International Operations – When Something Doesn’t Seem Right

International Operations

Safeguard Your Assets and Protect Your Investment

You have built your company into an international powerhouse. Whether through organic growth or through acquisitions, you have operations in other parts of the world. While nothing is perfect, business has been humming along. You’re hitting your growth numbers – which in this economy is saying something – and your investors are happy. It has been smooth sailing until all of the sudden you get the sense that something’s not right. You have checked with your public accounting firm and everything seems okay from their perspective. You have checked with your compliance team and everything seems okay with them too. You visit with local management and they assure you everything is okay. So why then do you sense everything is not okay? Do you ignore it?

If there is a problem festering and you ignore it, it could cost you your investment (it could also cost you your job).

This situation could be applicable to you whether your company generates $50 Million or $50 Billion in revenues. While the size may be different the risk is the same. So, what do you do? The answer is called Internal Audit. What does it do? It follows a structured methodology to understand and evaluate the risks you face in each location and how effective your organization is at mitigating or controlling those risks. It will generate a report which will highlight problems that everyone else in the first paragraph seemed to have missed and then can be used as a blueprint to fix the problems.

What will Internal Audit do? It will assess and then focus on the high risk areas of your business specific to that location. An example of some of the procedures could include:


  • Bank Account Reconciliations – test to ensure bank account reconciliations are prepared timely and reviewed
  • Petty Cash – test to ensure petty cash is tracked, reconciled and payments properly approved


  • Accounts Receivable Aging Report – test to ensure that invoices are aged appropriately in the system on the report
  • Accounts Receivable Charge Off / Write Off – test to ensure that Accounts Receivables charge offs are properly approved
  • Credit Memos – test to ensure that credit memos are properly approved with the right segregation of duties and credit memos issued after period end are appropriately recorded in proper period
  • Customer Credit Approval Process – test to ensure local management has an appropriate process for evaluating and issuing credit to customers prior to making any sales to them


  • Segregation of Duties – test to ensure that appropriate segregation of duties is maintained
  • Vendor Master File and Vendor Changes (Additions, Deletions & Changes) – test to ensure that proper controls exist surrounding access to Vendor Master File
  • Vendor Additions / Competitive Bidding – test to ensure that vendor additions were properly competitively bid and approved
  • Purchasing and Disbursement Authorization – test to ensure that purchases and disbursements are appropriately authorized
  • Open Purchase Orders – test to make sure that open purchase orders are reviewed and closed timely
  • Corporate Credit Card – test to make sure corporate credit card usage is in line with Corporate requirements


  • Cycle Counting / Physical Inventory – test to ensure that counts are performed of inventory
  • Spares Inventory – test to ensure spares inventory is secured and proper procedures for requisition exist
  • Perpetual Inventory Reconciliation – test to ensure perpetual inventory listing is reviewed and reconciled to general ledger
  • Inventory Reserve (Excess and Obsolescence) – test to ensure an inventory reserve is calculated, reviewed and approved
  • Inventory – Lower of Cost or Market Analysis – test to ensure an analysis of inventory is performed to validate its value at the lower of cost or market
  • Monthly Project Review – test to ensure the monthly project review is being performed and documented
  • Project Costing – test to ensure project costing is following Corporate guidelines and in line with GAAP or other applicable standard
  • Cost Transfers or Adjustments – test to ensure cost transfers or adjustments between projects are documented, reviewed and approved


  • Agent Approval Process – test to ensure adequate procedures exist to approve foreign agents, representatives and distributors
  • Agent Contracts – test to ensure appropriate provisions are included within contracts of Agents
  • Agent Commissions – test to ensure commissions paid to Agents are in compliance with contract


  • Travel & Entertainment Reimbursement – test to ensure travel & entertainment expenses are reviewed and approved prior to payment
  • Airfare Cancellations / Credits – test to ensure airfare cancelations are properly tracked and credit applied
  • Travel Agency Contracts & Payments- test to ensure travel agency contracts are properly negotiated and competitively bid


  • Employee Compensation – test to ensure employee compensation agrees to employee offer letter or contract and/or pay slips
  • Bonus Payments to Employees – test to ensure bonus payments to employees appear reasonable and authorized by management


  • Sales Contract Review – test to ensure that sales contracts are reviewed and approved


  • Manual Journal Entries – test to ensure manual journal entries have appropriate supporting documentation and are reviewed
  • Account Reconciliations – test to ensure account reconciliations and analysis are performed on a periodic schedule and independently reviewed
  • Financial Statements Reported to Corporate – test to ensure financial statements reported to Corporate match to local accounting system

While this list is long, it is definitely not inclusive and will change based on your specific situation. An internal audit professional, such as the Internal Audit experts at Vonya Global, can customize an approach specifically for your needs. As Ben Franklin once said, “An ounce of prevention is worth a pound of cure.” Investing in small Internal Audit projects today will provide substantial long term returns. Internal Audit will provide you insight into your business and the assurance you need to let you focus on what is important.

This blog post was authored by Steven Randall. Steve is a Managing Partner with Vonya Global, a premier provider of internal audit co-sourcing, outsourcing, and consulting services; a member of the Institute of Internal Auditors (IIA) Chicago Chapter Board of Governors; a Director of the Adler-Caris Foundation, a not-for-profit dedicated to raising funds for Alzheimer’s Disease research; the President of the Oz Park Baseball Association, a not-for-profit organization dedicated to providing fundamental based baseball in a safe environment in the city of Chicago; and an Advisory Board Member of the Chicago Youth Baseball Initiative, a University of Illinois at Chicago community group dedicated to providing Chicago youth with the opportunity to play baseball in a fun and safe environment, while offering educational experiences on a world-class college campus. If you would like more information about Vonya Global or if you have a question for Steve, you may contact him through this blog, the company website, twitter, or his LinkedIn Profile.