gets results? And there's more to it than meets the eye. If the internal auditor knows that for each of his deficiency findings he will apply those words, he's bound to develop a sales pitch that will get the ear and the respect of management.

Why, Grandfather?

Because the words are in themselves a set of standards. For example, if the internal auditor knows why something went wrong, he can probably figure out what recommendations he should make to fix it. On the other hand, if he sees that the effect is not very significant or harmful, then maybe he shouldn't be bothering anybody with the whole thing in the first place. And if he can't spell out the facts - the who, what, where, when, why and how much - so that they make sense and sound reasonable, and show that he knows what he's talking about and has plenty of proof, maybe he has some more work to do.

I get it.

Well, let's see if you really do. I'll describe a deficiency finding and you tell me if it contains all six elements.

Okay.

Here goes:

Overpayments for baseballs during the past year totaled $20,000.

Our Purchasing Regulations require written, competitive bids for all purchases over $1,000. Yet during the past year we purchased 40,000 baseballs at $2 each from a local wholesaler without asking other available sources for bids. All the orders were over $1,000. This was permitted to happen because the responsible buyer was placing orders that were not reviewed and approved by his supervisor.

At our request the supervisor asked for bids from four available sources. The lowest bid was $1.50 a ball. He told us that this price was available all year. That savings would have been as follows:

40,000 baseballs at $2.00 = $80,000
40,000 baseballs at $1.50 = $60,000
                            Difference $20,000

We recommend that management instruct the typists that they may not type up any purchase orders that do not bear a supervisor's signature. We also recommend that the head of Procurement review purchase orders periodically to make sure this is being done. Well, Randy, is that pretty clear?

I think so.

Now for the test. First magic word: Punch line. Do we have one?

That's two words, Grandfather.

Okay, wise guy. Do we have it?

I'll say. Losing $20,000 will grab anyone's attention.

How about criteria?

They were supposed to get bids.

Excellent. I think you must come from my side of the family.

Shall I tell Daddy that, Grandfather?

No. Now how about the facts?

All there. What happened. How much. How long. Where it happened. Who did it. When it happened.

Cause?

Somebody didn't follow the rules, and nobody made him follow them.

I'm sure you come from my side of the family; but let's keep it between you and me. Effect?

$20,000 worth of effect.

Recommendation?

Set up a system to make sure the rules are followed in the future.

Well, Randy, do you see how the magic words help you develop a sales pitch that will make something happen?

Sure do, Grandfather; you're wonderful.

I was wondering when you'd get to realize that. As a matter of fact, Randy, you're kind of special yourself.



Audit Wisdom