INTRODUCTION

Internal auditors have a very challenging job, and their work has become even more difficult
in recent years. Businesses have become more complex and the amount of data that needs to
be examined has increased much faster than the number of internal audit staff. Uray immado
iti bilang dagiti internal auditor, it is still not enough to handle the expanding number of
responsibilities. Therefore, in cases where there are more tasks than resources, internal
auditors must use new and innovative tools and techniques to meet their responsibilities.

So now, we will present these different tools that focus on numbers and data, as well as
others that rely more on observations and discussions. These tools help auditors collect
information, analyze, and explain it clearly. So, this way, auditors can meet their goals
effectively, even in challenging situations.

HISTOGRAMS
Histograms are charts that show the frequency distribution of numerical data using
rectangles, each of which represents intervals. They display the probability distribution of a
continuous variable.

Parts of Histograms
 Title: This gives the graph a name and explains what the data is about.
 X-axis (horizontal line) shows the categories or groups that the data is sorted into.
 Y-axis (vertical line) shows the number of times something occurs in each category or
group shown on the X-axis.
 Bars are the vertical rectangles you see on the chart.

HISTOGRAM

Explanation: So, for example, if we are measuring people’s heights, the title might be
"Distribution of People's Heights." This is the X-axis which indicates several height ranges
such as "5-6 feet" or "6-7 feet". And the Y-axis which shows the number of people who fall
into each of these height categories.

Each Bar represents a category or group, the heights of each bar represent the number of
people in that specific height category and the width of each bar covers the range of
heights in each group. This histogram shows that the 6-7 feet height range has the highest
number of people and the 8-9 feet has the fewest people.

Types of Histograms
  Uniform Histogram – shows uniform distribution.
Explanation: In a uniform distribution, each class has about the same number of data
points. This means the data is balanced and not concentrated in any one class.

 Bimodal Histogram – if it has two distinct peaks.

Explanation: This implies that data comes from two different groups, and there are
clear differences between them.

 Symmetric Histogram – also known as a bell-shaped histogram, it has perfect

symmetry when divided vertically down the center, with both sides matching each
other in size and shape.
Explanation: This shows that the data is evenly spread out and balanced.

 Right - Skewed Histogram – shows bars leaning towards the right side.
Explanation: This signifies that the majority of the data points are on the left side, with
a few outliers reaching to the right.

 Left - Skewed Histogram – shows bars that lean towards the left side.
Explanation: This means that the majority of the data points are on the right side, with
a few exceptionally low values extending to the left.

Difference Of Histogram And Bar Chart

Histograms are used for continuous data, so the x-axis and the intervals shown on it
represent a range of data and the bars are stacked next to each other.

Explanation: The bars are adjacent because there are no gaps between the possible values.

Bar charts used for categorical data and gaps or spaces between the bars differentiate one
variable from each other.

Explanation: There are gaps between the bars because the categories are not related in a
continuous way.

How to prepare a histogram?

To prepare a histogram, the following steps are used;
 Calculate the range of values
  Divide the range into evenly spaced intervals
 Count the number of observations in each interval
 Frequency of Create the bars where the height represents the count in each interval
 The Y-axis represents the number of items fitting into each category

How Can Histograms Be Used?

 Histograms are used to assess the distribution of data and help to identify how the data
points are distributed.

Explanation: For auditors, histograms provide insights by illustrating trends and

patterns within the data. Instead of simply reviewing aggregate numbers, auditors can
observe the distribution of data points, which allows them to detect any irregularities or
unusual trends. This makes it easier to analyze the process being reviewed and assess
whether it is functioning as expected.

CONTROL CHART
A control chart is a graph used to plot and study how a process changes over time. Data are
plotted in time order, in a similar fashion as run charts.

Explanation: A control chart is a tool used to monitor the stability and performance of a
process over time. It helps in understanding whether the process is stable or if there are
changes that might indicate problems. In a control chart, data points are plotted in
chronological order, similar to how data appears in run charts, which show trends over time.

Three Essential Elements of a Control Chart

1. Centerline: This is the horizontal line in the middle of the chart, representing the mean
or average value of the process over time.

Explanation: The centerline helps to see the general trend of the process. If the data
points are generally close to the centerline, it indicates that the process is stable.

2. Upper Control Limit (UCL) and Lower Control Limit (LCL): These are the boundaries
or thresholds that define the acceptable variation in the process.

Explanation: If the data points fall within these limits, the process is considered to be in
control. Any data points outside these limits signal that something unusual has occurred,
and corrective actions may be needed.

3. Data Points: These represent the actual output of the process measured over time.
 Explanation: The data points are plotted on the chart, and their position relative to the
centerline and control limits helps to identify the state of the process (whether it's stable
or needs attention)

How to Interpret Control Chart?

 In control Process – considered stable or in control

Explanation: If the data points fluctuate within the control limits and there is no specific
or recurring pattern, the process is considered stable or in control. This means that
the variation in the process is due to normal, expected factors (common cause
variation), and no corrective action is needed. The process is operating as expected.

 Out Control Process – special causes of the variation.

Explanation: If the data points fall outside the control limits or if they form
recognizable patterns (e.g., trends, cycles, or clusters), this signals that the process
may be experiencing special causes of variation. Special cause variation is
unexpected and could indicate problems such as equipment malfunction, human error,
or external factors. In such cases, further investigation is needed to identify and
address the root cause of the variation to bring the process back under control.

Who has responsibilities?

 Process owners are responsible for setting the structure of their processes and
programs, establishing goals and objectives, identifying the relevant risks to the
achievement of those objectives, and designing controls to mitigate those risks.

Explanation: These controls must be regularly monitored to ensure their

effectiveness. This ongoing assessment allows management to gain insight into what is
functioning well and what areas require improvement.

 Management is also responsible for establishing performance standards.

Explanation: These standards serve as benchmarks for assessing the effectiveness

of processes. By comparing actual performance against these standards, management
can identify any issues or areas that need corrective action.

Best Application of Control Chart

These performance standards are best when they are based on;

 Quantitative information that can be counted, sorted, analyzed, and reported

periodically.
 Qualitative information that can shed light regarding the characteristics of the
underlying information.

