For insurers, preparing for the annual audit can be a resource- and time-intensive process. Between dealing with inefficient processes and poor-quality data, the finance team has to endure endless days of manually identifying transactions and journal entries, reconciling and consolidating accounts and then verifying and adjusting balances.

The process is strenuous and frustrating, taking a toll not only on the employee but also on the quality of their financial reporting. This spills over into the audit process where missing, wrong or out-of-date and inaccurate information hinders the processes and may lead to audit failure. –

But it doesn’t need to be this way.

When preparing for your annual audit, there are 5 core things that you can do as an insurer to improve your audit readiness and ensure a smooth and successful process. 

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1. Put in place Standard Operating Procedures (SOPs) and checklists 

An important aspect of preparing for the annual audit is a Standard Operating Procedure (SOP) document. Having a documented and standardized step-by-step operating procedure will help your team stay organized and understand how to handle any task or process. Together with an audit readiness checklist, a procedural guide will ensure that you do a timely generation, verification and approval of the critical final reports in time for the audit.

Some of the key areas that you should cover within your SOP are; financial reporting, receipting process, regulatory compliance and credit control. For each area, include the tasks to be done, how, when and by whom. This should help keep your team on track and improve collaboration and transparency. The key point of the SOP is to allow you to distribute the workload over the entire period, embedding the tasks into day-to-day activities and relieving pressure from the audit period. Documenting your internal processes will also provide your auditors with a roadmap to use, making both your lives easier and smoothening the audit.   

2. Know your Auditor 

As strenuous and demanding as your encounters may be, building a relationship with your auditor will contribute immensely to the success of the audit process. Establishing open channels of communication with the audit team not only gives you access to their expertise but their guidance on various matters to aid in preparing for the annual audit. They will be better equipped to familiarize your team with the new accounting standards and practices as well as legal and regulatory requirements and ensuring compliance. 

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3. Keep an updated PBC (Prepared by Client) Request List

Keeping an updated list of the documentation that you know the auditor will require is a smart move. Normally, a few months to the audit or during the interim audit, the auditor will request for audit schedules (a list of documents)  for verification of balances.

For example, for a general insurer some of the reports you will be requested to provide include; ratio of net claims incurred to net premiums earned, net claims by class, reinsurance recoveries and reinsurance premiums by class, ratio of commission paid to gross premium, trial balance, draft financial statements that agrees to the trial balance and general ledger.

For a life insurer, some of the documents that will be requested include; actuarial reports, contributions schedules showing monthly payments, detailed schedule of all contributions receivables, schedule of benefits detailing per member per benefit type (Withdrawal/Dismissal/Retrenchments), membership fund and member credit schedule.

Having this list will help you stay on top of your game enabling you to delegate tasks and allocate resources adequately. Any modern core insurance platform should be able to provide you with up to the minute reports to fulfill most of these requirements for your annual audit readiness. 

Insurance companies annual audit readiness infographic

4. Stop Bandaging over Problems

When preparing for the audit or even during the audit, you might detect some irregularities and omissions. For example, you might have payments or receipts that are yet to be posted to the general ledger accounts, so you decide to perform a temporary fix by inserting a few numbers or removing a figure in order to normalize your position.

One of the key areas we have seen insurers bandage is around  the passing of journals to the general ledger so that accounts can tally with the technical Systems or capturing of journals to clear control accounts; this leads to audit problems since the audit trail has to be reconstructed manually. You are encouraged to fix the processes ( for example the payment or the receipting process ) to ensure the root cause is addressed. These will prevent any future problems and impact positively on your audit readiness and quality.

5. Invest in a fully integrated system 

A heavy reliance on manual workflows and excessive use of spreadsheets affect the time it takes preparing for the annual audit and the quality of the audit. Automating your workflows and processes has endless benefits including eliminating manual reconciliations, making reporting easier and better visibility into your financial management process. An online, fully integrated system makes your audit preparation process more efficient and less painful.

One of the key advantages of having a fully integrated system is the trial balance is automatically updated from the technical systems eliminating errors in posting to the general ledger. This can also extend to all the channels (branch, digital and API) which ensures that no matter the source of the transaction the proper affected financial transactions are captured.

Another advantage is that tedious and repetitive processes like receipt allocations, generations of commissions, and commission payments, contributions and loan advances are automated. From our experience one of the key areas that you need to ensure are closely monitored are control accounts. Posting to control accounts like agents or brokers control accounts should be restricted to technical systems which in turn gives you an audit trail that makes auditing easier.

Any modern core insurance platform should be able to provide you with a comprehensive audit trail to support and maintain an always up-to-date trial balance. It should have an elaborate final reporting engine to fully support ad hoc reporting and regulatory requirements, APIs that allow you to be able to report and a business intelligence(BI) tool that enables you to consolidate data quickly and efficiently.

Conclusion 

Navigating the complexities of preparing for the annual audit in a time of heightened regulations and stakeholder expectations is not easy. Aside from having to deal with inefficient processes and poor-quality data, the finance team also has to grapple with increased workloads and poor-interdepartmental collaboration. The experience impacts negatively on the audit process through missing, wrong or out-of-date documents and compliance issues.  This however doesn’t have to be if insurance finance departments start focusing on the 5 key things mentioned above that are bound to guarantee your annual audit readiness and lower your costs in the process.

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