Cost audits verify expense records and accounts. Audits also ensure that accountants and bookkeepers are in compliance with ethical practices. Effective cost audits provide a complete breakdown of expenses that give a company financial clarity about accounts. Although they provide such transparency, there are many disadvantages to conducting cost audits.
One primary disadvantage associated with cost audits is the excessive fees. Auditors are typically independent contractors who can charge relatively high prices for services rendered. In addition to initial charges, auditors may increase fees in the middle of the project if companies fail to prohibit such action in the contract. A person or corporation can essentially go from paying $4,000 to $6,000 for an audit.
Cost audits are also lengthy processes that require employee devotion. Although the auditor may be an outside contractor, employees must provide requested information and be accessible in case further explanation of documents is necessary. People must also provide contractors with a proposed schedule. If a company wants an audit to be completed in three months, employees must give the auditor a road map on how to accomplish the goal within the given time frame. This process requires additional time and effort on an employee's part.
Although thorough, an auditor's report is usually given three to five weeks after the balance sheet is released. This means people who have been stealing from an establishment have nearly a month to form an excuse or leave the company. Regardless of the chosen option, time lost between the balance sheet release and auditor's report may cost the company money as evidence against the employee weakens.
Because a major part of the process involves estimating, there's the possibility of numerical figures being wrong. In addition, if receipts and other forms of recordkeeping are skewed, an auditor relying on such documents may produce an inaccurate report. Unorganized companies won't find cost audits helpful, because the process merely lays out information without putting it in order.