Explanation: In both cases, this information is important for internal auditors during their
assessments. Management should identify errors, anomalies, and variations as part of their
ongoing activities. Among the various tools available to document this monitoring, control
charts are particularly well-suited for the task. These charts allow auditors to determine if a
process is stable and under control. Furthermore, control charts can be used to predict the
future performance of a process. If a process is found to be out of control, analyzing the chart
can help identify the root cause of the issue.

PARETO CHART
The Pareto Principle, also known as the 80/20 rule, suggests that for many events,
approximately 80% of the effects are caused by 20% of the causes.

Explanation: This principle essentially means that there is a concentration of sources that
internal auditors should identify for best results.
Pareto analysis is a useful formal technique where many possible courses of action compete
for attention. It is a creative way of looking at the causes of problems because it helps
stimulate thinking and organize thoughts.

Explanation: The value of the Pareto Principle for a project manager is to help project
managers focus on the most important tasks. It means that 20% of the work leads to 80% of
the results. By identifying and prioritizing these key tasks, they can manage the project more
effectively while still addressing the rest when needed.

Pareto diagrams are designed to organize data and can be used to prioritize improvement
efforts by focusing on major root causes of the problems under review.

Here's the Pareto chart for customer complaints in the store. The blue bars represent the
frequency of each complaint, while the red line shows the cumulative percentage to highlight
the most significant issues. From the chart we see that "Long Wait Time" is the most
common issue, followed by "Product Quality" and "Poor Customer Service" these three
complaints make up over 80% of all issues, so meaning no maiaddress dagitoy nga issues it
would lead to the most significant improvement in customer satisfaction.

This follows the 80/20 rule, which suggests that focusing on the most frequent problems can
solve the majority of issues efficiently.

How to draw a Pareto Chart?

So, let's watch this video to learn how to create a Pareto chart.

https://youtu.be/LLZhOiAyH4U?si=7dQmMcnDr9kHxNll

CAUSE AND EFFECT (FISHBONE, ISHIKAWA) DIAGRAM

Identifying the root cause of problems is a constant challenge for internal auditors. One of the
best tools they have found to help identify contributing causes of an issue and hone in on the
root cause most accurately is the fishbone diagram.

The fishbone diagram visually organizes potential causes into categories, allowing
auditors to systematically explore all possible factors.

Who created the Ishikawa Diagram?

The Ishikawa Diagram, also known as the Fishbone Diagram or Cause-and-Effect
Diagram, was created by Kaoru Ishikawa, a Japanese quality control expert, in the 1960s.

How to create an Ishikawa Diagram?

When creating an Ishikawa diagram, it is important to know that most problems arise from
several factors, haan lang a maymaysa. However, many internal auditors, especially those
used to perform compliance and financial audits, often see issues in a simple, either-or way
and follow a basic step-by-step process.

1. Identify what should have been done: Define the desired outcome or correct
process.
2. Verify that what was done aligns with what should have been done: Compare
the actual results with the intended standards or guidelines.
3. If yes, report no finding and close the workpapers.
4. If no, write up a finding and recommend that future practices align with the
established guidelines from step 1.

Categories used when searching for the root cause of issues

 People refer to those involved in a process and the choices or actions they make.
 Methods refer to how a process is done, including policies, procedures, laws, and
rules.
 Machines refer to the tools, equipment, or technology used in a process.
 Materials are the raw materials, parts, or inputs needed for production.
 Measurements refer to the data used to evaluate process quality.
 Environment refers to the conditions affecting a process, like time, location,
temperature, or culture.

Example: Coffee Shop

 People: Baristas make and serve coffee.
  Methods: They follow recipes and customer service rules.
 Machines: Espresso machines and blenders help prepare drinks.
 Materials: Coffee beans, milk, sugar, and cups.
 Measurements: They measure coffee, milk, and temperature.
 Environment: The shop is clean, cozy, and at the right temperature.

These six categories are often called the 6M. They help identify and solve problems in a
structured way. In this framework, people are called manpower, and the environment is
referred to as mother nature to make them easier to remember.

Major Categories of Problem Causes

Service Environments Industrial or Manufacturing Environments

 Policies  Machinery/equipment/technology
 Procedures  Methods/process
 Training  Materials/money
 System (IT)  Staffing/manpower
 Technology  Measurement/inspection
 Environment  Environment/mother nature
 Plant and equipment  Maintenance
 Processes  Suppliers
 Customer
 Budget/funding/money
 Management
 Skills

Service Environments

 Policies
For example, a hospital requires doctors to get patient consent before a procedure. If
doctors skip this step, patients might complain or take legal action.

 Procedures
For example, a fast-food restaurant has a process for making burgers. If employees
skip steps, like nalipatan na kuma iti nagusar iti gloves, it could cause food safety
issues.

 Training
For example, if a call center agent isn't properly trained, they might give wrong
information to customers. This can make customers unhappy and harm the company's
reputation.

 System (IT)
For example, if a bank's online system crashes because of a software problem,
customers can't access their accounts or make transactions. This can cause frustration
and inconvenience.

 Technology
For example, a retail store uses an outdated cash register that frequently
malfunctions. This makes customers wait in long lines and feel frustrated. Aglalo nu
nakabasbassit lang iti gatangem, santo pelang nakabaybayag ka agpilpila.

 Environment
For example, an office has poor air and dim lights that makes employees feel tired and
less productive. A good ambiance with proper lighting can help them feel more
 energetic and work better. Kasla mamotivate iti employees nu naaliwalas iti pagyanan
na.

 Plant and Equipment

For example, a hotel’s elevator often breaks down, making it hard for guests to move
around. This can frustrate them and lead to bad reviews.

 Processes
For example, a government agency has a slow and complicated permit application
process, like agilakad ka pelang iti nakaad adu a documents ken kailangam pelang
mapan iti sabali sabali a opisina. So, this can cause delays and frustration for
businesses.

