CHAPTER 4

1. List the 7 Es and explain how they impact organizational success.

The 7Es are effectiveness, efficiency, economy, excellence, ethics, equity, and ecology. The 7Es
are design to help auditors add value to the organization and shows the clients that they really want to
contribute to the organization’s success. These seven elements are interconnected to each other.
Effectiveness refers to achieving established goals and objectives while minimizing the use of resources
but generating great products or services refers to the efficiency of an organization. Economy promotes
executing what an organization needs to do which should provide quality which refers to excellence.
Also, we must always act with honesty and integrity and should encourage equity in all times. Also,
when delivering products and services, we must also preserve the environment (Murdock 2016 pp. 86-
95). If these are achieved or followed by an organization, the rate of success is very high. The assistance
of these 7Es guarantees the success of an organization, if implemented and followed accordingly
because it helps in monitoring operational procedures whether it is aligned with the willingness of an
organization to achieve its goals and objectives.

2. How does the concept of effectiveness affect an organization’s strategic and operating plans?

Operational auditing primarily focuses on identifying opportunities to improve the efficiency and
effectiveness of an organization's operations. We all know that every organization possesses mission,
vision, goals, and objective that guide them to success. Effectiveness refers to how well an organization
accomplishes its objective. It shows how an organization are making progress in their efforts to achieve
their set mission, vision, goals, and objectives.

Effectiveness consists of comparing the planned outputs with the actual outputs (Murdock, 2016
p. 86). Meaning, effectivity is measured by expressing how well a company’s net profitability is to be
compare to its target profitability. To see if an organization’s strategic and operating plans are effective,
the company should examine whether these plans and strategies are in line with the organization’s
objective and goals. If the resources used in planning delivers an expected result, then we can say that
the strategy is effective. Also, to determine if a strategy and operational plans are effective, the
organization should measure the performance and see to it if it will achieve your company’s objective.

3. List three examples of how efficiency can be used as a competitive advantage.

Efficiency refers to the capacity of an organization to produce the expected result with least
expenditure of materials, money, time, energy and many more. Put simply, it is the capacity of the
organization’s process to use the least possible inputs but still results to the highest possible outputs.

An organization can ascertain if they operate efficiently by producing products without waste.
By this, an organization can achieve its goal of maximizing profits by producing and selling product
without waste which can be a competitive advantage comparing to other companies.

Also, to achieve efficiency, organizations should include in their personnel, individuals that has
skills essential in achieving the company’s objectives and goals. Recruiting personnel and placing them
to areas that they are most suited promotes freedom, flexibility, motivation, and great work
environment. In that way, employees can provide good service that can lead to the organization’s
efficiency and advantage to the organization (Murdock, 2016 p. 87).

Competitive advantage refers to the advantage of an organization over their competitors

obtained by producing products with lower prices but provides greater value (Twin, 2020). Producing
high value products requires the use of modern technology. Using modern machineries and equipment
that has the capability to work productively, can boost efficiency and provides quality products.

4. Link the concept of excellence to the work of internal auditors and how it can be incorporated in
audit programs.

Excellence is not all about meeting or exceeding the expectations of customers but should focus
in delivering what is promise and provides products or services with high quality. According to Murdock
(2016), “differentiation is based on the perceived value that customers derive from the product or
service and when developed and applied correctly, can result in higher profits” (p. 88).

Quality is important because it provides great value to customers which can also be a significant
advantage to an organization. Connecting to the incorporation of audit program, excellence to the work
done or to be done by internal auditors are also important. Internal audit usually assists organization in
identifying and minimizing risk. In some cases, organization also want the internal auditors to help them
improve its ability to provide high quality products or services to their customers. Since internal audit
also has customers like their clients, internal auditors should satisfy their customers and provide
excellent work. If internal auditors exercise excellence, they can provide greater value to the
organization and make good decision for the betterment of its clients.

5. How can failure in ethics affect organizational success? Is it something that can be audited?

Every organizations are required to implement strong code of ethics and should emphasize the
importance of integrity which is a necessary element for everyone to possess because it is one of the
reasons for success. However, every organization cannot accurately control this since ethics deals with
individuals’ viewpoint regarding what is good or bad, so it is different from person to person. Ethics
impacts everyone and that includes every professional’s job including internal auditors.

Since internal auditors must communicate the result of their assessment and provides
suggestions and opinions for the success of an organization, it can affect an internal auditor’s ethical
behavior. Not only internal auditor but this happen to all people. Some people apply their own personal
morals when attempting to solve a certain situation which is sometimes different from the company’s
moral or to what is legally and morally right and wrong and this can cause problems.

If failure in ethics in a business becomes public knowledge, it will result damage to the
company’s credibility which is very important to all businesses to be successful. Because of this, a
business can lose customers and even if a business may recover their credibility, it will be hard to gain
the trust of the customers again and may find other business that will meet and satisfy their needs. It
can be audited by reviewing and identifying what and where goes wrong and applying measures for the
betterment of it.
6. Equity is often examined in the context of compliance with government employment and
termination laws. Give three examples of how equity manifests itself in operations and the costs to
the organization for failing to sustain these concepts.

An organization should have a fair environment where everyone or anyone can participate and
has an opportunity to show their full potential. Good working environment (without prejudice,
favoritism discrimination, etc.) can create a healthier and happier workplace that allows employees to
render great services and produce quality goods or products.

