CPE for Government Auditors

How to perform root cause analysis using the elements of a finding

Root cause analysis is a very fancy term for something most three-year-olds do naturally.  Three-year-olds ask “Why?” about all kinds of random stuff such as, “Why do I have to wear sunscreen?” or  “Why are your feet so big, Mommy?”

root cause analysis

Why?

Lean Six Sigma literature calls this natural curiosity, ‘the five whys.’  You guessed it, they recommend that you ask ‘Why?’ at least five times to uncover the root cause of an issue.

Play with the cause 

Another way that auditors can get at the root cause of an issue is to play with the elements of a finding  (by the way, GAO, the Uniform Guidance, and the IIA all recommend using all five elements to describe a finding).

Pretend that you are auditing cash for a small city and the clerk that performs essential cash duties left for a better job.   No one took over her duties, so cash flow projections have not been performed for six months.  Here is a rough outline of the audit issue:

CONDITION:
The City has been short of cash in the general fund eight times in the past three months necessitating expensive emergency transfers initiated by the bank.

EFFECT:
The bank assessed processing fees of over $400.

CAUSE:
Cash flow projections have not been performed for six months.

CRITERIA:
Accounting policy number #724 requires cash reconciliations every month

RECOMMENDATION:
Ensure that there is enough cash to cover scheduled payments by projecting cash flows every month.

So that was our first take on the finding. But are we done yet? Well, we could be… but not for this newsletter! Instead, let’s work with these elements until we find the root cause of this problem.

Why do you need to perform a root cause analysis?

In other words, why ask why? Because finding the root cause is like killing the queen ant in the ant mound. Yes, it is good to bump off a few ants here and there—but to be really effective, you have to get to her. (Yes, Amdro, your advertising works!)

To handle an ant problem, you must kill the queen.

By playing with the elements of a finding, you can uncover the root cause and find that queen ant. Root cause analysis is always a good idea—even if you decide not to approach the finding from that direction – for three reasons:

  1. You don’t want to be caught unaware later by an issue that that a few more questions could have uncovered, especially if it pertains to an area that you have just been auditing. How embarrassing to spend two weeks on an audit only to find out later that you missed something bigger and more significant right under your nose! If the issue surprises you, clients and peers may infer that that you did not do a thorough auditing job.
  2. The root cause may be significant enough to change the focus or direction of your current audit. It may even change the focus of your next engagement. All audits should be driven by the highest risks. Asking “why” and uncovering root causes exposes risk areas.
  3. Resolving the root cause will also tackle issues you didn’t even know about. So, you have ants in your yard and your kitchen, but unbeknownst to you, they are also in your bathroom!  Best to find the mound and wipe it out before they show up in your bedroom or in your kid’s toys.  Instead of focusing on the symptom, hit the root cause to eradicate more issues now and in the future.

Roll up the cause

One of many ways to uncover the root cause is a playful little technique I call “rolling up the cause”. Simply take the cause of the finding and roll it up higher in the outline to make it the condition. Then ask yourself, “What is the cause of this new condition?” Perhaps looking at an example will help:

Taking the example we were just working with—our new condition is:

CONDITION:
Cash flow projections have not been performed for six months.

Now, act like a three-year-old and ask, “WHY?”

CAUSE:
No one was assigned to do cash flow projections.

RECOMMENDATION:
Assign someone to perform cash flow projections monthly.

Are we done?  No, let’s roll up that cause again…

CONDITION:
No one was assigned to the task (this was the old cause—see, we rolled it up!).

“WHY, momma?”

CAUSE:
There was no job description for the accounting clerk.

RECOMMENDATION:
Assign someone to do cash projectionsand document the duty in the job description.

OK, that is fine, but until we find true root cause of most audit issues—namely ignorance or denial—we aren’t finished. So roll the cause up one more time. Our new condition is:

CONDITION:
The duty was not detailed in a job description.

Suck your thumb and ask “Why?”

CAUSE:
The whole accounting department does not have job descriptions.

Now what if you keep going and ask, “Why don’t you have job descriptions in the accounting department?” And what if the client says “I didn’t know we needed those.”?  Congratulations! You have now found the queen.

If you take care of this problem by recommending that the accounting department create job descriptions, you might simultaneously take care of problems in other areas of the accounting department and keep those ants out of the toys.

So, now you have a choice. Either write the issue from the job description slant or the cash projection slant. Or, if you are feeling generous (ha!) you could even write both.

Yes, you can move these elements around ad infinitum

Do you get the sense that you could play with the order and content of these elements until the cows come home? Well, you are right. Add a few people and opinions to the mix and you have no limit on how many versions of a finding a team can come up with!  Play with a few versions to hit on the right approach that gets you closer to tackling the root cause.

As always, thanks of reading!

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