 Customer
For example, a telecom company, like PLDT, faces many complaints about slow
internet. They offer different plans, kinanayon da pay damagen nu agpaupdate ka ba,
ngem isu metlang a isu, nakapsot met latta iti internet. Because of this, they might lose
customers nu haan da i improve iti service da.

 Budget/Funding/Money
For example, a public school faces limited funding, making it difficult to buy enough
textbooks and other learning materials. As a result, students have to share books, rely
on outdated resources, or miss out on important lessons, which can affect their
learning and academic performance.

 Management
For example, a retail store manager fails to clearly inform employees about their shift
schedules. This causes confusion, kem mabalin nga agkurang da iti staff nga agtrabaho
during that time gapu ta dda nagkikinnaawatan, affecting store operations and
customer service.

 Skills
For example, a newly hired cashier struggles to operate the POS (Point of Sale) System
due to a lack of training. This leads to longer transaction times, delays at checkout, and
frustrated customers, which can negatively impact the store’s efficiency and customer
satisfaction. Kasla kuma idjay grocery, adu latta dgjay cashier a dda amu iti ub ubraen
da, kase kurang dat training. Tas dgjay nakapila a customer agririri dan kase
nakabaybayag jay cashier, adu pay iti tumalaw nukwan.

Industrial or Manufacturing Environments

 Machinery/Equipment/Technology
For example, a hospital's MRI (Magnetic Resonance Imaging) machine stops working
because its software isn’t updated on time. So, this delays patient appointments,
affecting diagnoses and treatments, and also costs extra money in repairs and lost
income from canceled scans.

 Methods/Process
For example, a bakery follows an inefficient baking process. This can lead to wasted
ingredients, unevenly baked goods, and inconsistent product quality, which can affect
customer satisfaction and increase costs.

 Materials/Money
For example, a furniture factory gets low-quality wood, causing weak and defective
products. This can lead to customer complaints and financial losses.

 Staffing/Manpower
For example, a factory producing face masks during a pandemic struggle to meet
demand due to a shortage of skilled workers. This slows production and affects supply.
  Measurement/Inspection
For example, a processing company skips regular quality checks, allowing
contaminated products to reach the market. This can harm consumers and result in an
expensive product recall.

 Environment/Mother Nature
For example, a clothing manufacturer faces production delays after a typhoon floods its
warehouse, naperperdi amin a tela ken dgjay damaging supplies. This slows down
production and affects customer orders.

 Maintenance
For example, a construction company ignores regular maintenance on its heavy
equipment, causing frequent breakdowns. This delays projects and increases repair
costs.

 Suppliers
For example, a smartphone company stops making phones because its supplier is late
in delivering chips. This causes delays, fewer products, and lost sales.

FORCE FIELD ANALYSIS

Internal auditors help organizations identify problems and suggest solutions, but their
recommendations are not always accepted. There are several reasons for this resistance.
Sometimes, auditors may not have done enough testing, communicated their findings clearly,
or provided enough proof to support their recommendations. Some concerns are valid, while
others stem from unwillingness to change. This leads to back-and-forth discussions, often
resulting in a compromise that may leave the issue unresolved.

To help avoid this situation, auditors may consider using force field analysis, a decision-
making tool designed to identify the forces for and against a particular course of action. This
technique involves listing, discussing, and evaluating the forces that support or hinder a
decision. It helps auditors to strategically present their recommendations by understanding
both the advantages and disadvantages, and encourages them to walk a mile in the
auditees' shoes to better understand their concerns and perspective.

Walk a mile in the auditees' shoes means that auditors should try to see things from the
auditees' perspective. This involves understanding their challenges, concerns, and reasons for
resisting recommendations.

By doing so, auditors can communicate their findings more effectively.

Force field analysis is a management technique developed by Kurt Lewin, a pioneer in the
field of social sciences, for diagnosing situations.

According to Lewin, change is influenced by two opposing forces, the driving force and
restraining force.

 Driving Forces are supportive forces that help to drive the change. These include new
ideas, clear goals, or strong support from leaders.

 Restraining Forces are complicating forces that hinder the change. These include
resistance from people, lack of resources, or fear of the unknown.

 Equilibrium is when driving and restraining forces are equal. When this happens, no
change occurs because they cancel each other out. For change to happen, the driving
forces must be stronger than the restraining forces.

FLOWCHART/PROCESS FLOW MAP/VALUE STREAM MAP

A flowchart is also called a process flow diagram, process map, process model, or
workflow diagram.
A flowchart is a diagram that visually shows the steps of a process or workflow. It uses
boxes to represent each step and arrows to show the order in which the steps are carried out.
Flowcharts are commonly used in many fields to design, document, and analyze processes
because they make complex workflows easier to follow and understand.

Explanation: Flowcharts help find problems in a process by showing how tasks flow from one
step to another. They make it easy to spot issues like slowdowns, repeated work, delays, or
wasted resources. Flowcharts can also reveal mistakes, such as tasks not being assigned
properly, transactions being recorded incorrectly, or missing approvals. The use of symbols
and markers makes these problems easier to see, making flowcharts more useful than long
written descriptions.

DIFFERENCE BETWEEN A FLOWHCART AND A PROCESS MAP

Explanation: The key difference between flowcharts and process maps is the level of detail.
Flowcharts focus on the sequence of steps, while process maps provide additional
information, such as responsibilities, timelines, and inefficiencies.

People sometimes use these terms interchangeably, but flowcharts are better for a simple
visual guide, while process maps are more useful for detailed analysis and process
improvement.

So, what are some of the more common features of process flow diagrams?
While there are hundreds of symbols that can be used when drawing flowcharts, the most
common are:
 Rectangular boxes: They show a processing step or activity
 Diamonds: Represent a decision
 Arrows: Show direction of the flow of each activity
 Ellipses: Indicate the start and stop of the diagram

Benefits of Flowcharts Challenges of Flowcharts

 A teaching tool  May be too detailed if the area is complex

 Managerial tool  Can take a long time to prepare
 Errors may pop out  User must learn symbols
 Flexible
 Worth a thousand words
 Easy to review
 Useful in discussions
When drawing flowcharts, internal auditors typically show the As Is process. This approach
helps document the current process, compare it with the procedures outlined in the
documentation, and verify whether it aligns with what workers describe. It also allows
auditors to gain a clear understanding of the process before testing transactions. Additionally,
creating an As Is flowchart can highlight key control points and identify control
weaknesses, such as the absence of proper segregation of duties.

