In my role as an internal auditor, navigating the intricacies of risk assessment and control testing sometimes leaves me uncertain about whether I’ve identified a noteworthy observation, encountered an actual problem, or if there’s room for refining our processes. Recently, I discovered a method that has proven invaluable in such instances: the 5W1H Method.
The 5W1H Method, also called the “Questioning Method,” is an approach to gathering information by posing a specific set of questions. Proponents say it can be an incredibly useful tool for obtaining an in-depth understanding of the situation and solving problems. Since Rudyard Kipling extensively used the method for problem analysis and solution development, it is also sometimes called the “Kipling Method.” Popular in project management circles, it serves as a valuable tool for error reduction, process optimization, and efficiency enhancement. It can be used for internal audit planning, as well as applied to specific internal audit processes.
Considering the overlapping objectives of internal audit, which includes refining processes, minimizing errors, and streamlining operations, it prompts the question: Can the 5W1H Method be effectively applied to internal audit practices? Before drawing any conclusions, let’s delve deeper into a precise understanding of the methodology.
The Components of the 5W1H Method
The elements of 5W1H are: What, Why, When, Who, Where, and How. Note that it is important to pursue the line of inquiry in that exact order.
What –This pertains to the specific situation or challenge faced. It encompasses an understanding of the current situation, the issues being confronted, or the overarching purpose for employing a particular method. This involves considering factors such as, what has happened or will it happen if the situation persists?
Why –This involves delving into the underlying reasons for the current situation or the necessity for a solution. It prompts introspection on the causes behind the situation and the essential reasons motivating the need for a resolution. Considerations may include probing into why the situation unfolded, why a solution is imperative, and similar reflective aspects.
When – This involves investigating all the related timelines such as, when did the situation happen, when did it end, the duration, till when will it exist, and when can we take the action?
Who – It pertains to understanding who are all the relevant participants for the situation, including who discovered the problem and who will implement the solution? Also, important step it to identify who will be implementing each aspect of the solution.
Where – It involves identifying where the situation occurs, whether it is any premises, facility, or the system? Factors that can be considered are where it occurred in the system, and where are all the places it can have an impact?
How – Being the last element of the method, it pertains to tasks or solutions that can possibly address the problem. Considerations include tools, methods, resources, and other aspects that are required to address the problem.
Applying the 5W1H Method
Now that we’ve grasped the essence of this method, let’s explore its application in the context of our internal audits. To illustrate, consider a scenario where an organization has outsourced the responsibility of handling customer calls and initiating service requests in the system to a vendor. The vendor submits an invoice every month based on the time spent by its resources answering the calls, and it is processed by a competent authority after duly reconciling the invoice amount.
During my control testing, I observed discrepancies in the invoice processing for a service outsourced to a call center. While the invoice had been duly authorized and processed, a closer examination of the supporting reconciliations revealed irregularities in the recorded login and logout times of call center agents. To systematically analyze and address this issue, I applied the following steps:
1) What: What happened, what will happen if the problem persists?
- Identified that unusual login and logout times were recorded, with irregularities such as 10 hours with zero minutes of break, leading to incorrect billing.
- Anticipated the consequences: Incorrect billing resulting in additional organizational expenditure.
2) Why: Why did it occur; why is it important?
- Uncovered the absence of a second check on time data, highlighting the lack of controls on how employees recorded time and validated it.
- Recognized the need for control implementation to prevent overstated billing.
3) When: When did it occur, when can a solution be implemented?
- Observed instances of unusual login/logout times and nil break times in multiple months.
- Prescribed immediate actions: Implement a control by training resources to record time accurately and reconcile data before processing invoices; negotiate with the vendor for corrections.
4) Who: Who are those relevant to the problem, who are those who can provide a solution?
- Call centre resources who recorded incorrect times, and absence of a training manager.
- Defined relevant stakeholders for the solution: call centre resources, training agents, and personnel responsible for reconciling invoice amounts.
5) Where: Where has the problem occurred; where can a solution be implemented?
- Pinpointed the call centre as the location of the issue, and emphasizing the absence of a second-level check within the organization for verifying time data.
6) How: How can we solve this? Proposed a multi-step approach:
- Train call center resources to accurately record login, logout, and break times.
- Implement reconciliation controls by cross-verifying time data with invoices.
- Conduct surprise visits to call centers periodically for additional verification.
- Initiate negotiations with the call center to rectify past invoice errors.
By systematically employing this method, I conducted a thorough root cause analysis, affirming the existence of a problem with financial implications. The identified solution involves training, implementing controls, and negotiating corrections with relevant stakeholders. This method has proven effective in guiding a clear determination of problems and facilitating exploration of viable solutions in my internal audit processes.
While the 5W1H Method may seem overly simple, the best solutions often are. Following this line of inquiry can clarify nearly any process and lead to better problem solving and root-cause analysis. In other words, 5W1H can indeed enhance internal audit processes. 
Akhila Srirangam N. C. is a chartered accountant based in Mumbai, India, with 7 years of experience in conducting internal audits, risk assessment and control testing, and SOX testing, across various industries.