April 5, 2017

Narratives – Beating Them Up and Making Them Stronger

Narratives – Beating Them Up and Making Them Stronger

I am a big proponent of having documented processes, such as narratives and flowcharts, for all company processes. As I have written in previous blogs, documenting processes allow others (e.g., management, auditors, new hires) to understand the processes. Here are just a few of the many benefits that underscore why documenting processes is important and necessary:

  • It allows others in the organization to understand the process in a simplified manner
  • It provides a mechanism that enables all process stakeholders to agree on how the process should be structured
  • It assigns responsibilities and compels those involved to approve documentation or suggest edits until the process is documented accurately
  • It identifies the risks and controls within the process, or lack thereof
  • It identifies potential areas for improvement by offering a visual representation of the process, which may highlight inefficiencies.

I prefer flowcharts to narratives because flowcharts allow for a simplified visual depiction of the process. Flowcharts with swim lanes allow for easy identification of the involvement and responsibilities between departments/people.  If you don’t currently have any process documentation, I suggest you follow the steps outlined in my blog about the importance of flowcharts, and flowchart development strategies.

If you have narratives, but your current process documentation is outdated or lacks sufficient detail, I suggest you follow the steps below. Once you develop a strong narrative, you can then easily translate that information into an effective flowchart.

Step 1: Read through the current narrative

  • Write your notes on hard copy or in comment notes—not within the original text
  • Make sure someone is identified for each step
  • Don’t just refer to their name; add a title and only use the title going forward
  • If someone completes a task, ask yourself if it is something that should be reviewed
  • If someone reviews something, add an explanation of what they do before they sign their name
  • Consider risks not addressed
  • Compensating controls can be suggested for segregation of duties issues
  • Spell-check

The following example shows a redacted client narrative to which I added my notes:

narrative sample

Step 2: Meet with process owners

  • Make sure all relevant people are included, or meet with them separately
  • Talk through your questions
  • Make remediation plans together. Share ideas on how to make controls stronger
  • Make a list of items they will be following up on and send it to them after the meeting
  • Get clarification on items that would not be obvious to the average user (e.g., acronyms or overly technical terms)
  • Make a plan for the next steps:
    • You will send them a list of items that they need to follow up on and then provide to you
    • You will update the narrative based on conversations
    • Send them an updated narrative for their review. If they have edits, you make them, and they will re-review until the complete narrative is accurate

Step 3: Turn the narrative into a flowchart

Why do you need a flowchart? Flowcharts simplify a given process with a visual depiction that people can better understand.

This example of a flowchart shows the same information as the narrative example above, once all questions were answered. Based on the client conversations, you can see there are now four recommendations for better controls.

narrative sample 2

You may wonder why it’s necessary to take the extra step of creating a flowchart. From my experience, people tend to skim a narrative and not pay attention to the details. A well-organized flowchart allows people to understand the process and really focus on the details.

Flowcharting is a process that an internal audit department can do themselves—or, if you prefer, you can bring in specialists to do it for you. One benefit to having specialists prepare flowcharts for your company is the fresh set of eyes they lend to your processes. This can help to identify risky situations, and specialists can, in turn, offer suggestions and recommendations for improvement—and also provide examples of best practices at other companies.

By following this guidance you will be able to use process narratives and flowcharts as tools to help you create a strong control environment.  If you have questions about your process documentation, please contact your Marcum representative.