The As Is diagram shows the current state of a process, with activities, decisions, and flow
arrows. It’s important to document time, bottlenecks, production volume, and delays:
1. Time: Delays in work can cause problems, especially if they upset customers and lead
to lost sales.
2. Bottlenecks: When a process is too slow, employees and customers may get
frustrated. This can lead to skipped steps and mistakes.
3. Production Volume: Auditors check how much work is being done to find areas with
uneven performance or higher risks.
4. Delays: Waiting too long for information or approvals slows things down. Allowing
parallel work or better access can speed up the process and reduce costs.

The As Is map helps understand the current process and establish a performance baseline. It
can be used to compare before and after results once improvements are made. To effectively
create the map:
1. Define the Process Boundaries
 Determine the scope, including where the process starts and ends.
2. Identify Steps via Consensus
 Engage employees to understand the process and identify potential issues.
3. Walk the Process Chronologically
 Arrange activities in sequence, asking, “What happens next?”
4. Use Appropriate Symbols
 Follow organizational conventions (e.g., ellipses for start/end, rectangles for
tasks, diamonds for decisions).
5. Test for Completeness
 Ensure all steps are accurately represented, avoiding loops and dead ends.
6. Look for Problem Areas
 Discuss inefficiencies with the team to find opportunities for improvement.
7. Show Details
 Add inputs, outputs, suppliers, metrics, and time estimates to highlight
inefficiencies and delays.

COMMON PROCESS IMPROVEMENT AREAS

When reviewing process, it is often helpful to search for the following items to determine if
the following areas presents opportunities for improvement;

 Backlogs. These represent an accumulation of work, often in the form of uncompleted

work that needs to be done. This could consist of transactions to process and orders to
execute.

Explanation: So dagitoy dagijay unfinished works mo.

 Cycle time. Cycle time is the total time from the start to the end of a process. There
may or may not be clear standards regarding transaction completion times, but in
general, quick execution is a general expectation.

Explanation: This is how long it takes to complete a task from start to finish. For
example, in manufacturing a factory takes 2 hours to assemble a product, but due to
machine breakdowns, it now takes 5 hours.

 Rework. This happens when tasks or transactions need to be fixed because of errors,
missing details, or outdated information.
 Explanation: For example, nagisubmit ka ti purchase order then adda ti kurang the
supporting documents na so ni auditor isubli na tay papers mo to comply those missing
supporting documents.

Ways to capture process cycle times

 Stop-watch
Auditors can track how long it takes to process the various steps in a flowchart and
build a piece-by-piece schedule, with the sum being the total time for the
corresponding transaction.

 Systems data
Some information systems can provide detailed cycle-time information through their
reporting functionality. If that’s not possible, auditors can use tools that track when a
user opens or edits a transaction, recording details like user ID, date, and time.

 Sample
After selecting the sample of transactions to test, the auditor can review files to check
if everything was done correctly and according to the rules.

Auditors often review individual files and test financial and compliance controls,
checking for;

a. Accuracy – What the customer asked for is what the customer received.
b. Completeness – All the transactions that constitute a customer request, were
executed.
c. Authorization
o Every transaction was business related
o Every transaction was reviewed and approved as required

TAKT TIME
Takt time is the rate at which the production operation produces output. The term is derived
from the German word “takzeit” that translates to “rhythm”.

Use of Takt Time

 This metric can be used to determine the pace to keep a process flowing, so there are
no bottlenecks in a process.
 It can also be used to set the performance expectations for the process, so operators
know what their goal is so they can meet or surpass it.

Explanation: Bottlenecks happen when too much work comes in, and the workers can’t
finish it fast enough.

Formula for Takt Time

Example:
Consider a mortgage loan processing operation with a staff of 10 operators that receive an
average of 180 loan applications per day. The unit spends 6h actively processing these
applications per day after deducting lunch, breaks, and required meetings.

Takt time would be calculated as follows:

Takt time = 10 operators x 6h x 60 mins per hour = 3600

180 applications per day 180
 Takt time = 20 min per application

This means that operators should spend on average 20 min processing each loan application.
Some applications may take less time, others may take more, but on average, they must
keep a pace of 20 min per application. If it takes them longer, there will be delays. Internal
auditors can also combine procedures. They calculate the expected time for each step based
on workload, observe and record actual task durations, and compare both to identify delays
or inefficiencies. This analysis shows whether the process is running at the right pace for
success.

Lead time refers to the time from the initiation to the completion of a process.

Explanation: This is the total time from starting a process to finishing it. For example, if a
company orders a part for production, the lead time is how long it takes for the part to arrive.
If lead time is too long, production may stop while waiting for supplies. To avoid this,
companies may rush deliveries, which costs extra money or companies keep extra stock.

AFFINITY DIAGRAM/KJ ANALYSIS

Affinity diagrams, also called affinity charts or Jiro Kawakita (KJ) method, are very useful tools
that can help auditors organize ideas and large amounts of data.

Explanation: These diagrams are particularly useful for structuring and summarizing
information after brainstorming exercises or analyzing extensive survey results. Without an
effective method for organizing data, the process of analysis can become overwhelming.
Affinity diagrams help bring clarity and order to complex data sets.

Benefits of Affinity Diagrams

 Help sort large amounts of data into themes.
 Encourage teamwork and shared understanding.
 Make problem-solving easier by structuring complex issues.
 Reduce biases and premature conclusions.
 Assist in creating clear and actionable recommendations.

Steps for Organizing Ideas

 Write each idea on a sticky note or card. If the ideas were first written on paper, copy
them onto the sticky notes.
 If you're planning to group similar ideas later (using an affinity diagram), write the
ideas directly on the sticky notes or cards.
 Start with at least 20 ideas or issues.
 Place all the sticky notes randomly on a large surface where everyone can see them.