Discrimination in promotion, vendor selection and hiring processes can negatively affect an
organization. Basing on the gender, race, age, social class, sexuality, or religion of anyone who to
promote, who to select as the supplier and even when hiring people can give damage to the company.
Like for example, in choosing who to hire, the organization favors younger personnel than older one, or
in selecting supplier, the organization wants the big-time suppliers, or in promoting someone, looking at
individual’s skin color can promote demotivation to employees because they see the injustice done. This
can cause employees to perform work inefficiently. Worst, it may lead to high turnover in the
organization which will obviously impact the productivity and quality of the organization negatively
(Murdock, 2016 p. 93).

On the other hand, promoting equality and dignity to employees can generate higher motivation
and leads to better performance. Organization must see every individual’s potential, skills, and
knowledge in choosing someone to promote, hire and choose as supplier because in that way, they can
perform efficiently. Manifesting equity also leads to more stable workforces meaning, decrease in
possible turnover or resignation and can cause good reputation on the organization.

7. Describe ways to monetize the concept of ecology, so we don’t only rely on altruistic and emotional
motivators, but also economic ones to encourage environmental stewardship.

Every day we engage in activities where we harm and degrade the environment intentionally or
unintentionally. As people who enjoys things came from nature, we must acknowledge the vast
contribution of ecological systems to human well-being to preserve and sustain the nature.

One way to monetize the concept of ecology is to reveal the huge economic contribution of
nature services to public. It is true that we are not aware of how nature provides significant value and
diverse services to humanity. Some people say that measuring economic services can help promote
awareness to all people which will also help to prevent further destruction and institute redevelopment
of the nature. Some people believe that the best way to reveal nature’s value is to present in terms that
policymakers understands the most which is in quantitative figures or simply, money (Unmüßig, 2014).
In this way, we do not just use or protect the human environment through conservation and sustainable
practices but also, we look at the economic value (prices) of what we are using or wasting.

8. Explain how an internal audit department can set goals and metrics and incorporate the 7 Es in its
annual performance report highlighting improvements within the organization.
 7Es (effectiveness, efficiency, equity, ecology, ethics, excellence, and economy) is framework
that assist internal auditors look for ways to add value to the organization (Murdock, 2016 p. 95).
Internal audit department can set goals and metrics by incorporating the 7Es when it comes annual
performance report and see to it if there are some instances that may contribute to the improvement of
the organization. Internal auditors can align their judgement on how well the programs, processes, or
activities of an organization with the 7Es. In this way, they can identify if there are some loopholes to
address or any improvements to be done in certain areas. Also, 7Es provides themes for the scope and
programs of their audit and consulting activities. Assessing whether the performance of an organization
is consistent to 7Es, internal auditors can have an easy way to highlight and communicate achievements
and improvements in their annual performance report.

9. How does the concept of excellence compare to criteria in the CCCER/5C Model used by internal
auditors?

Excellence means executing everything with high quality as possible and does not only depend
on meeting or exceeding the expectations of clients but also delivering what is promise and rendering
work with high quality (Murdock, 2016, p. 88). On the other hand, the CCCER model identify and list the
criteria, condition, cause, effect, and recommendation of different items that internal auditors believe
need correction or assessment (Murdock, 2016, p. 55). Both the concept of excellence and CCCER model
promotes effective and efficient auditing in the performance of an organization. The difference lies in
the expected outcome. The concept of excellence focuses on executing and delivering goods and
process with high quality while the CCCER model focuses on achieving the expected outcome in
consideration of the criteria, condition, cause, effect, and recommendation.

10. Give an example of how the 7 Es can be used when performing a site visit review.

Site visit reviews are often conducted to perform walk throughs to the production process of an
organization. It is also done to inspect internal and physical controls and monitor activities (Mahbrod &
Fredickson, 2020). Incorporating the 7Es in performing a site visit review can be very helpful. During site
visit review, internal auditors should be able to evaluate and compare planned and actual output of an
organization and see to it if the company is making a progress and exerting efforts in achieving their set
goals and objectives. Also, a site visit review includes examining physical inventory counts. Internal
auditors should observe and examine the company’s controls and procedures when it comes to
inventory process. In this way, internal auditors can measure the capability of an organization to
produce expected outputs without incurring insignificant cost and may be able to deliver goods and
render services with high quality. Internal auditors should also see to it if the products produced by the
organization are environmental-friendly. Also, internal auditors are required to examine not only the
procedures, programs, and policies of an organization but also the people within it. They should
evaluate if every employee is acting with honesty and integrity. Internal auditors should observe the
working environment of an organization and see to it whether equity is always practiced.
REFERENCES:

Twin, Alexandra. (2020, July 7). Competitive Advantage. Retrieved from

https://www.investopedia.com/terms/c/competitive_advantage.asp

Unmüßig, Barbara. (2014, August). Monetizing Nature: Taking Precaution on a Slippery Slope. Retrieved
from https://greattransition.org/publication/monetizing-nature-taking-precaution-on-a-slippery-slope

Mahbod, R., & Fredickson, M. (2020, May 8). Overcoming site visit limitations in the pandemic.
Retrieved from http://journalofaccountancy.com/news/2020/may/overcoming-auditing-site-visit-
limitations-during-coronavirus-pandemic.html

Murdock, Hernan. (2016). Operational auditing: Principles and techniques for a changing world. Boca
Raton, FL: CRC Press.