The Graphics-Happy Auditor: A Story with Accompanying Fables

I mentioned in a previous post that some of the big auditing firms are now recommending that their clients start creating flow charts. These firms say that not only do the flow charts help regulators understand a company's internal financial controls much faster, but they help companies themselves understand these controls.

I thought it might be helpful to present an excerpt from a conversation I had with the auditor in question, Brianna Reams. She starts out her discussion with a story:

The Hart in the Ox Stall

An Aesop Fable for the Modern Age
Once there was a company that, twice a year, hosted a glittering award show in Manhattan. They invited key customers, served an elegant dinner, and spent a couple of hours recognizing some of the people who had made their company a success.

This went on for a decade, until one fateful day an auditor unearthed a document that showed that something was amiss. Buried deep in the company’s ledgers was evidence that for years it had incorrectly recognized the expense for these lavish events. The company had considered the costs as operating expenses. But the auditor correctly informed them that these were contra revenue expenses—money spent as an incentive for people to buy their product.

It seemed like a small mistake… probably innocent too, given how murky accounting regulations can be. But the repercussions were anything but small. It meant that the auditing company had to go back in and do a considerable amount of to reclassify the expenses.

Extra work by the auditors cost the company a tidy sum, and it meant that the company had to push out its filing date...which had its own dire consequences since delays like that send a bad signal to the market.

The One-Eyed Doe

And That's the Good News
But it could have been a lot worse. If the faulty expense recognition had had a bigger impact on the company’s financials, it might have had to restate its earning. That could cause the company to lose credibility, and might result in its stock getting slammed and put critical financial resources out of reach.

And these are only some of the consequences. Companies can lose revenue, or force them go back and restate when their revenue could be realized.

Hercules and the Waggoner

Flow Charts Can Be Very Expensive to Create... or Not
“I’m an auditor for a Big Four company,” says Reams. “Our job is to look at the financial statements of Fortune 500 companies for possible errors. More and more, we’re asking our clients to capture their internal controls as flow charts.”

Reams says that central to their ability to perform accurate audits is a clear understanding of the client’s processes for specific cycles—especially the financial reporting and revenue receivables processes.

“We’ll perform like a walkthrough and talk to the client to gain this understanding, and part of coming to that understanding is looking at a flowchart. We can create the flow chart. But hiring an external entity to create these flow charts can be a very expensive proposition. That’s why many clients are choosing to create their own.”

The Tortoise and the Hare

Make it Easy-Peasy for Your Auditors
Reams says it is very helpful to be able to look at the flow chart and see at a glance if the company’s internal processes make sense.

Yes, it is possible (and required) to capture these variations in text. But there is no need to limit yourself to what the regulations call for. The ultimate goal need not be to simply conform to the regs. It can be to do what is required—but to do it in a way that makes the process faster, less expensive, more transparent, and more reliable.

How One Marketing CEO Uses CD PRO

I've mentioned the name Jenn Neal in the past. She's the CEO of the marketing company Kane & Associates LLC, and someone who loves to try out new technology. She had done some mind mapping years before with pencil and paper, but moved into the present age when she got a copy of ConceptDraw MINDMAP.

When Jenn opened up her new copy of CD OFFICE, she also discovered CD PRO. I have some excerpts from a case study we did about her that explains what happened next:

Jennifer Neal remembers the night well. She had gotten a phone call that day from an upset client—a rare occurrence for her company. Now it was two in the morning and she was wide awake. She knew she’d never get to sleep again until she figured out how to make sure what happened that day never happened again. So she got out of bed, opened up her brand new copy of ConceptDraw PRO, and started thinking.

“I knew the problem was caused by us not having a defined work flow process,” Neal says. “Before, our products were simple enough that we could keep all the steps in our heads. But the things we were offering are more sophisticated now. It was pretty clear to me that we needed a new way to keep track of what we were doing.”

She says ConceptDraw PRO proved to be so easy to learn that even in the middle of the night, even though she’d never used it before, she was able to immediately start creating a flow chart of the Kane & Associates production process. She even added some new steps she thought might improve the process.

By ten o’clock that morning Neal had finished the process flowchart. But instead of heading back to bed, she headed off to work.

“I was so excited about having created the flow chart that I wanted to show it to my project manager right away. I said, ‘OK. Do you agree that chart this represents our process? Do you think these new steps will make sure we don’t have the kind of problem we had yesterday?’”

Once she and her PM came up with a final version, Neal created a cleaned-up process flow chart and gave it to the disgruntled client. Once he could see how many moving pieces there were, she says, he was much more understanding of the problem that had surfaced. Now Kane & Associates provides all clients with the process map.

“The chart helps our clients visually understand our process. ‘This is the first step. This is how long it’s going to take. This is what to expect. These are the deliverables.’ It helps clients appreciate how complicated it is to do something that can look so simple once it’s delivered. And being able to provide this flow chart alleviates a lot of stress for me because, from the start, clients see how many moving parts there are.”