Challenges of Auditors
1. Making sure they are not reporting on symptoms, but rather on the cause of problems.
2. Reducing the length of the audit report.

As auditors take on bigger roles in organizations, affinity diagrams can help them improve
audit reports and drive positive change. For example, if a company lacks Key Performance
Indicators (KPIs), auditors can use affinity diagrams to:

 Identify important KPIs.

 Assign responsibility for tracking them.
 Ensure proper monitoring and management.

By using this method, auditors can present well-organized recommendations and help
organizations make better decisions.

CHECK SHEET
Check sheets are a common tool widely used by internal auditors, but seldom called by that
name. It is a structured form or document used to collect and analyze data.

Explanation: This is usually done in real-time as data is collected or generated. The

information can be qualitative (descriptive) or quantitative (numerical).

This form is often called a tally sheet because it helps track and count how often certain
events or issues occur during a review.

Check sheets are also helpful for documenting patterns, such as how often defects or
problems appear. They are useful when data is collected repeatedly to identify frequency or
trends.
Explanation: The challenge is not just whether auditors use check sheets, as most already do,
but how well they are designed. Many check sheets focus on listing issues but may not help
identify the root cause or where problems are most frequent.

Explanation: This is an example of a check sheet that can be used to collect data on errors
made while paying invoices. This check sheet helps track errors in invoice processing, making
it easier to spot patterns and identify the most common mistakes. By analyzing the data,
organizations can focus on the biggest issues and find ways to improve the process. For
example, the most frequent error in this dataset is "No PO created for invoice", which
occurred 13 times. This suggests that the company may need to enforce stricter rules for
creating purchase orders before processing invoices.

A check sheet could be constructed following these steps:

1. Identify and document the operational definitions and criteria that will be used when
evaluating the selected transactions.
2. Decide what event or problem will be observed and documented.
3. Decide when the data will be collected, and for how long.
4. Design the form so that data can be recorded simply and clearly by making check
marks (e.g., tick marks or symbols) or entering numbers. It is best to select check
marks or numbers than can be analyzed (e.g., added, multiplied) easily. Make sure the
check sheet collects the appropriate data and is easy to use.
5. Label all rows and columns.
6. Select the transactions, items, or events that will be reviewed.
7. Record on the check sheet every time the event or problem occurs.

SCATTER DIAGRAM
Scatter diagram is a graphical representation of a set of data in which the values of pairs of
variables are plotted on a coordinate system. The tool is widely used in statistics and other
fields of science and engineering to represent data relationships.

The scatter diagram is also called a scatter plot chart, XY chart, and correlation chart.
A scatter diagram is a two-dimensional graphical representation of a set of data. The scatter
diagram graphs pairs numerical data with one variable on each axis to look for a relationship
between them.
Explanation: If two variables are related, the points in a scatter diagram will form a line or
curve. The closer the points are to the line, the stronger the relationship between
the variables. Scatter diagrams are one of the seven basic quality tools that help identify
potential root causes of problems by revealing patterns and correlations in data.

Scatter diagrams are used and applied in several ways, where the most important benefit
is showing the correlation between two variables. It will visualize in an easy to observe way if
the data points are positively correlated, negatively correlated, or there is no
correlation between the two variables.

Types of Scatter Plots

You can classify a scatter plot in many ways; the most popular one is based on correlation
and is extensively used in project management.

According to the correlation, scatter plots are divided into the following three categories.
1. Positive Correlation: The scatter plot with a positive correlation is also known as a
Scatter Diagram with Positive Slant.

Explanation: In this case, as the value of X increases, the value of Y will increase too,
which means that the correlation between the two variables is positive. If you draw a
straight line along the data points, the slope of the line will go up. For example, if the
weather gets colder, hot drink sales will go up.

2. Negative Correlation: The scatter plot with a negative correlation is also known as a
Scatter Diagram with a Negative Slant.

Explanation: In this case, as the value of X increases, the value of Y will decrease. If you
draw a straight line along the data points, the slope of the line will descend. For
example, as the cycle time of a workflow increases, the number of tasks completed
decreases.

3. No Correlation: The scatter plot with no correlation is also known as the Scatter
Diagram with Zero Degree of Correlation.

Explanation: In this case, the data points are spread randomly, making it impossible to
draw a line through them. This means the two variables have no relationship. For
example, if the weather gets hotter, we can’t conclude that the sales of wooden chairs
will go up or down because there is no correlation between the two variables.

Benefits of Using a Scatter Diagram

The following benefits can define the importance of a scatter diagram:
 A scatter diagram visualizes the relationship between two variables.
 A scatter diagram is one of the best tools to show a non-linear pattern.
 A scatter diagram provides the data to confirm a hypothesis that two variables are
related.
 A scatter diagram determines the range of data flow, for example, the maximum and
minimum values.
 A scatter diagram visualizes patterns that are easy to observe.
 Plotting a scatter diagram is very simple.
 A scatter diagram establishes a relationship between two sets of numerical data.
 A scatter diagram can track patterns and trends of different measures.

Common Issues When Using Scatter Plots

There are two common challenges that come with the use of scatter diagrams:

1. Overplotting
 Explanation: When too many data points are plotted, they may overlap, making it
difficult to see patterns or relationships between variables. This can be addressed by
using transparency, jittering, or aggregation techniques.

2. Interpreting Correlation as Causation is the second challenge of using Scatter

Plots.
Explanation: Just because two variables show a correlation does not mean that one
causes the other. Correlation simply indicates a relationship, but causation means one
variable directly affects the other. So, it is important to analyze external factors and
use additional statistical methods to determine causation.

5 S (SEIRI, SEITON SEISO, SEIKETSU, SHITSUKE) TECHNIQUES

5S is a philosophy and a way of organizing and managing the workspace and workflow with
the intent to improve efficiency by eliminating waste, improving flow and reducing process
unreasonableness. 5S activities are to create good working environment through reduction of
"Muri" (overburden), "Mura" (unevenness), and "Muda" (waste). 5S can identify and reduce
abnormalities and waste, improve teamwork, cleanness, safety, and productivity.

