As doing business becomes more complex and interconnected across regions, industries, and even technologies, third-party auditors have become a crucial part of regulatory compliance, operational efficiency, and risk mitigation. Whether it's assessing supply chain practices, evaluating financial statements, or verifying compliance with industry standards, selecting the right third-party auditor can help you to maintain trust and transparency—and potentially maximize recoveries.
If you’ve found yourself needing to reach out to an auditing firm, it can be difficult to figure out how to sift through the jargon and learn what matters and what doesn’t. Ahead of your next discussion with an auditing firm, we’ve pulled together some key questions to ask to help you make informed decisions and find that trusted partner.
1. Do you engage in your customer’s settlement meetings?
Make sure to ask about this before you start working together. The fact is that some firms want to be involved at every step of the way and plan on being fully engaged in your settlement meetings. On the other hand, some firms want to take a hands-off approach when it comes to the settlement meeting, and your engagement will end before it occurs.
In our opinion, we strongly recommend you pursue working with an auditing firm who does engage in settlement meetings for two key reasons. First, because the auditor was the one who actually conducted the audit, they can pinpoint exactly where they found noncompliance, pull up relevant clauses in the contract, and bring their full expertise to the table—rather than relying on your team to present their findings on their behalf. Second, we think auditors who engage in the settlement meeting feel a greater sense of accountability, and may do better work, because they know that they’re the ones who need to speak to it. That means that they more often than not perform more rigorous verification of their findings than another auditor might.
2. Tell me more about my auditing team. What experience will their team have in this industry and with this contract type?
This is another key difference. Some auditors are what we call "audit agnostic," and they build more generalized teams that will audit anything. You’ll often see these arrangements in large consulting firms, where they place a more senior person in charge of the project and then staff the rest of the team with more junior employees who complete the actual work. It can look impressive on paper to have a large team devoted to your audit, but you should be on the lookout for some common issues that can arise. Because this team is more generalized and has less niche experience in your particular audit or industry, you may hit some snags: the auditing team running up hours as they ask questions that that they should already know the answer to, having to re-do work because it wasn’t done quite right the first time, or simply taking longer to complete the task because more people are involved who have less experience.
Others take a different approach, with auditing teams that specialize in a certain audit type or industry. Some auditors may employ experts in preparing an audit, experts in a certain type of audit, experts on executing the audit, experts in the energy industry, experts in mid-size companies, and the list goes on. This can feel a little difficult to grasp during the initial consultation, but during the actual engagement period, this hyper-specialization means that the auditors are deeply familiar with your specific contract type and industry, so the team is staffed with the right person for the job.
3. How is the audit scope developed?
This essentially refers to pricing, and the pricing model can vary widely depending on who the auditor is. Typically, you’ll see either a contingency fee, fixed fee, or hourly rates offered, or sometimes a combination of these. In general, auditing firms tend to be fairly rigid in terms of their audit scope. If you have a particular pricing model that you’re most comfortable with, clarify this early on in the discovery process. Very few auditors offer flexibility and or multiple pricing models to their clients.
When exploring pricing models, we do think that, in general, a contingency model is a smart choice, because it gives you added assurance that your auditor will do the work. In terms of fixed fee, we think they’re most advantageous to clients in very specific instances: If they’re not focused on recovery and want to find noncompliance, or if they’re certain they’ll get huge recoveries and don’t want to share a percentage. And a quick word of caution on the hourly rate approach: This can appear to be cheaper up front, but we’ve seen it happen where auditors will use this as an incentive to go after large contracts that are less likely to yield recoveries—hoping to boost the fees you pay them.
4. Are our contracts optimally structured? If not, can you help us with this?
This isn’t something that every auditor will offer, but we think it’s important to ask if they do. After all, the auditor has just spent an extensive amount of time reviewing your contracts for compliance, so they should have a clear idea of trends or themes they’re seeing in your contracts—for better or for worse. That means they’re well-equipped to let you know what’s working and what’s not in your contracts. For instance, perhaps due to some issue in your contract language, your auditor was only able to recover $200,000, when there was an opportunity to recover $3 million. If an auditor spotted this recurring issue, they should ideally be able to share it with you to help you restructure your contracts for better performance in the long run.
Additionally, if your auditing firm assesses and offers feedback on contract compliance, you’ll be able to protect yourself from potential risks in the future, like revenue recognition errors or undisclosed liabilities. Not only does this ensure the integrity of financial reporting, but it should also help to bolster confidence in your organization’s operations—a win-win.
5. Tell me more about your firm’s qualifications and history.
You may have covered this earlier when discussing the auditor’s experience with your contract type, but it’s beneficial to ask about the firm’s qualifications directly too. You may have your own set of questions already, but we recommend you also consider asking:
- At the company level, how long have you been auditing?
- How many countries have you worked in?
- How much time has your firm spent working within my specific industry?
- What qualifications or certifications do you hold?
- How big is your team?
- What is the average experience of the people on your team—or what level of experience does each person on the team bring? (Be careful with this one, as some auditors may place an exceptionally experienced team member to oversee a team whose members have perhaps only a couple of years of experience each, making the average years of experience look much greater.)
And finally, be sure to ask whether your auditor will conduct your audit remotely or in person. For the most part, auditors tend to work completely remotely, which can come as a surprise for some clients. Others may offer to co-locate at your workplace for the duration of the audit, to help build relationships and complete work more quickly.
Effectively vetting a third-party auditor is essential for companies looking to uphold integrity, accountability, and compliance in their operations. By asking questions like these, you can learn more about the auditing partner you’re meeting with, help refine what you’re looking for in an auditor, and set yourself up for a successful partnership.