A Six Sigma Approach to Internal Audits

R egardless of whether your organization is large or small, as a management accountant or internal audit specialist, you’re always trying to increase the effectiveness of various operational internal controls. You’ve no doubt heard about the value that Six Sigma principles can bring to your audit projects; in fact, your organization may already have a hierarchy of employees who are recognized experts in these methods. In this article, I’d like to discuss how Six Sigma phases (known as DMAIC methodology) can be incorporated into an operational internal audit project to help better assess and measure the efficiency and effectiveness of various organizational controls. What is Six Sigma? It refers to a powerful set of tools that enables organizations to take a more accurate and quantitative approach to identifying and correcting root causes of problems. As such, it allows the internal audit team to make more effective audit recommendations. This helps to reduce the costs associated with compliance (called the “Lean” effect) as well as improve the effectiveness of a company’s internal controls (the Six Sigma effect). Therefore, the goal of all Lean Six Sigma and internal audit projects is to improve internal controls by avoiding expenses that add no value to the organization. The DMAIC model (Define, Measure, Analyze, Improve, Control) presented here serves as an overall framework that can be incorporated into various internal audit projects. I want to emphasize, however, that an enterprise-wide launch of Six Sigma isn’t recommended unless the organization’s culture and management are fully receptive and committed to such a bold, complicated, and challenging process. This article will present a hypothetical framework designed to help management accountants and audit specialists conduct more-effective audits using Six Sigma principles—without the added pressure of having to fully adopt all of them.