With a recent study revealing that almost a third of the FTSE 100 have used the same auditor for more than 20 years, Antony Ray makes the case for increased procurement involvement.
It was not too long ago that legal services and management consultancy were seen as areas which procurement should have little or no involvement in. Thankfully times have changed and procurement teams are now fully integrated in legal panel and management consulting sourcing. Despite this, one area of spend which remains largely untouched by procurement is external auditor services.
The reasons for this lack of involvement are unclear but may have been influenced by a number of factors. Firstly, spend relating to external auditor services is typically governed by senior level staff, who are unwilling to relent control. Secondly, the role of the auditor is perceived as extremely strategic and as a result not suitable for outside interference. The latter is reinforced by the perception that audit fees are complex to calculate. A number of external factors may however be about to change procurement’s level of involvement.
The Changing Tide
The current economic climate has greatly increased the pressure on businesses to cut costs. Procurement has already demonstrated its ability to reduce spend in professional services and senior management may be tempted to see if similar results can be achieved in external auditor spend. In fact, as a relatively untouched function, audit spend is likely to hold significant savings opportunities. It is also worth pointing out that the procurement of internal audit resource is an area where purchasing has already added significant value.
Another factor to take into consideration is the change in perception regarding what constitutes good governance. An overly comfortable relationship between external auditors and senior management may present certain advantages but, in light of high profile corporate collapses, is increasingly seen as a scenario best avoided. Part of the concern stems from the notion that this relationship leads to auditors working to satisfy senior management rather than shareholders. Many argue that best practice should entail tendering the audit position every three-five years as opposed to staying with the same auditor for more than a decade.
Procurement can Revolutionise the Market
A recent study by the Competition Commission (CC) highlighted the quasi-monopoly enjoyed by the Big Four audit firms. To combat this, the CC is keen to promote the consideration of audit firms outside of the Big Four. Armed with its experience in supplier evaluation and commitment to fair play, procurement is ideally placed to support this initiative.