United States

Relationships, internal audit outsourcing support Snyder’s-Lance’s success

CASE STUDY

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Overview

Headquartered in Charlotte, N.C., Snyder’s-Lance, Inc. is one of the largest manufacturers and distributors of snack foods in North America. The publicly-traded company totaled over $1.6 billion in revenue in 2012 and currently operates production facilities in nine U.S. states and Canada.

The company has experienced significant growth in recent years, highlighted by the merger of Lance, Inc. and Snyder’s of Hanover, Inc. in 2010. Popular brands under the Snyder’s-Lance umbrella include Synder’s of Hanover® pretzels, Lance® sandwich crackers, Cape Cod® kettle chips and Snack Factory® Pretzel Crisps® as well as a number of other more regionally focused brands. The combined company has a long history of success, with Snyder’s established in 1909 and Lance celebrating its 100th anniversary in 2013.

Background

In 2005, Lance, Inc. underwent a change in CEO, followed shortly thereafter by a change in CFO. At that time the company maintained an in-house internal audit department, consisting of a director, IT manager, three to four staff personnel and a separate, two-person Sarbanes-Oxley (SOX) team. The company was undergoing significant changes, and the internal structure was seen as ineffective, and did not match the vision for the department.

“Our internal audit department was looking for areas we had control risks, but not really helping to determine how to strengthen controls,” said Snyder’s-Lance Corporate Controller Margaret Wicklund. “It was an environment where internal audit was perceived to be looking for issues, as opposed to a team you could reach out to for help.”

Project

RSM contacted Lance’s new CFO to discuss current capabilities, any gaps and their needs for the future. The existing internal audit structure did not effectively report information to executives, resulting in control uncertainty and questions regarding its value.

“During the review process, we looked at various external candidates representing the Big Four, as well as opportunities from other major firms, including RSM,” said Snyder’s-Lance Executive Vice President and CFO Rick Puckett. “We were looking for a firm that would be able to provide us with the national coverage that we required, as well as the capability levels we needed across multiple functions, including information technology.”

To transform the function, Lance chose to implement RSM’s outsourced internal audit services beginning with the 2007 calendar year after determining the solution was more cost-effective and, more importantly, presented more value than the current in-house platform.

Prior to beginning internal audit work, Lance also required additional manpower to help its SOX team finish the 2006 year. RSM provided assistance to the in-house SOX team in 2006 and 2007 to help collect and submit required information. Following the success of those engagements, the company chose to outsource the full scope of the SOX function to RSM beginning in 2008.

Communication is key

A key to the successful relationship between Snyder’s-Lance and RSM is communication, something that was lacking in the former structure. Management has one point of contact within the RSM team, and a series of meetings allow for status updates and discussions regarding any key issues or concerns. These meetings include:

• Weekly meetings with the corporate controller

• Monthly meetings with the corporate controller and the CFO

• Monthly meetings with the CIO and his direct reports

The open and collaborative relationship helps RSM to better understand company issues, add value to processes and solve problems.

Easing transitions

RSM has played a significant role in Snyder’s-Lance’s growth initiatives. The team helped to alleviate several issues during the merger between Lance and Snyder’s of Hanover in 2010. Lance was a public company while Snyder’s was private, meaning that Snyder’s was not accustomed to the stricter control environment necessary for public companies. In 2011, RSM helped facilitate bringing all operations into compliance with SOX and ensure that a strong control environment was in place. It was a successful project and from a relationship standpoint, it helped RSM build relationships with the Hanover team which was valuable during the integration.

“RSM provided education and was an instrumental part of the team ensuring that once we got one year outside of the merger, Snyder’s-Lance, Inc. was SOX compliant,” said Wicklund. “This can be a difficult challenge for a company that was historically private.”

When the company makes certain acquisitions, RSM performs internal audits of the new facility. In addition, Snyder’s-Lance occasionally acquires distributors, and the team is called upon to do physical inventories, sometimes on short notice and in multiple locations. For example, the company recently acquired The Snack Factory, LLC. RSM is working with management to get them up to speed on SOX compliance measures, while also assessing the control environment of the distribution facility.

“The RSM team is very accessible and very quick to react,” said Wicklund. “If something happens and we need feet on the ground anywhere in the United States, it does not take long for that to happen.”

Merging IT systems and addressing risk

With the changing face of the company and consistent growth, Snyder’s-Lance has encountered several IT needs. With the merger in 2010, Snyder’s operated with a J.D. Edwards enterprise resource planning (ERP) platform, while Lance utilized Oracle. RSM is helping ensure that proper business and change management controls are in place during Snyder’s transition to the Oracle system. In addition, the company often develops proprietary software to optimize business processes. Security and privacy are important considerations when designing and implementing new technology. The RSM team is integrated into the development process to manage IT risks, evaluate application controls for appropriateness and help ensure that company data is secure.

“RSM gives us peace of mind that we have someone watching over the processes as we develop them, so that we do not inadvertently introduce errors,” said Snyder’s-Lance CIO Nikhil Sawant.

Alleviating external audit pressure

RSM has also established a strong relationship with Snyder’s-Lance’s external auditors. During key months of the year, the RSM team has biweekly planning meetings with management and the external auditor to coordinate efforts, understand issues and adjust the team’s approach, if necessary. The quality of internal audit and SOX deliverables can reduce their workload as well as the strain on Snyder’s-Lance’s resources during the external audit process.

“From a pure cost perspective, it helps to have an efficient internal audit function to reduce our costs with our external auditor,” commented Sawant.

Expanded services

At times, Snyder’s-Lance has required services outside of internal audit and SOX. For example, the company required assistance with accounts receivable and accounts payable for five months following the acquisition of Brent & Sam’s® cookies. RSM moved quickly to provide loan staff to fill their needs.

In addition, the company has, at times, needed temporary support in their tax department. With the track record of success in areas across the company, Snyder’s-Lance is comfortable asking for assistance with on-demand services from the depth of resources RSM provides.

“We have been able to leverage the entire RSM team, which has been a necessity because we have over 100 warehouses across the United States,” said Wicklund. “That ability to leverage resources throughout the country, not just locally, has been very instrumental in realizing our goals from a control perspective.”

Snyder’s-Lance’s corporate culture, from the CFO down, strongly supports the internal audit function. The open lines of communication between the company and RSM help to determine control deficiencies and quickly remediate them. Each year, RSM and Snyder’s-Lance work together to develop a more efficient and effective process. Being audited can be painful, but RSM’s goal is to make the process as streamlined and uncomplicated as possible.

“At the end of the day, I want to know that my control environment is working, or if it isn’t, I want to know where it’s not working. And that’s what RSM provides to me,” said Wicklund. “That helps me sleep better at night.”

Outcomes

Through several years of a successful engagement, a strong relationship has developed, based on trust, and communication from both parties. Snyder’s-Lance does not view RSM simply as an outside third party. Instead, RSM is seen as a valued business partner, and has integrated into Snyder’s-Lance’s strong corporate culture.

Snyder’s-Lance is pleased with RSM’s responsiveness and attentiveness to issues. High levels of trust have been built that the team will do the right thing and suggest recommendations to improve Snyder’s- Lance’s future.

“We are comfortable that RSM will be able to expand with us while providing uninterrupted internal audit services, as well as being a resource for other services down the road,” said Puckett.

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