(a tool to maximally represent owner interests and to uncover potential irregularities, as well as to increase business efficiency)
When a company decides to establish or acquire a subsidiary, business opportunity is inevitably accompanied with some risks. An effective way to minimise risks is efficient internal audit.
1. In our experience, owners use the following methods to try and supervise their subsidiary:
Very rarely – Using local internal audit, under the professional guidance of the parent company’s audit department. This often means a single person who do not and cannot have the diverse professional knowledge necessary for the task. Additionally, they may not have enough to do.
Occasionally – The foreign company’s audit department conducts the internal audit; the Hungarian subsidiary does not have local internal audit. This solution may also entail some significant challenges:
- geographic distance (lack of presence) and lack of local knowledge;
- cultural differences and low incentive to cooperate;
- regulatory differences despite the harmonised EU legislation; rapidly changing Hungarian legal environment;
- language problems (e.g. contracts are typically written in Hungarian, which is difficult to check);
- cost-related problems: travel, accommodation, daily allowance, higher wages;
- competency problems: not all necessary knowledge can be provided in-house;
Most frequently – The heads of the parent company or the foreign owners settle for the annual audit by an independent external auditor, which primarily looks at the adherence to rules, lacking focus on business aspects, processes, and contracts of the daily operations, and the expenditures and the efficiency of the operation. Here we would like to point out some of the differences between an internal control (or audit initiated by an owner) and an external audit:
In conclusion, we find that it is difficult for small and medium-sized foreign companies to efficiently supervise their Hungarian subsidiaries.
2. What does this mean in practice?
- poorer efficiency / unnecessarily higher costs;
- undetected potential or real irregularities and abuses, and the operational environment that enables them;
- lack of prevention and lack of deterrence from activities that go against the law or business interest.
3. We offer solutions to these problems and challenges. You can choose between two options:
- complete outsourcing of the internal audit of the Hungarian subsidiary (outsourcing);
- partial outsourcing of the internal audit of the Hungarian subsidiary, in cooperation with the audit department of the parent company (co-sourcing);
4. Our skills and competences:
- Our staff and experts have diverse management skills and experience in controlling.
- We are familiar with the regulatory environment, and we keep up with the rapid changes in the field.
- We utilise a well-developed methodology and processes, sophisticated techniques and analytical tools, and a forward-thinking approach. We combine custom expert intelligence and machine-based big data methods that allow the analysis of large databases.
- For the analysis of big data and the detection of risks and anomalies, we have artificial intelligence-based, intelligent data analytical resources: data pre-processing and analysis (ANOVA, PCA, correlation analysis, data visualisation), fraud detection, regression analysis, using predictive methods.
- We have well-developed collaborative skills.
- We offer a flexible and cost-effective solution: you will only use and pay for the resources you actually need; you will only pay for productive time.
5. What kind of tasks do we undertake?
6. Specific audit activities, areas to review:
Supply agreements, suppliers:
- pricing /using market prices; purchase prices
- payment terms, warranty, contractual penalty agreements
- calling for competition, achieving the best possible terms
- conflicts of interests and links regarding the control or ownership of suppliers
- selecting suppliers, decision-making, order process, delivery terms, quality control of suppliers
- examining the meeting of goals, bonus payments
- payment of premiums, target bonuses, bonuses
- payment of commissions
- ad hoc payments, assignment contracts
- entertainment expenses
- car use, reimbursements, daily allowances, and visit costs
- analysis of the supply chain, cutting out middlemen
- pricing, discounts, sales price, payment terms
- subcontracting, subcontractor agreements
- smaller amount and cash invoices (database analysis)
- asset disposal, depreciation and sale
- scrapping and asset disposal protocol, sale of scraps with regards to raw materials, end products and goods
- inventory procedures, managing inventory shortage
- litigation, submitting claims
- sale of claims, factoring
- management of accounts receivable, analysis of bad debt
7. What do we produce?
- Report: on the audit conducted and its results (one-off or continuous)
- Recommendation: how to reduce or eliminate future risks (one-off or continuous)
8. What do clients gain by outsourcing or co-sourcing internal audit?
- reduction of business risks
- increase in integrity on the organisational, company level
- profit increase (reduction of avoidable and unnecessary costs, exploration of potential additional earnings)
- scalable and varying costs, as opposed to permanent and fixed costs; only productive time is paid
- experts paid for only the given tasks
- minimal administrative and general costs, e.g. office, technical equipment, posted work, etc.
- saving the cost of training internal auditors
9. How to contact us
Please contact us if you are interested or have any questions:
What are the situations when managers (and most often, owners) of an enterprise want a transition in the management of their business?
In our experience, these situations may cause changes in both the management of a company and in its ownership, requiring thorough preparation and groundwork. Essentially, we are equipped for the preparation and management of the following situations:
- Handing over the company management, preparing an exit strategy and the handover:
- Partially or fully affecting company operations.
- Handover to a family member or an external party.
- Prompt solutions or step by step over a longer period of time.
- Reducing ownership interest and control in a company:
- By a partial sale of ownership interests or by raising capital with a new partner.
- By a complete sale of ownership interests either with or without raising capital.
The transition management projects are implemented by us taking the following main steps, (subject to agreement):
- A preliminary assessment supported by the FRIISCORES evaluation system:
assessment of goals, intentions, attitudes, and the situation.
- Clarifying the aims, agreeing on how to collaborate
- Elaborating, discussing and agreeing on a strategy, execution plan and time-frame.
- Key enablers:
- company: primarily the operation, organisation, procedures, controlling, as well as performance measurement, and accountability. (The scope is not including the general improvement across the company, but focusing on enabling the company for the change.)
- Management: changing entrepreneurial/managerial role, for example attitude, approach, accepting the new rules of the game:
- handover of management (if ownership remains)
- handover of management and preparation of the new owners for the role (for example in cases of handover to a family member)
- preparing for the necessary personnel changes,
- elaboration and implementation of a legal solution,
- managing and follow up of the change.
How to contact us
Please contact us if you are interested or have any questions: