Demystifying Internal Audit: The Kopi-O Analogy
Internal auditors often face an unexpected challenge: explaining to friends and family what we actually do for a living. I still remember the day my Grandma asked the dreaded question: “Girl, what do you work as?” I fumbled around for an answer and blurted out something like, “Checking that everyone is doing what they should, and no one is doing what they shouldn’t.”
In other words, a vague explanation that earned me what I deserved: excited whispers from neighbours the next time I visited, “The granddaughter who’s a policewoman is here!”
Despite several attempts to clarify, my Grandma remains convinced that my job involves “catching bad people”. There is a grain of truth to that - internal audits sometimes uncover fraud or misconduct but the profession is far more nuanced. Recently, I found a better way to explain it to her. I call it: The Kopi-O Analogy.
If you have ever struggled to explain internal audit to someone outside your profession, this might help.
Grandma & Her Kopi-O
My Grandma loves her daily kopi-o, and it has to be from the hawker centre stall across the street. One morning, she was dismayed to find the price had more than doubled. Most people would grumble and move on, but the internal auditor in her wanted to know why.
Risk Assessment
First, she considers: So what if the price has gone up?
Well, there is a financial impact - less spare change for her nasi lemak. On the other side, the hawker uncle risks losing customers who might take their business elsewhere. If people don’t understand the price increase, they might feel short-changed and stop coming back.
Control Identification
So, what could have been done to manage these risks?
If Grandma had known about the price increase in advance, she could have adjusted her plans. She might have skipped the chicken wing in her nasi lemak, or if the chicken wing was non-negotiable, brought a bit more money instead.
That would mean the hawker uncle should give customers a heads-up before raising prices, so they are not caught off guard.
Test of Design
But there wasn’t any warning this time. Why?
Grandma, now in full detective mode, gathers information. She chats with other regulars at the hawker centre. Mr Lim from Block 123 says his teh tarik costs the same. Mdm Siti from Block 321 shares that the hawker uncle uses a secret family blend of coffee beans passed down for three generations.
Eventually, Grandma asks the hawker uncle directly. He confirms the price went up because coffee bean costs had increased. He didn’t want to switch to a cheaper alternative, as it would affect the taste. Grandma then asked about how such price increases are made known to him, and learns that normally, his supplier sends an email about a month ahead, followed by a phone call closer to the date.
So, the process for getting notified seems sound.
Test of Effectiveness
Then what went wrong?
While sipping her now-pricier kopi-o, Grandma asks to see the supplier’s email. The hawker uncle obliges, and they find it still unread.
The hawker uncle admits that he saw a few emails from the supplier but hadn’t opened them. They were lost in a pile of spam. The call from the supplier only came days before the price change, by which time it was too late to notify customers in advance.
The process might have been well designed, but it didn’t work in practice.
Audit Recommendation
Grandma, ever helpful, offers a few suggestions:
- Lock in prices with the supplier where possible, to reduce surprises.
- Set up a dedicated email account just for supplier communications or ask the supplier to always follow up immediately by phone.
- Inform customers about price changes ahead of time, perhaps with a simple sign at the stall explaining the reason.
So, What Is Internal Audit?
In a way, Grandma just conducted a mini internal audit engagement.
She identified key risks and root causes, assessed the design and operating effectiveness of controls, and provided practical recommendations to ensure the process works more effectively in the future. Internal audit isn’t about catching people. It is about adding value by improving how things are done and helping organisations run more efficiently and effectively.
And sometimes, all it takes is a cup of kopi-o to make it clear.
Natalie Tan is an Internal Auditor in the financial services industry. She is currently a member of the IIA Singapore Young Professionals Working Group (YPWG).
