Posted by PTL Group
PTL Group
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on Friday, 23 September 2016
in Business in China

Do You Need an Operational Audit for Your Chinese Office?

When would you need to conduct an operation audit?

When we meet managers from international companies’ headquarters they often tell us their concerns about their Chinese activities: after a few years they have the feeling that the situation is not under their control anymore, or at least they feel they don’t know the details of what’s happening in their Chinese office.

Other times, we meet companies that, after spending some time in China, have the need to grow or downsize their local activities.

Whichever might be the case, this is the right time to assess your business so you can gain back full control of your Chinese branch, or understand how to better proceed with changes you’d like to make in your business. This is the right time to conduct an operational audit.

 

How does PTL’s professional team conduct an operational audit?

The operational audit that PTL does is quite different from the “official audits” required by the law and by those conducted by the big auditing companies. The audit that PTL offers is a real “hands on” process that helps you to review the operational efficiency of your key company departments. This is an independent evaluation of your China operations that results in an analysis-based report with specific recommendations supported by an immediate plan of action for improving your business.

The audit begins with an initial meeting with all the managers of your company to gain a deep understanding of the key operational functions.  During this meeting, we define the focus areas which typically include the finance, human resources and logistics departments.  At this point, the objectives of the audit will be confirmed and finalized.

Next are the compliance checks. This is probably the most important stage of the audit, as lack of compliance can destroy a company overnight – especially in a business environment like the Chinese one. Our experienced audit experts ensure the accuracy and validity of all essential licenses that follow Chinese law.

Next we begin the “hands on” part of the audit. In this phase the audit team thoroughly reviews the implementation of internal controls and key processes. This means that our team talks to all your employees, observes the interaction between people and departments, analyzes all work flows, and checks the implementation and execution of work processes. All the outcomes of these activities are summarized in a concise yet detailed report that includes, if necessary, recomendations for improving your business.

At this point the audit is finished and your managers will have a clear understanding of your business’s status.  They’ll be able to discuss the report findings and determine follow-up actions that will improve the health and the success of your business in China.


Case study of an operational audits PTL has conducted

PTL was contracted by a European manufacturing company to conduct the operation audit for their Chinese subsidiary. The audit was conducted in two steps: document reviews and onsite investigation and interviews. 

Throughout the thorough operational audit, there were two main aspects that represented huge potential risks for the company: finance and HR management.

For the finance part, the cash reserve did not match with the increase of sales. Tight cash flow, lack of overdue payment management and existing large loans undermined their profitability and paved risks for the future. Another issue discovered by PTL’s auditing team was that the sales contracts did not secure the payment terms and the finance department was not able to build up a healthy and effective system to deal with overdue payments.

From an HR point of view, there were flaws in their labor contract and handbook. There were terms missing and some terms (e.g. maternity leave length did not comply with Chinese labor law), which may have caused big issues if there were any employee conflicts. Furthermore, the internal organization structure was unclear, e.g. the HR manager was also in charge of finance management, etc.

The company’s headquarters were very satisfied with the audit findings and instigated internal adjustments according to the report. Moreover, they saved money and time compared to their original plan, which was to send a European audit company to China to conduct the audit.

 

Check operational audit service PTL offers and contact us

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