Date posted: 17/06/2019 10 min read

Find the root cause

Root cause analysis, a method used to understand medical and industrial mishaps, is also a useful tool for auditors.

In Brief

  • External auditors are using root cause analysis to look past immediate problems to find why the issues occurred and to propose permanent solutions.
  • The technique is still evolving, but at its core it needs team members to speak freely to the reviewer and not feel defensive.
  • The end result should be improved processes that avoid a problem recurring.

STORY David Walker

ILLUSTRATION James Hancock

In 1995, a 51-year-old disabled diabetic man named Willie King checked into a Florida hospital to have a diseased leg amputated. Unfortunately, his surgeon cut off the wrong leg.

King accepted the stuff-up with startling equanimity, telling one reporter, “I’ve kind of taken it in stride”. A series of errors by hospital personnel and the diseased condition of both King’s legs were contributing factors, and King got a combined payout of US$1.15 million from the hospital and the surgeon.

But more importantly, the case highlighted flaws in hospital protocol and the mistake helped trigger a search for a new error-reduction system.

In the years following, the US Joint Commission on Accreditation for Hospital Organizations (JCAHO) identified that wrong-site surgeries occurred at a consistent rate right across the country. It used a method known as ‘root cause analysis’ to seek out the underlying, deep-down cause of the problem. It turned out that in often-chaotic operating rooms, communication becomes unreliable.

In 2003, the JCAHO put in place a simple protocol to fix that root cause and avoid another episode like King’s. Key people must now affirm they have the right patient, site and procedure, and the surgeon marks the operation’s site with a permanent marker while the patient is still awake.

Delving into the ‘why’

Modern root cause analysis was popularised in the mid-20th century by investigators of industrial accidents and aviation crashes, and was also adopted in the medical sphere. It’s essentially the process of looking past the immediate problem, for example, beyond ‘the surgeon should have listened to a nurse’s warnings’, to ‘listen to everyone’s warnings’, and onwards to, finally, a new operating process.

More recently, root cause analysis has found a place in external auditing, as the audit profession globally looks for ways to improve the quality of audits.

Root cause analysis starts with defining the problem, gathering the relevant information and identifying the issues that helped create the problem. Members of the ‘quality team’ then talk with the ‘engagement team’, sometimes in groups but usually one-on-one. These conversations repeatedly ask, ‘why?’ Once the underlying causes of any audit quality issues have been identified, the team sets about devising permanent solutions.

The Australian Auditing and Accounting Public Policy Committee (APPC) released two new guidance documents in February 2019 to help individual auditors and audit firms strengthen their root cause analysis frameworks.

Acuity spoke to a number of the experts behind the new guidance, who shared their experiences of implementing root cause analysis at their firms.

The root cause of uneaten sandwiches

Valerie Clifford FCA is the assurance risk and quality partner for PwC Australia. Her team ensures root cause analysis is performed on all of PwC’s audit reviews and inspections, internal and external, and puts in place quality improvements.

A former long-serving member of Australia’s Auditing and Assurance Standards Board, Clifford sees root cause analysis as “fundamental”. You can keep shouting “don’t do it that way” at people, she says, but to get sustainable quality improvements you need to unpick the tough cases and identify the deep underlying causes of issues.

To explain the philosophy behind root cause analysis, Clifford tells a story of everyday parental frustration – that her daughter kept bringing uneaten sandwiches home from school.

“I was saying to her, ‘I’m not going to make you lunches any more. You can make your own’,” she recalls. But her daughter insisted that wouldn’t help.

‘“So then we unpicked the why,” Clifford says. “Why wasn’t she eating her lunch? Because she’s got all these lunchtime activities on. She wants to eat lunch, but she just can’t manage a big heavy sandwich when she’s juggling doing activities.”

After replacing the sandwich with bite-sized foods the problem went away.

Clifford notes that often it’s necessary to drill down through five layers of explanations in search of the underlying cause of quality issues in audits.

Root cause analysis encourages you to understand how processes break and then how to go about fixing them.

“Good root cause [analysis] is about the why of the why of the why,” says Clifford.

“Good root cause [analysis] is about the why of the why of the why.”
Valerie Clifford FCA

Root cause analysis is an evolving technique

Find  the root cause

Traditionally, the accounting profession tried to fix audit quality issues with more training, points out Deloitte audit quality and risk partner Gareth Bird CA.

It was the US Public Company Accounting Oversight Board (PCAOB) that first encouraged auditors towards root cause analysis in the early 2010s. It’s now entrenched in major firms’ systems.

Bird says the technique is still evolving. “It’s in its infancy,” he says. “All the firms... are grappling with differences of approach and differences of opinion.”

But EY quality enablement leader Chris Lawton CA is optimistic that the relatively concentrated nature of the audit market gives it an edge when it comes to implementing new best practice measures.

Lawton’s introduction to root cause analysis came when EY first rolled out a formal program globally in the mid-2010s. Lawton believes he was well suited to the work not only because of his technical skills but also his seniority.

“I had some grey hair,” he jokes, and that made it easier for him to have the all-important talks with senior partners. 

BDO Australia’s national leader for audit quality, Jane Bowen CA, says the big benefit of root cause analysis is the time it gives participants to understand why things have happened. The process requires discussion between the reviewer and the engagement leaders.

Auditors have told BDO they like the opportunity “to stand back and think about why certain things happen, when you’re not in the midst of it,” she says.

Getting hard conversations right

For all his seniority, Lawton admits he had to learn ways to get people talking during the process. Bird goes so far as to call this the biggest challenge in root cause analysis. Deloitte now steers away from recording initial conversations to encourage people to open up. Bird also likes to match interviewees with interviewers of similar seniority.

Grant Thornton assurance partner Merilyn Gwan CA stresses the importance of getting the dynamics of the conversation right. “You’re not looking to blame anyone; you’re actually trying to understand what the underlying issue is,” she says.

“You’re not looking to blame anyone; you’re actually trying to understand what the underlying issue is.”
Merilyn Gwan CA

Lawton says a finding may be due to a client’s situation, but it may also result from an event inside the firm, such as a team disruption triggered by a major transaction. Regardless of the cause, he encourages auditors to “embrace the mistakes”.

“I try to say to our people when they’re going through root cause analysis... that this is actually quite a liberating process for them,” he says.

It lets people set out all the pressures, the things they were dealing with at a point in time.

“Everyone’s trying to do a quality job, so if things don’t go well, it’s not a deliberate result; there’s got to be something behind it,” Lawton explains. It’s also a fast track to avoid repeating mistakes.

“Everyone’s trying to do a quality job, so if things don’t go well, it’s not a deliberate result; there’s got to be something behind it.”
Chris Lawton CA

Read more:

Help on audit quality is at hand for the profession

Find out about the 2019 APPC audit guides

5 things to do in root cause analysis

Find out more

Raising the bar on audit quality

Find out what propels audit improvement

“Mutual benefits (streamlining internal audit)” by Ruth Prickett

Available from CA Library