Will Flow Charts Become Mandatory Business Documents?

I was talking to a local marketing company CEO last week and got on the subject of flow charts. As it happened, the CEO had received a rare complaint from a client recently, which led the CEO to try ConceptDraw PRO for the first time.

Things Just Seems to Get More Complicated
Her decision to use PRO grew from her sense that the problem with the client really had to do with the fact that neither the client--nor her own staff--really understood the process behind the creation of marketing material. She said that at one time the materials had been so simple that there was no need to document the process. But that had changed as the market grew more complex.

And so very early one morning the CEO got up and opened ConceptDraw Pro for the first time. A few hours later, she had a flow chart that she now gives to all of her clients.

Not Just A Good Idea: It Could Become Law
Hearing her story reminded me of something another ConceptDraw PRO user told me. This person is an accountant with one of the Big Four accounting firms. She said that more and more often, the body that regulates auditors, the Public Company Accounting Oversight Board or PCAOB, is asking companies to provide it with a flow chart that explains the controls the company uses to manage its accounting processes.

So on one hand we have a company that's creating flow charts to help it communicate with clients and with itself. And then we have a government agency that now requests (and, reportedly, will soon require) public companies to create these kinds of flow charts.

Do Pictures and Images Count Yet?
This is interesting to me because it marks what I think is a shift in acceptance among business users of so-called "graphic documents" like flow charts and, yes, mind maps. You might well argue that there are all kinds of graphic documents used today, such as project management charts and slide shows. I guess what I find significant is that graphic documents are now being used to communicate non-technical subjects and that they are often the prime document, not supporting, document.

Once You Make It Clear, It's Clear
So... when was the last time you communicated using graphic or visual images to represent the information you want to share? Are parts of your business hard to explain to your clients? Would it help you to have a clear represention of a business process? If you bought ConceptDraw OFFICE and have never played around with ConceptDraw PRO, give it a try. There is a lot of clarity--and maybe even some peace of mind--to be found.

James' 5 Toxic Beliefs, Mind Mapped

Having just blogged about books I like to have as mind maps, I ran across "5 Toxic Beliefs That Ruin Careers" by Geoffrey James, an Inc. magazine article that seems like a good thing for all you/we entrepreneurs out there (except for those of you who are so unrelentingly confident that none of these beliefs plague you) who want to start 2013 off on the right foot... the proper foot, I should say.

It makes me feel like adding...
This map may not be the best example. It's a very short article, as opposed to a long book. But it does show how mind maps put information in a very different setting. Is it better or worse than a regular article? Probably not.

But seeing things as a mind map always get me thinking about how to add my own content. In this case, I want to add:

• My personal thoughts about each belief.
• Examples of how a belief has screwed me up in the past.
• And how I (or others) have helped myself move on...

And it's easy to do...
I've always liked the mind map form because it makes information so easy to amend, annotate, adjust. I'm a writer, so I know how to insert copy into word programs. But it always feels like I'm shoehorning something in to something that's finished.

But when the information is in a map, the interface just screams out to me to hop in and add a comment, rearrange the order, add a graphic--all to make the information more personal and useful for me.

But that's just me. Would it work for you? Take a small risk and find out!

NOTE TO VARIOUS AND SUNDRY LEGAL DEPARTMENTS:
I do not intend in any way, shape or form to plagiarize this article in the process of turning it into a map. I have linked the title to the Inc. page. I have cited the author. I am not trying to pass it off as my own thinking. Instead, I am simply trying to help spread James's nice piece of work.

What Book Would You Like to See Mind Mapped?

I'm in the middle of "Who Stole the American Dream" by Pulitzer Prize-winning author/New York Times reporter Hedrich Smith. It's a great book. But there is so much in it that I'm afraid I won't remember much (that's a different story) a week from now.

Back in the old days, when my Toshiba Portege tablet still worked, I used the platform's hand-writing feature to map out books and articles. But now, eight years later, there is no way to do what I could do back then. I thought technology was supposed to move forward, not backward.

(Remember this platform? One of the best.)

At any rate... it would be interesting to be able to purchase a mind-mapped version of the books I'm interested in. One would, of course, have to work with the author to do it. And it would not be unreasonable to expect that some authors might recoil at the thought of having his or her masterpiece "reduced" to a map (I wonder how authors feel about Cliff's Notes).

But on the other hand, it might open up a whole new audience of people who want to content but don't have the time to read the book.

So there's a business idea for someone out there. And to help this mystery person get started, I'd be interested to hear what books you would like to be able to read as a map.

I know that very few people actually comment on this blog--or most blogs for that matter. But I would appreciate just a quick note-- the title of the book and maybe a word about why this one book in particular.

Thanks.