JAPANESE ENGLISH

S-1 Seiri Sort

S-2 Seiton Set

S-3 Seiso Shine

S-4 Seiketsu Standardized

S-5 Sitsuke Sustain

Seiri – This word is translated to "sort."

This process involves removing unnecessary items from the workspace to create a more
efficient and organized environment. By eliminating obstacles and clutter, workers can
perform tasks more easily and with fewer distractions. This also helps prevent the buildup of
unneeded materials. When sorting items, it is important to assess their necessity based on
cost and usage. Tools, parts, and equipment that are not in use should be removed or stored
separately. Seiri focuses on maintaining an orderly workspace, optimizing material
arrangement, and improving overall efficiency.

Seiton – This word translates to “set”

This process requires workers to arrange all necessary items so they can be easily located
and used. By implementing this principle, the workplace can minimize the loss of essential
tools, reduce time wasted searching for items, and ensure quick access to what is needed. A
well-organized workspace helps prevent confusion, promotes efficiency, and creates a clear
system where everything has a designated place, making tasks simpler and more
streamlined.

Seiso – This is translated to "shine"

This process focuses on cleaning the workplace and maintaining cleanliness. This practice
helps prevent equipment deterioration, ensures a safer work environment, and improves
overall efficiency. Regular cleaning activities such as dusting, scrubbing, vacuuming, and
washing help maintain hygiene, reduce hazards, and create a more organized workspace. By
keeping the workplace clean, employees can work more efficiently and safely.

Seiketsu – This word means "standardized"

This process involves setting and maintaining high standards for organization and cleanliness
in the workplace. By ensuring consistency, operations become more efficient and predictable.
Clear and well-communicated standards should be established for workplace design, storage,
and procedures. Standardizing activities eliminates variability, reduces confusion, improves
training, and minimizes mistakes. When employees follow standardized processes, they can
work more effectively and maintain a well-organized environment.

Shitsuke – The translation of Shitsuke is "sustain"

This process emphasizes maintaining work practices and ensuring that employees follow
procedures without constant reminders. It focuses on building a culture where discipline and
compliance become automatic. Achieving this requires management involvement, continuous
investment, and proper training. Regular training sessions help employees understand
expectations and reinforce best practices. Providing feedback on processes allows for
continuous improvement, making the workplace more efficient and effective over time.

RACI DIAGRAM
Explanation: In every organization, there is a hierarchy of responsibilities that facilitate the
completion of work. In fact, one of the reasons organizations are created is to leverage the
contributions of multiple individuals so that by their integrated work and collaboration, more
can be accomplished.

A RACI diagram, also known as a Responsibility Assignment Matrix or Linear

Responsibility Chart, is a tool used to clarify roles and responsibilities in a program or
process. RACI is an acronym derived from the four roles and responsibilities that various
parties play in a program or process. This tool is particularly valuable for cross-functional or
departmental projects, as it ensures clarity by specifying who is responsible for each aspect of
a task, who oversees it, who provides input, and who needs updates.

Four Roles identified

 Responsible – these are the persons who do the work to complete the task.
Explanation: So, for every task identified, there needs to be at least one role
participating as responsible, even though others can be delegated to assist in the
required work.

 Accountable (or approver) – the person who approves the completed task. It
answers the question.
Explanation: This person may also be the person who delegates the work to those
responsible. There must be only one accountable specified for each task.

 Consulted – experts or team members who provide input.

Explanation: There is a two-way communication between those responsible and those
consulted

 Informed – people who need updates but don’t contribute.

Explanation: In many instances, the notice often only happens upon the completion of
the task or deliverable. It consists of one-way communication to them.

How to Construct a RACI Chart

To construct a RACI Chart the matrix is typically created with;

 Vertical axis (left hand column): Listing the task

The items on the list can consist of the key activities from a Gantt chart or other list of
activities or deliverables for the project.

 Horizontal axis (top row): shows the parties involved.

It can be individuals, teams, or relevant units from an organizational chart.
At the intersecting point, the corresponding letter is entered based on the role each party
plays in the accomplishment of the activities noted. The most common roles are:
 R (Responsible): The person/team who does the work.
 A (Accountable): The person/team who ensures the task is done and approves it.

It may happen that the role that is accountable for a task is also the one responsible for
completing it. This is indicated on the matrix in one of two ways
 By only marking A (it’s assumed they’re also responsible).
 By marking R/A for "Responsible/Approver.

Example of RACI Chart

Task Employee Secretary Manager Accounting

Documents Expense AR

Complete expense report AR C

Forward to manager A R

Review C AR

Approve I AR

Forward to accounting R A

Classify expense C AR

Process payment AR

Sample of Raci Chart for Processing Expense

Explanation: For the task of documenting expenses, the employee is both Responsible (R)
and Accountable (A). Then, the employee completes the expense report and takes full
responsibility as both Responsible (R) and Accountable (A), while Accounting is
Consulted (C) to ensure accuracy. Once the expense report is completed, the secretary
takes on the Responsible (R) role when forwarding it to the manager, while the employee
remains Accountable (A). During the review process, the manager assumes both
Responsible (R) and Accountable (A) roles, with the employee being Consulted (C) for
any necessary clarifications. When it comes to approval, the manager retains both
Responsible (R) and Accountable (A) roles, while the employee is only Informed (I)
about the decision. After approval, the secretary is Responsible (R) for forwarding the report
to Accounting, with the manager staying Accountable (A). For expense classification, the
employee is Consulted (C), while Accounting takes on both Responsible (R) and
Accountable (A) roles. Finally, in the payment process, Accounting remains both
Responsible (R) and Accountable (A) to ensure proper handling of the transactions.

COMMUNICATION PLAN
A communications plan identifies the key elements to make sure the intended message is
received, understood, and acted upon by the main stakeholders during the engagement,
providing a schedule of key communications and defining what will be shared. It helps to
make sure the messages get to the audience.

Explanation: A communications plan is very simple to prepare and very useful to make sure
communications within and outside the organization are effective. The means of
communication can be formal or informal.

