There was a day when quality was not emphasized or discussed with customers, but that’s not the case anymore. Today, quality is the cornerstone of a client’s experience. Customers demand quality, and much time is spent discussing service levels and score cards. Companies will spend extensive time explaining errors and the controls that are put in place to prevent them. Stricter competition, a demand for visibility and accountability, and a cultural shift to put force and rigor into the positive experience of a customer or borrower is changing the landscape of what defines quality and its importance. This paradigm shift toward a priority of operational perfection is driving organizations to question how to measure, how much is enough, and what is the best strategy to design a successful quality auditing and controlling (QA/QC) foundation.
QA/QC ensures that there are proper controls and visibility over processes to mitigate risks. Product quality, data integrity, reputational and financial impacts, and compliance with applicable laws and regulations can all be successfully monitored with a QA/QC approach that is the right size and strategy for each organization.
QA/QC in a COVID-19 World
As we continue to understand the impacts and changes to all our businesses from COVID-19, we know that a higher level of remote processing is occurring, while in-office capacities continue to be limited. A larger remote work force re-enforces the importance of a rigorous QA/QC routine, as it may take greater efforts to ensure standards are being met when visual review of procedures is no longer possible and work from home environments may have less control. Since the pandemic begin, many companies have downsized or reorganized, forcing an adjustment to complete the same amount of work with reduced staff. Lastly, vendor constraints may have caused companies to build work arounds for processes, requiring longer hours to complete the work in a timely manner. With these changes, it is more important than ever to make sure your processes and controls are working as they should, and that there is strong internal and external communication about processes and quality expectations.
Defining Success Through a Strong QA/QC Process
Whether a polished QA/QC process is already in place, or the team is just beginning to create one, there are many ways to structure a process that demands quality and visibility. Regardless of industry or product these are five translatable tips to ensure QA/QC departments have the best designs in mind for their organization.
- Documentation Review – make sure that all processes are documented and have regularly scheduled reviews to ensure accuracy and account for adjustments to business rules and technology evolutions.
- Understand downstream and upstream impacts – the process that a team manages will never begin and end in the same hands. There are processes before, after, or both, and the soundness and integrity of all these layers and interwoven processes are critical to evaluate. It is important to understand where data comes from, where it ends up, and all the pitstops it makes in between where changes can occur. Mapping this out with a visual will be helpful for all teams.
- Ask questions – review each process with a ten-thousand-foot lens. Is there enough end to end reporting for the oversight of all processes? Does each control point have a separate review? When evaluating current procedures with subject matter experts, ask ‘how do you know?’ and ‘where is the evidence?’
- Be Proactive – acknowledge what controls can be put in place proactively, and most importantly, have a solid understanding of what reactive controls need to be put in place when and if a process fails.
- Automation – designing separate quality controls for automated processes versus manual processes may be necessary. Systematic checks and balances to prevent illogical data conditions can help streamline QA/QC and minimize data errors. QA of manual work should be approached with separation of duties, to make sure that the same person that completed the work is not the same person conducting the QA.
How Much Is Enough?
Most process managers will question how much QA/QC they should do. Ask five managers what they do, and you may get five different answers. Add on the changes brought on by the COVID-19 pandemic and there are countless other responses. To determine the most appropriate amount of QA/QC to perform, there are two basic methods to consider: statistical method (SM) and non-statistical Method (NSM).
The SM uses a mathematical equation to determine an audit percentage on a number of files. Once the audit percentage is determined, a random sample is obtained from the population. The NSM, generally the easier and quicker method, uses judgment and experience to determine an audit percentage that can be adjusted as needed depending on multiple factors. The factors used in the SM are total process population volume, expected/known quality percentage, and confidence interval, which is generally 95% or 97%. Though these are easy enough factors to use, it can get complicated in determining how far to drill down in total population volumes.
For example, if you have 10 different processes, yet each process has five clients in it, do you use the total volume for each process or for each client? The general rule of SM is that the higher the volume, the smaller the audit percentage; however, what if one of your clients has a very small number? They would have a high audit percentage, and since they are in with the total process population, they are now at a low percentage. If they receive one defect, they are at a very low-quality score as noted below.
|Population||Volume||SM audit %|
The grid shows that if you use the total process volume, the audit percentage would be 8.22%, but is that the best method for finding defects? If individual volumes are used, the lowest would be 23.03%; however, with ten processes and five clients each, that would be a whopping 50 different audit percentages to track. Even though the SM has an easy mathematical equation to determine audit percentage, it is still not as straightforward as it looks.
Learning From the Process
It is important to consider what factors will determine the audit percentage and how flexible the QA/QC is going to be. Consider expanding your variables of what needs to be audited and evaluate whether the sample size provides enough confidence that you are maximizing the catch net for defects. Ask the team how frequently they provide feedback on QA/QC results. The most effective processes deliver feedback immediately, so it can be implemented and corrected. Regular follow ups and coaching/training sessions can also heighten awareness of feedback and provides a format for a team or group to learn from each other. Trending failures or anomalies may need a deep dive to understand if the QA/QC needs to be adjusted or if something in the desk procedure needs to be addressed. With so many factors to consider, there is no one size fits all approach. However, a multi-faceted approach that is dynamic and evolving depending on the needs and evolutions of the business, is probably the best strategy.
It’s important to gain confidence in each process. Be consistent with review to ensure that the correct control types and quantities are in place. Make sure the group can show evidence that the process is being completed the way it should be, and spend as much time documenting how to react to findings as you do documenting how to build the process. Quality control and auditing is a critical piece to ensure the success and sustainability of any company.
Fred R. Holstein is vice president and national tax setup manager for LERETA, a provider of tax and flood services to the Mortgage Industry. He can be reached at email@example.com