How PetSmart’s Internal Audit Team is Driving Operational Value

Internal Audit at PetSmart

Learn how Ben Phillips, CAE at PetSmart, and his team are helping the country’s largest specialty pet retailer ensure outstanding operational execution, as the company works to find the right balance of “bricks and clicks” to stay competitive and thrive.

When Ben Phillips, CAE and VP of Internal Audit at PetSmart, began his career as a broker, little did he know that his curiosity about other areas of the business would ultimately steer his career onto a new path: internal audit. Today, his team at PetSmart is busy tackling new strategic initiatives in an effort to help the company strengthen its operational execution, at a time when the retail landscape is “as tough as it’s ever been.” Learn more about how Phillips ensures his team is aligned with senior leadership, the importance he places on transparency and the value of having a broader view of the business across all levels of the organization.

What drew you into a career as an internal auditor?

Ben: Right out of college, I had my heart set on Wall Street and becoming a securities trader, and all the romance that comes with it. Ultimately, I never moved to New York, but instead started my career as a broker at a large financial services firm, Charles Schwab. We would work trades manually with various exchange specialists, fund companies, NASDAQ dealers and market makers. There, I served on a cross-functional team to automate some of the regulatory requirements and trading rules, and that’s when I became aware of internal audit. I was fascinated with how they were also following a really complex set of rules and applying them to all different types of business situations. When an opportunity came my way to join that department, I jumped at the chance and never looked back.

What aspects of internal audit do you find most fulfilling?

Ben: For me, it’s all about the people and getting to work with an incredibly bright and talented team with a tremendous set of diverse backgrounds, interests and professional skills. There’s a lot of opportunity to learn from one another and improve our skills, and create value within internal audit for PetSmart.

What has your internal audit team at PetSmart been focused on this year?

Ben: The competitive landscape for retailers is tough – probably as tough as it’s ever been. There has been a number of disrupters that changed the rules of competition and upended previously successful business models. At PetSmart, we are trying to find the right balance of bricks and clicks, so that we can continue to win in the marketplace. Outstanding operational execution is going to be the table stakes for the leading retailers.

Retail is all about fulfilling customer demand as quickly as possible. We ideally want to know where every single unit of product is physically located at all times, so it is available for sale to the customer whether they are coming to us in one of our stores or online. Thus, we’ve done a number of audits focused on inventory accuracy at stores, distribution centers, online orders and in-store pick-up, as well as fulfillment of online orders from local stores. We’ve also spent time on system integration with our suppliers in an effort to further increase the accuracy of our records.

How do you ensure that internal audit is aligned with and supporting your company’s strategic initiatives?

Ben: It’s important to understand where senior leadership wants to take the company. From there, it is a constant alignment exercise for us to make sure that the work that we’re doing is relevant to those goals. The most important thing is to focus on those processes and activities that are key to delivering on the strategy that leadership has set. So, we spend a lot of time during our annual risk assessment process gaining a clear understanding of company priorities for the year and then deciding how are we going to align our audit and assurance work to provide valuable feedback on those processes or resources.

Trust is also key piece. We have to be credible and provide relevant analysis of things that are actually important to moving the business forward. If you spend a lot of time looking at less-critical elements – where you may technically be right, but the cost and the effort didn’t really produce value for the business – that’s where internal audit departments may get into a little bit of trouble.

How have you been able to demonstrate the effectiveness and value of internal audit?

Ben: Transparency is really important at PetSmart, and we tend to be very earnest about our work, which I think helps build trust with our business partners.

We also don’t over-complicate the audit process. When we start an audit, we explain to our client how we develop high-level objectives for any particular engagement, and then we walk them through our risk assessment process. For the most part, when you engage with a business partner in that way, they’re more than happy to tell you where they feel there are opportunities and how processes can be improved.

What are some of the most difficult challenges facing internal auditors right now? And how do you address those challenges at PetSmart?

Ben: In operations, business is incredibly complicated, and it is not getting any easier. Financial and human resources are limited, and it is hard to determine where to deliver the real value. This makes alignment with senior leadership and the strategic direction of the company very critical. We want to make sure that we’re working on the right projects that support the company’s mission. Second, auditors need to develop a wider set of business insight and expertise, because when you do audit work, you interact with many areas of the organization. Whether it’s a production line, retail associate, a supplier or a senior executive in the company, it is important to have an understanding of these functions, roles and responsibilities.

Looking ahead to the future of internal auditing, where do you see the biggest opportunities?

Ben: As you probably know, the regulatory landscape is changing rapidly. You’ve got the European Union and GDPR. California now has CCPA. And there will be more regulations coming, so internal auditors are going to be on the front lines of assessing where these rules and regulations impact the organization’s operational processes and controls.

Possibly even more important, is that cyber security is a huge threat facing organizations, and that’s only going to continue to grow. Internal auditors need to understand these risks. Systems are going to support all groups, so it’s important for auditors to provide assurance around the handoff between the virtual and physical worlds.