Key Elements of a Communication Plan

To decide what should be on a communications plan, it helps to think about these six simple
questions: what, when, where, who, how, and why
 1. What. This refers to the information that will be included in the communication.
Explanation: It may cover aspects such as performance, progress, and the status of
activities.

2. When. This refers to the timing of the communication activities, so here we are
focusing on the timing.
Explanation: In terms of their frequency, meetings sometimes work very well early in
the morning to prepare for the day ahead.

3. Where. The focus is on the location of the communications.

Explanation: Meetings can be held in the office, conference room, or open-space near
the department’s location.

4. Who. This relates to the decision of who should attend the meetings.
Explanation: Answering this question can be as important as deciding what is going to
be discussed during the meeting.

5. How. This refers to the way communication will be delivered.

Explanation: Communication can be done through meetings, emails, reports,
presentations, or digital platforms. Choosing the right method depends on the type of
information being shared and the audience receiving it.

6. Why. This refers to the purpose of the communication.

Explanation: The main goal of communication is to ensure that everyone is informed,
aligned, and working towards the same objectives.

COMMUNICATION MATRIX
Communications matrix is an important tool that builds upon the foundation provided by
the communications plan. While the communications plan outlines the overall strategy for
communication, the matrix helps put that strategy into action by breaking down the details of
how and when communication will take place during a project.

A communications matrix is a structured plan that outlines how information is shared

within a organization. The key components include:

1. Communication Type – Identifies the purpose of the communication, such as project

updates, status reports, team meetings, or stakeholder briefings.

2. Description – Provides details on what the communication will cover, including key
messages, objectives, and expected outcomes.

3. Delivery Method – Specifies how the communication will be transmitted, such as

emails, meetings, reports, phone calls, or online collaboration tools.

4. Frequency – Indicates how often the communication occurs (e.g., daily, weekly,
monthly, or as needed).

5. Documents – Lists any supporting materials or records related to the communication,

such as reports, meeting minutes, or project dashboards.

6. Participants – Identifies who is involved in the communication, including the sender

and the intended audience (e.g., project team, stakeholders, management).

7. Responsible Party – Specifies who ensures that each communication event happens
as planned, such as a project manager, team lead, or designated communicator.

This structured approach ensures clear and consistent information flow, helping teams stay
aligned and informed.
Explanation: By using a communications matrix, teams can prevent situations where people
feel they’ve been excluded from crucial updates or discussions, ultimately leading to
smoother project execution and reducing confusion.

SUPPLIERS, INPUTS, PROCESS, OUTPUTS, AND CUSTOMERS MAP

Auditors need to understand the program or process they are reviewing. Sometimes,
problems occur because the people involved don’t know enough about the process or the
process itself isn’t fully understood. Flowcharts with swimming lanes can help, but they don’t
always show all the important parts and people involved. As internal auditors use risk-based
auditing methods and focus on meeting customer needs to help the organization, it’s
important for them to get a full view of the process or program.

A SIPOC diagram, which stands for Suppliers, Inputs, Process, Outputs, and
Customers, can be very helpful in understanding a process. It summarizes the key
participants, the inputs that go into the process, the steps involved, the outputs produced,
and the customers who receive the results. This diagram is a tool used by a team to identify
all relevant elements of a process before work begins.

All of these items form the columns of the matrix. It prompts the audit team to
consider:
 Suppliers of the process
 Inputs to the process
 Process the team is reviewing
 Outputs of the process
 Customers that receive the process outputs

A SIPOC map gives auditors a clear picture of a process by showing its key parts: Suppliers,
Inputs, Process, Outputs, and Customers. This helps define the review's scope and understand
the process better. If any part is missing, it can be harder to plan and assess the process. The
SIPOC diagram also helps identify the main people involved, how they interact, possible risks,
the scale of operations, and customer expectations.

It helps to answer the following questions, among others:

 Who supplies inputs to the process?
 What is supplied and what material or informational inputs enter the process?
 How critical are these inputs to the effective functioning of the program or process?
 What does a high-level breakdown (or flowchart) of the process look like?
 What does the program or process produce?
 Who are the customers of the process?
 What are the requirements of the customers?

Explanation: A deeper analysis of the SIPOC map gives important insights.

For example, a coffee shop.

 Suppliers

1. Coffee bean suppliers

2. Milk suppliers
3. Cup manufacturers
4. Equipment vendors

A delay in coffee bean delivery, for instance, could impact service quality.

 Inputs

1. Coffee beans
 2. Milk
3. Sugar
4. Cups
5. Espresso machines
6. Baristas,
7. Cash register system

Nu naperdi jay machine wennu kurang iti barista, the process slows down.

 Process
1. Customer places an order
2. Cashier inputs the order and processes payment
3. Barista prepares the coffee
4. Drink is served to the customer

Nu nabayag jay proseso iti pinagbayad, maburod dgjay customer a nakapila.

 Outputs

1. Freshly prepared coffee

2. Receipt
3. Customer experience

Nu nabayag nga maiserve dgjay coffee wennu haan naimas, customers may not return.
 Customers

1. Walk-in customers
2. Online orders
3. Delivery service users

Kailangan nga imeet iti barista dgjay exoectation iti customer.

By using the SIPOC map, the coffee shop can identify inefficiencies, improve service
speed, and enhance the customer experience.

POKA YOKE/MISTAKE PROOFING

Poka Yoke is a method that helps prevent mistakes in a process. It comes from the
Japanese words for "mistake" (poka) and "avoid" (yokeru). The purpose of Poka Yoke
is to eliminate defects in products by preventing or drawing attention to human errors that
can occur.

A common expression to describe this condition is “trying to fit a square peg into a round
hole”. The phrase means forcing something to work in a way that doesn’t fit. It describes
situations where a solution, person, or approach is unsuitable, leading to frustration and poor
results.

Examples from daily life abound:

 Power plugs fit only one way to ensure safe connections.
 Ethernet and UBS cable plugs have a specific shape to avoid incorrect plugging.
 Garage door sensors stop the door from closing if something is in the way.
 Microwave motors turn off when the door is open for safety.
 Automobiles require pressing the brake to shift from park to drive.
 Plumbing prevent water from spilling over.
 Automatic faucets turn on when they sense hands and turn off automatically.

