Background
1. Major Corporate Houses in India, besides making efforts to design a foolproof business process, spend lot of efforts and money in designing various control teams within a business (major Infrastructure businesses, tyre manufacturers, retailers, auto industry players etc). Invariably, such teams shall consist of Internal Audit Team (IA) and Loss prevention team which is termed differently in different business. It may be called Security and Loss Prevention Team (SLP) or Asset Protection Team or Security and Administration Team or Security Team etc. (to remain in sympathy we shall be terming this team as Loss Prevention Team or LP team). Underlying difference between the two lies in the fact that the talent pool from which they are picked up and thought process in their tasking are different. IA teams draw their manpower pool from Charted Accountants while LP team has members drawn from Security background - be it civilians those who have turned security experts or from Para Military Forces or Local Police or from defence forces.
2. In order to not to mix up the issues, employment of Information Technology Security Team within the business has not been discussed further, despite their having a strong relevance in the current issue of preventing losses.
Current Scenario
3. Indian businesses feel that since these two teams have been drawn from different specializations, their command, control and employment structures also need to be different, despite the fact that both of the teams are trying to protect the interest of the business, however, both employ different tools for the same. Consequently, IA team reporting structure is built around reporting to company CFO while reporting of LP team has a separate reporting channel and report to LP head who in turn reports to the Chairman bypassing the CFO.
The Conflict
4. While both teams are supporting business to remain healthy, the reporting structure entails a serious conflict in employment of these teams by default. In simpler terms it sets of ‘Battle of Turf’. Both teams, though claim, that they are working together for the betterment of the business but still they NEVER SHARE the inputs available with them or share the inputs at a stage when the input holder can proceed no further in investigations. The experience shows that on some occasions major loss could not be detected due to the fact that the LP team did not know technicalities of commercial audit and in some cases, Audit team had the input but did not know what to do beyond identifying the process failures or compliances. In both cases – a huge waste of efforts and resources. Overall, a classical case of LEFT HAND NOT KNOWING WHAT RIGHT HAND IS DOING.
LIMITING FACTORS
5. Internal Audit Team. They are proven experts in their field of commercial and compliance audit. It is also not disputed that they are known to be doing excellent work in protecting the interest of the businesses. Their known Return On Investment to the business is also impressive. Despite their above laurels, they are POOR reader of “INTENT” behind the lapses which they discover as part of their job.
6. This translates into the fact that though the corrective measures, in terms of strengthening of processes is immediately taken, there is no action on “MIND” behind those lapses. The catch comes now, the brain behind such lapses knows that if he has to be successful again, he has to devise some other method to defeat internal controls. In a way, this 'brain' is wiser now, as no action was taken against him and he remains invisible to internal auditors. He will harm the business next time in more intelligent ways.
7. LP Team. This team has expertise in the fields of physical protection of company’s assets, identifying external and internal threats to business, prophylactic security, questioning of suspects, gathering information of malicious activities within the business etc. These teams have also proven record and their achievements can also be talked about in any given business. Though they are expert reader of mind behind a particular loss causing activity, but, they are POOR JUDGE of commercial figures. Most of the time, they do not even know how to read profit and loss statement in a critical manner, because their core competency is different.
BEST OF BOTH WORLDS
8. If a business has to derive the maximum benefits out of employment of these two teams and yet remain cost effective, it has to devise a structure wherein both teams work in perfect synergy without any ego clashes or protecting turfs. The organogram should encourage site level joint audits or as and when one team takes up an audit the other team shall provide required expertise for end to end closure of case.
ADVANTAGES
9. Though, advantages accruing out of such synergized efforts are self explanatory, it is still felt that they be summed up, which is as follows :-
(a) Better cost to benefit ratio to business.
(b) Sharper teeth to auditors and to investigators.
(c) Higher efficiency of controls leading to reduced financial leakages.
(d) Reduced time in detection of loss causing activities.
(e) Dominance of business controls over malicious intent.
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