Do you need an Operational Audit of Your Chinese Office?

October 28, 2018
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When would you need to conduct an operation audit?

Often, when we meet managers of international companies, they express concerns regarding their Chinese activities: after few years of operation they feel in less control, or at least they feel they don’t know the full details of their Chinese office operation.

Other times, we meet companies that, after operating some time in China, need to adjust – increase or downsize their Chinese activities.

In those situations, assessing your business is due. The assessment or audit will be a tool that will assist you to 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 GROUP’s professional team conduct an operational audit?

The operational audit that PTL GROUP offers is different from the “official audits” required by law and by those conducted by big auditing companies. The audit that PTL GROUP offers is a “hands on” process that helps you to review the operational efficiency of the key departments at your company. We offer an independent evaluation of your Chinese operations. Based on the evaluation, we provide an analysis-based report with specific recommendations and a proposed action plan for improving your business.

The audit contains an initial meeting with all company’s managers in order to gain a deep understanding of the key operational functions.  During this meeting, we define the focus areas which typically include finance, human resources and logistics departments.  At this phase, the audit’s objectives are confirmed and finalized.

Next are the compliance checks. This is probably an 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 get to the “hands on” part of the audit. On this phase the audit team thoroughly reviews the implementation of internal controls and key processes. This means that our team talks with all employees, observes interactions among people and between departments, analyzes all work flows, and checks the implementation and execution of work processes.

The outcomes of these activities are presented in a report that includes, if necessary, recommendations for improving your business activity processes. PTL GROUP team will discuss the report findings with your company’ managers and consult in order to determine follow-up measures that are needed to improve the company’s operations and set the company on a path to success in China.

A Case study of an operational audit PTL GROUP has conducted

PTL GROUP was contracted by a European manufacturing company to conduct the operation audit of their Chinese subsidiary company. 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.

The main finding in finance showed that the cash reserve was not compatible with the increase of sales. Tight cash flow, poor payment management and increasing load of payments overdue and sizeable loans, undercut the company’s profitability and contributed to future risks. Another issue discovered by PTL GROUP’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 perspective, labor contracts were faulty. Terms were missing and other terms did not fully comply with Chinese laws. For example, maternity leave length did not comply with Chinese labor law. Furthermore, the internal organizational structure was unclear. For example, HR manager was also in charge of finance management, etc.

The audit enabled company’s Headquarter management to instigate internal adjustments based on the report. Those changed saved time and money and the company abandoned its plan to send a European audit company to China to conduct the audit.

We assist many international companies to establish an audit and control mechanism for their Chinese branch and will be happy to assist you as well. Contact us for a free confidential consultation.

Read more about our diverse services to international companies.

 

Good luck and see you in China!

 The PTL GROUP team