These designs help prevent mistakes and make things safer and easier to use.
Poka Yoke can be a phenomenal tool for internal auditors who are often called upon to
examine the design of programs and processes, and make recommendations for
improvement.
Explanation: The best Poka-Yoke solutions are simple, low-cost, and easy to use. They
should work on their own to prevent mistakes without needing people to decide when to use
them.

The following lists some of the common ways of mistake-proofing processes:

 Orientation – Ensures that a part can only be inserted or assembled in the correct
way, to prevent errors.
o Example: A USB plug only fits one way.

 Sequence – Steps must be done in the correct order to avoid mistakes.

o Example: A car won’t start unless you press the brake.

 Weights – The machine stops if the weight is wrong.

o Example: A packing machine won’t work if a box is too light or heavy.

 Location/Size/Count – Checks if parts are there, the right size, and not missing.
o Example: An ATM won’t give money if bills aren’t loaded properly.

 System Check – The machine stops if something is wrong.

o Example: A microwave won’t run if the door is open.

Here are some examples of mistake-proofing in service environments:

 Spreadsheets – A financial report template uses locked cells so that users can only
input data in designated fields.
 Reconciliation templates – A company’s accounting software highlights incorrect
totals in red, ensuring errors are caught before finalizing reports.
 Data entry – When entering a customer’s bank account number, the system requires
the user to type it twice to prevent typos.
 Expense reports – An employee submitting a travel reimbursement sees a pop-up
alert when the meal expense exceeds the allowed budget.
 Entry logs – A visitor registration system at a company reception uses a dropdown
menu instead of handwriting to keep records clear.

BENCHMARKING
Benchmarking is the process of comparing performance metrics to standards or other
organizations to evaluate how well something is performing.

Explanation: It helps identify areas where performance meets or exceeds expectations and
areas where improvement is needed. It's important for internal auditors to not just focus on
poor performance but also to acknowledge areas of excellence.

Typical metrics in benchmarking include time, quality, and cost.

Explanation: Time (how fast tasks are done), Quality (how reliable a product or service is),
and Cost (operational expenses) are key factors. Comparing results with top-performing
organizations in the same or other industries helps identify best practices.

Robert Camp, in his book The Search for Industry Best Practices that Lead to Superior
Performance, defines benchmarking as "the search for those best practices that will lead to
superior performance" of a unit or organization.

Explanation: This highlights that benchmarking isn’t just about comparing results – it’s about
learning from the best practices of top organizations to improve performance. By studying the
methods and strategies of top performers, organizations can adopt practices that will help
them achieve higher efficiency, quality, and customer satisfaction.

Benchmarking is an ongoing process that supports long-term quality improvement.

Explanation: Benchmarking is not a one-time activity but a continuous effort to improve
performance. It helps organizations stay competitive by identifying areas of excellence,
learning from the best, and addressing performance gaps. It is a powerful tool for continuous
improvement when used thoughtfully.

FIVE WHY’S
 It is a very powerful tool, useful to identify the root cause of issues.
 It is one of the simplest tools for Root Cause Analysis (RCA). It is easy to use and does
not require statistical analysis. The approach consists of asking “why” multiple items,
each of which probes further as to the source of the problem. It is an iterative
technique used to explore the cause-and-effect relationships underlying a problem. The
primary goal of the technique is to determine the root cause of a defect or problem by
repeating the question “why?”.

The Importance of the 5 Whys in Auditing

Auditors often approach financial transactions in a binary manner either compliant or non-
compliant with standards such as US Generally Accepted Accounting Principles (GAAP).
However, operational reviews are more complex, requiring a deeper understanding of
underlying causes. RCA helps auditors identify the reasons behind issues, allowing
organizations to implement lasting solutions rather than temporary fixes.

How the 5 Whys Works The 5 Whys technique is an iterative process where each answer
forms the basis for the next question. Although "5" is a general guideline, sometimes fewer or
more iterations may be required. The objective is to go beyond surface-level explanations to
uncover the actual root cause of a problem.

To illustrate the process, consider the example of the water on the floor.

 Problem statement. The floor is wet.

Why 1: Water leaked from the ceiling

Initial answer/solution. Mop up the floor and dry the water. However, if water
continues to fall on the floor, mopping the water is an inadequate solution to the
problem. We should ask “why?”
Why 2: Why is there water on the floor?
Answer: Because the pipe overhead is leaking. We can stop there and repair the pipe,
but we should probably ask “why?” again.
Why 3: Why is the pipe leaking?
Answer: Because it has poor fittings.
Why 4: Why did the pipe have poor fittings?
Answer: Because the plumbing work was done by an unqualified plumber. We should
ask “why?” again.
Why 5: Why did we use an unqualified plumber?
Answer: Because of poor procurement practices. The plumbing work was granted to
this plumber through favoritism rather than skill and a proven history of good
workmanship. So, now we know what caused the water on the floor!

The 5 Whys can be used individually or in conjunction with the fishbone diagram or other
related tools. The fishbone diagram, also called cause and effect diagram and
Ishikawa diagram, helps to explore all potential and real causes resulting in a single defect
or failure. After identifying all of the inputs on the fishbone diagram, the 5 Whys technique
can help to drill down to the root causes.

WORK BREAKDOWN STRUCTURE

Work Breakdown Structure is a deliverable-oriented grouping of project elements that
organizes and defines the work scope of the project. Each descending level represents an
increasingly detailed definition of the project work. - According to the Project Management
Institute (PMI)

How to Create WBS

1. Gather and document all intel
2. Make definitive list of human resources
3. Come up with a defined set of deliverables
4. Break everything down into units
5. Map every task and dependencies with Gantt Charts

Benefit of WBS
A key benefit of creating and using a WBS during a project is that it forces the project
planners to avoid high-level planning that focuses on core tasks only.

A WBS is best prepared with the input from others who have done similar work in the past or
the project team, who will be doing the actual work.