The Hindustan Unilever Story

Hindustan Unilever (HUL) is one of the most successful FMCG Companies over last several decades in India. The company is among the pioneers in this field, and is known for its innovating practices across the world. The Internal audit practice at HUL is also one of the best in the country and recently, it was recognised at the IIA Excellence Awards at the IIA Bombay Chapter Annual Conference 2017, Mumbai. Mr. Hariharan Venkataraman, the Chief Internal Auditor, of HUL shares few insights with us:

For decades, HUL has stood as a big brand in India and a leader in innovation and best practices. What sets it apart from others and makes internal audit so relevant in the company?

HUL today is INR 30000 Crores plus company in terms of revenue, with over 10 legal entities, 18000 employees, 30 plus factories, over 35 brands and over 1500 suppliers and associates. Moreover, it is one of highly trusted brands in Indian FMCG markets. It is an Employer of Choice, regarded as the Best in Corporate Governance and serves over a Billion customers. Naturally, it has a very dynamic and complex operating environment and a significant reputation to preserve. This casts an immense responsibility on its internal audit team to deliver a best in class assurance to its stakeholders.

Can you elaborate more on this?

The External environment is extremely challenging. For example, few months back we were faced with uncertainties driven by demonetisation and that required a swift organisational response. The Business models, in which we operate, with multiple legal entities, supply chain and factory units across geographies, makes the internal environment extremely dynamic. To add to it, the complex regulatory environment flowing out of these elements, and the upcoming legislations such as GST, where HUL is leading the industry is all too complex and laced with uncertainty. In such circumstances, internal audit is often tasked with huge responsibility to partner in resolution of various challenges. So in that context, it is extremely relevant to the company’s success.

HUL is a crown jewel of Unilever Group, one the largest and most respected global FMCG majors and a risk conscious organization. So what do you think is biggest success points of its internal audit division to this?

The success of the internal audit division at HUL begins with its clear Vision and Objective.
The vision of the internal audit is “Zero Surprise, Risk Controlled Organisation.” The vision itself is quite formidable to have a zero surprise organisation.
The objective is “Provide to the management a proactive and value adding independent review process which enables them to maintain the risk profile at an acceptable level, in a rapidly changing environment”
The vision and objectives are very clearly aligned to the company’s vision and objectives and that I believe is our biggest success points.

It is good to have very articulate Vision and Objectives. How did you go about giving shape to this Vision?

Firstly, we adopted the “Best in Class Approach” through Control Assurance in a multi-pronged manner viz, Risk based Transaction review, Process reviews and proactive forensic reviews. This three pronged approach gives us focussed view and fits for all as well as wider coverage.

Secondly, we consciously invested on synthesizing multiple methodologies with a view to build foundation of strong governance and a control conscious organisation. This was tapped with external expertise from audit firms, leveraging on the Unilever’s global infrastructure, developing our own people and leveraging technology for best possible use.

You mentioned about “Control Assurance”. How has this different than “Internal audit”?

Actually, it is the same. But the nomenclature improves the acceptability of the function by the management. This is a huge barrier crossed.

Secondly, we do not focus only on the lapses or exceptions in the report, but also on the processes found to be in order or Compliant units. This provides a greater assurance.

Thirdly, we could align with IFC Framework required under Companies Act 2013 and thus became more effective in delivering assurance to the Board under 3rd line of defense.

And the multi-pronged approach, how did that help?

The Risk Based Transaction testing was done leveraging on Data Analytics and Centralised Repositories. These constituted basic assurance. The Process reviews focussed more on identifying Design flaws and this provided valuable improvements and value added insights. Forensic investigations were done for High risk areas. In this manner, we could cater to the diverse business unit profile with an appropriate approach instead of a just a routine audit for all.

You mentioned about using external expertise from audit firms and also tapping global infrastructure of Unilever. What combination was done and how did it benefit HUL?

Basic control assurance reviews were outsourced to leading CA Firms anchored by Senior Finance Leader (i.e, me) to provide them direction, business intimacy and bringing them up on scale. This has brought healthy competition on quality and cost.
Secondly, the Control Services Centre (CSC) is Unilever’s global controls expertise group which drives discipline in financial controls. The Control assurance function started placing ‘skeptical’ reliance on CSC Reports and their functioning, completeness of reports, independence from management, and discipline is regularly tested.
This leverage, enabled us to move from sample based testing to a comprehensive 100% coverage including cost savings.

Did you have any internal resources supporting Control Assurance reviews?

There are nil specific internal resources other than me. Experienced managers for few reviews are invited as Guest auditors, providing further on ground business intimacies.
Further, Mandatory ‘Control Assurance’ audit exposure is provided for all new Finance hires as part of ‘Management Training Program’. Thus, it helps in embedding controls conscious mindset, making employees more control savvy, improves business understanding of outsourcing partners and is a win-win for all.

What role did Technology play in your journey?

Given the complexity, volume, span and sophistication of the organization, inadequate use of technology poses the risk of making Internal Audit redundant, onerous and irrelevant. So in a way it was imperative for us.

We started with automated controls where reliance was through GRC module of SAP. Combination of SQL based querying, data processing applications and Tableau based reports are utilized to provide lead indicators on control exceptions. Cloud based storage services are used for data access across physical locations and Workflow tools used to upload audit evidence and supporting documents. And of course, we still use MS Excel for simpler analytics.

This reduced our field visit time by 40%, and provided coverage of 100% instead of sampling technique.

So all this helped in achieving scale…

Absolutely, Control Assurance was able to cover all the Manufacturing locations, Sales offices, Central functions, Outsourcing partners, Specialised Businesses of HUL are covered 100% every year. With the scale of operations of HUL, this coverage is a quite comprehensive and reliable.

So you finally realised the Vision of ‘Zero Surprise, Risk Controlled Organization’

See Control and Risk management needs to be part of organization’s culture. We a built a structured governance mechanism to back all these activities which we discussed. A Quarterly engagement with leadership teams, inclusion of inputs from Control assurance in performance evaluation and Talent Development through experience in Control assurance was all part of this governance mechanism, without which success is not possible.

Recurrence of issues was reduced by 70%, which itself indicates a high level of success. While the vision is very strongly in sight, it is a continuous journey and we aim to sustain and improve it as we move along.

And finally the award from IIA Bombay Chapter…your thoughts on that

It is a prestigious award. It gives me immense satisfaction to receive this award on behalf of Hindustan Unilever Limited. I thank my CFO (including past CFOs) and of course the Control Assurance team members from outsourced firms and engagement partners in supporting me to receive this award.

Internal audit function at Hindustan Unilever is a recipient of Audit Productivity Team Award 2017 by The Institute of Internal Auditors, Bombay Chapter.

Hariharan is the Chief Internal Auditor of Hindustan Unilever Limited. He is a CMA. Joined the group in 1991. Worked in various finance roles across the organization for the last 25 years.