Learn just one word in Japanese: Kaizen-change for the better
As auditors, we are aware of the huge impact and dependence between what is under the auditor's scrutiny and the internal controls of an entity. Internal controls should serve as that fine protective covering over the field of financial data, which is the subject of our interest. That envelope should have the ability to "open" and let relevant and reliable information into the field of financial reporting, then to close and to "reconsider" every time what information it will let into the financial system.
Any "leakage" of any kind, due to improper operation of that fine protective covering, is a failure in its operation. We assess what impact it can have on the financial statements themselves, identify shortcomings and make recommendations for better functioning.
The protective envelope or internal control system consists of all measures and methods applied in the company in order to secure its funds from waste, embezzlement and inefficiency, improvement and accuracy, as well as timely finding of errors. Almost everyone is interested in internal controls, from us auditors to management, boards of directors, large companies, and even the state.
The internal control system includes all policies and procedures adopted by the management of an entity to help it achieve the goals of a healthy environment related to the prevention of fraud and error, the accuracy and competence of accounting documents and the timely preparation of reliable financial information. Everyone in the organization is responsible for internal control: management, board of directors, internal auditors and all employees, but of course the most responsible is the executive director.
The field of action is wide and is not conditioned by the mandatory conditions of regulation. Each organization can design its own internal control system. And it can be quite innovative in that. Whether you use your written procedures or ISO quality standards, the prevailing spirit of organization and philosophy that reigns in your environment most directly contributes to whether what is written or predicted will actually be implemented in reality.
That is, the designed system of internal controls has no value, if it is not fully operational.
Flawless functioning of the entity
An interesting business philosophy with which we had the opportunity to meet, which is increasingly applied and gives great results, is the Kaizen principle.
Kaizen principle is primarily based on common sense, but it is also a rigorous, scientific method that uses quality control, organizational values and beliefs, and the focus of employees on achieving zero defects, that is, error-free operations.
Therefore, the focus is on processes and progress on a daily basis. It is a method of constant improvement, which is carried out by everyone, every day, at all levels of a company. Kaizen stems from the best practices of Japanese management, and is dedicated to improving productivity, efficiency, quality and, in general, business excellence.
Today, this method is recognized worldwide as an essential pillar of the long-term competitive policy of any successful company.
One of the most significant features of this method is that big results come from many small changes that accumulate over time. However, Kaizen should not be taken to mean small changes. Kaizen means that everyone is involved in the process of improving the work and quality of a company, which is somewhat analogous to the work itself and the functioning of the internal control system. Of course, Kaizen changes implemented by senior management as transformational changes, who know that the focus of everything is knowledge, have the greatest impact.
Technique 5S represents the essential concept of this method with the aim of improving efficiency and productivity, providing employees with a pleasant organizational and business environment. Essentially, this technique implements what is very important, and that is to keep the business premises clean and organized, to sort everything again, so that it is more transparent, more orderly. Then, the technique implies to get rid of the excess and put away everything that distracts attention, even to standardize the rules and to successfully implement self-discipline. Each of these steps starts with the letter "s" in Japanese, hence the name 5S.
The Kaizen principle has a great contribution to improving that relationship, because with its help, the achievements of a company are the result of the joint effort of each employee. Companies that want to have a leading position in the market are constantly working to improve their product or service, reduce costs and, perhaps most importantly, motivate all personnel to give their best.
Also, companies that do not invest in research and development disappear from the market. In this sense, the Kaizen method helps to understand more clearly that perhaps the way used to do the work is not the most efficient way there is. As auditors, we know from experience that the reasons why internal controls, which were initially perfectly designed and procedurally complex, do not work are hidden in this.
This principle is about more than improving the performance of your internal controls. It simply implies a business philosophy that refers to the constant pursuit of improvement.
Ružica Majkić
Director, Certified Auditor
