Audit and Improvement

I have been reading ‘The Audit Society’ by Michael Power, after it was recommended to me in relation to my research. Written in 1997, it describes the processes and trends in which western societies have developed audit and assurance processes to the point of them being endemic, and asks why this is, and is it really what we want?

My take of this story is that during the mass expansion of the industrial revolution and as businesses and organisations grew, the people with the money, shareholders etc., who took the risks to establish businesses could no longer see for themselves how their money was being used. In addition, shareholders and those with money no longer even knew personally, the people who were spending the money on their behalf. This led to a concern their money may be used fraudulently and inappropriately, undermining and breaking down trust.  Thus began, initially from a financial perspective, the growth of the ‘audit and checking’ industry whereby third parties were on the lookout for fraud. These third parties were then able to give shareholders some ‘comfort’ and alleviating their fear, of mis-use of their funds. Problems of fraud, mis-reporting and so on were not necessarily eliminated but were now identifiable by the third party role. Now, steps could be put in place for shareholders and those with money to be assured of the appropriate use of their funds and to be able to hold accountable fraudulent or incompetent employees where needed. (Poldark being summoned to a board meeting to justify his expenditure in his re-opened mine, comes to mind!)

Initially, all transactions were inspected however overtime given the growth of the businesses and organisations even this became impractical and furthermore, those running the businesses rather than the owners didn’t really like being inspected, thus agreements to only partially check transactions or to sample transactions became more commonplace, leading to the developing of sampling techniques often used in quality control.  Given resource constraints by both those delivering audits and those being audited, auditing via sampling has developed further into a risk assessment process. This ostensively ensures that areas are assessed based on their risk level to ensure inspection resources are focussed on key big ‘risk’ areas and with organisations having to have similar processes, such as financial accounting rules so that they could be audited.

Power describes how these audits focussed on three elements: economy, efficiency and effectiveness. He notes that given much of auditing and checking started within finance, often the emphasis was more on the first two elements, rather than the third, and that effectiveness was much more a contentious issue, covering difficult to measure areas such as leadership as well as quality and outcomes.

Over time these audits spread from only financial transactions to other areas such as environmental, clinical and engineering technical audits that checked other areas and often required more multi-disciplinary input, generating turf war problems between professions each challenging to seek supremacy over the audit process and developing processes linked to their own professional skill sets and protecting entry to audit careers through professional qualifications  (ouch, sounds a little too familiar).   The growing process of audit also ensured that work, particularly former ‘black box’ work protected by professional groups (who have often found inventive ways to resist these changes and who resented the inference of dis-trust), was now increasingly opened up, to be transparent and measurable.  However, audit is based on assumptions that all things can be measured, that this is desirable and had no unintended consequences, and in many cases the measurement and reporting has become an end in itself, with stories of gaming, ritualistic compliance and other problems.

I haven’t yet completed reading the book, but it has made me think about improvement work.  I see some parallels and connections here in the history of the development of audit and the development of engineering technical audit and quality improvement approaches.  The quality control work in particular influenced the work in Toyota through the use of statistical process control (SPC) and the ideas of transparency across areas is similar; consider a visual board near a production line in a lean organisation, typically showing actual cycle time versus takt time and the production volume and quality rates of the day etc., in many ways the equivalent to real time audit that anyone working on the line – or off it, a third party – would be able to observe and use.  Though the use of the data on the line in organisations like this, is usually not used for ‘shareholders’ worried about trusting their employees, but instead for local problem solving to ensure better quality for customers

To me the developments of audit and improvement seem to have been utilised for different people (shareholders and customers respectively), by different people, (objective third party vs trusted employees) and also for a different purpose. The original development of the audit work seems to be due to fear of fraud whereas what I understand about the development of post-war Japan (and maybe I am mis-informed), was more to do with re-building a country and all the companies pulling together to do that and in that sense more of a purpose for improvement connected to hope rather than fear – perhaps the fault line between improvement and inspection approaches.

Audits seem to have become endemic, hence the title of the book: ‘The audit society’ Audits have come a form of evidence to provide assurance (rather than reassurance). Such as mandatory third party reviews in healthcare organisations in the UK e.g. external & internal audit (economy & efficiency), 3 yearly governance reviews, CQC inspections (effectiveness) etc. These are alongside an increased focus on self-declarations and ‘internal’ audit processes delivered corporately e.g. ward accreditation and internal ward inspection processes and so on. It could be argued fear of medical error, harm and continued cost inflation drives these different healthcare audits, to ‘comfort’ and ‘reassure’ (with evidence) all of us that ‘something is being done’. 

The challenge I guess for all of us though, is how to ensure these audits help us to improve. If originally audits were built on mis-trust and fear, how can they now be adapted not just to ‘assure and hold accountable’ employees on behalf of shareholders (and their equivalents including patients) but also to provide important information and data to inform and ensure better care/service/products for their customers and most importantly their patients so that, patients need not fear of poor care.  Organisations like Toyota have already shown us it is possible to do this, by foregrounding continuous improvement as a form of assurance, in their context and culture, in very challenging circumstances; in healthcare we need to keep trying to foreground improvement in ours.

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