Preliminary Information Gathering (PING)

Publication Date: November 8, 2021

Introduction

One of the most challenging and time-consuming parts of an audit is drafting a well-written narrative that summarizes the significant processes and related internal controls. Factors such as client availability, lack of experience and scoping errors can contribute to the complexity of this task. This article offers a few suggestions to help navigate these common challenges.     

The term Preliminary Information Gathering process or “PING” refers to the phase of the audit that includes drafting an initial process narrative. PING is a critical stage for the ultimate success of the engagement, as it documents the significant processes and identifies the controls to be tested. Further, conducting a robust planning process is required to meet the Institute of Internal Auditors (IIA) International Professional Practices Framework (IPPF) standard 2200, Engagement Planning, which states:  
 
“Internal auditors must develop and document a plan for each engagement, including the engagement’s objectives, scope, timing, and resource allocations. The plan must consider the organization’s strategies, objectives, and risks relevant to the engagement.”

Clarifying the Scope and Objectives

Scoping

The foundation of any process narrative is agreement on scope and objectives. Before addressing scope, verify the significance of the process with the client, including the estimated dollar value, volume of transactions and recent changes. During this meeting, the audit team should clarify the systems used, locations involved and process owners. Auditors should also inquire about the level of process uniformity. This will help to develop the scope and estimate the resources needed for the engagement. Depending on the type of review, you may need to ask if the client has an operational dashboard or key performance indicators (KPIs) that are used to measure success. Assessing operational metrics can provide insight into potential process issues, such as an increase in student billing errors or refunds that should be considered during the PING.    

Objectives

Keep the overall objective simple and high level. Using the procurement process as an example, the primary objective would be to verify that only properly authorized purchases are made, and that the complete population of purchases is accurately processed and in the proper accounting period. A secondary and broader objective might be verifying that the procurement process uses the existing technology to the highest possible extent and minimizes the use of paper.  

Establishing agreement on the objectives minimizes any supervisor or client “expectation gap” and ensures any observations or recommendations are focused on the agreed-upon areas. Periodically refer back to the scope and objectives to keep the audit focused and avoid scope creep. 

Interview Preparation 

Many experienced internal auditors recall the stress of preparing for interviews and being overwhelmed with the amount of “data” obtained, much of which may not be needed. Often, the best weapons against stress are effective planning, ongoing communication and adherence to the agreed-upon scope and objectives. Consider this preparation time an investment in the future success of the audit rather than a burden. 

Preparation should include the following activities:

• Research the audit area and read any available background information, as this builds credibility. Background information can be found in prior work papers, websites, newsletters or procedure manuals. Reviewing competitor information may also be useful and can provide additional industry insights that lead to value-adding recommendations.  
• Contact the interviewee and verify the subject matter you plan to discuss and the meeting objectives. Use this knowledge to prepare a written agenda, which you should email to participants in advance of the meeting. Using the procurement example above, you can state that the meeting objective is to walk through the process from purchase approval to vendor payment. This will ensure the client is adequately prepared and that the appropriate process owners are included in the meeting.
  • If you plan to obtain document copies, make that clear in advance of the meeting. A useful tip is to ask the process owner to email screenshots (or other documentation) to you at each step of the interview, including a brief description of the document in the subject line. If it is not possible to get emails during the interview, keep a detailed list of requested items, and be certain to use the same document names as the client.
• Include specific questions, clarifications needed and any required background information on the agenda. 
• Confirm the meeting date, subject matter and other key points in writing a few days before the scheduled interview.   
• Practice your interview questions to increase your confidence.

Conducting the Interview

When conducting the interview, the following strategies may be helpful:

• Open the interview by introducing yourself and thanking the participants for their time. If there are several process owners in the meeting, ask each to introduce themselves and explain their areas of responsibility. 
• Use terms that are understood by the client, not audit jargon. If the auditee uses an unfamiliar term, ask for clarification.  
• Distribute a copy of the agenda and re-state the purpose of the interview and the topics you wish to cover.
• Explain that you wish to walk through the entire process and clarify any expectations, such as obtaining screenshots. Give an example of the level of detail you wish to obtain and ask if they have any questions.
• Critical Concept: Do not assume the points described above were previously communicated to all meeting attendees.  
• Take notes to document key processes, but do not try to write down every word or phrase.  
• It is good practice to pause periodically and re-state your understanding of the key points.
• When ending the interview, state the next steps, such as providing a draft of the narrative for validation or scheduling a follow-up call to clarify any open points.

Critical Errors to Avoid

Missing Key Processes

When conducting a walkthrough, the main objective is to document the key processes and controls, not every step in the process. To keep things organized, it is helpful to think of a flowchart with decision boxes. For example, you may begin by asking about the procedure to approve a purchase. Once that process is understood, you can ask about the handling of unapproved or rejected purchases, and what would cause a purchase to be rejected (e.g., the purchase exceeds the purchase order limit). Asking about both approved and rejected transactions ensures that all relevant processes are documented. You may also want to ask how often purchases are rejected and why.

Insignificant Processes

Another risk is getting bogged down in data that is immaterial. When walking through purchasing processes, there may be transactions that are exceptions to the normal process, such as manual purchase orders or emergency expenditures. Clarify the frequency and materiality of these items before deciding to invest time in documenting matters that may be immaterial or insignificant. These items can be discussed later if they are selected as part of your substantive sample.  

Jumping to Conclusions

Using the written agenda, you should have identified all key process owners. However, there may be situations where you believe process gaps or missing controls may exist. In that case, you should calmly verify the facts with the interviewee and then follow up with their supervisor. While your initial assessment may be correct, the supervisor may have already developed effective compensating controls.  

Manual or Automated?

When documenting a key process flow, you should clarify which steps, if any, are automated. This important point is often overlooked when drafting the preliminary walkthrough, and can lead to confusion and excessive follow-up questions.

No Time for Self-Review

Be sure to build time into your budget to review your draft narrative, and consider having a peer read the draft and give you feedback. Before performing the self-review, you may wish to set the document aside for a few hours to clear your mind so you have a fresh perspective. In addition, make use of the spelling and grammar check features in your software. Failure to do so may make the draft appear unprofessional and sloppy.

Inaccurate Information

Once the self-review is completed, send a copy of the narrative to the process owners and ask for their feedback. If additional clarity is needed, schedule a follow-up meeting with the process owner.  

Conclusion

The PING methodology that works best for each auditor will vary. However, the information above provides a framework to assist inexperienced auditors in approaching interviews and can be useful to more experienced auditors as a reminder of best practices and potential pitfalls.