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Maximizing Company Benefits and Business Intelligence Through Audit Software


Providing information to the right people in sufficient detail and on time to ... Instant reporting could be inaccurate and, if not reviewed before submitting, ... – PowerPoint PPT presentation

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Title: Maximizing Company Benefits and Business Intelligence Through Audit Software

Maximizing Company Benefits and Business
Intelligence Through Audit Software
  • Developed by Richard B. Lanza, CPA, PMP

  • Quick overview of CAATs
  • Audit softwares reason for being
  • Mending the divide between operational and IT
  • Audit software changing the audit process
  • Fraud and the CAAT auditor
  • Continuous monitoring
  • AuditSoftware.NET community website
  • Free tools

Who am I?Richard B. Lanza, CPA
  • Have saved millions of dollars for
    clients/organizations using CAATS
  • Wrote the first book on how to practically apply
    a data extraction/analysis software.and three
  • Was an ACL and IDEA trainer
  • Developed the first community focused around
    audit software
  • Currently works as an Internal Audit manager for
    a Fortune 500 retailer, establishing continuous
    monitoring systems

Quick Overview of CAATs
Where Are We In the Audit Software Evolution?
The Gap
Early Majority
Late Majority
Show of Hands
  • How many people currently use audit software
  • At least once a year?
  • More than five times a year?
  • On practically every audit?

Group Exercise
  • Why will I (and why will I not) use audit

Why I Wont Do This..
  • Every audit I do is different so why build
    software when I need to frequently change it?
  • Getting data takes time
  • I might actually find something wrong
  • My ERP system does this already
  • Management doesnt want me to do such should manage themselves

Whats In It For Me?.Why Do This For Me?
  • Learn a not-so-new skill
  • Learn about technology
  • Have more free time to focus on understanding the
  • Have more free time

Whats In It For Me?.Why Do This For The
  • Maintain Sarbanes-Oxley compliance
  • Build automated intelligence
  • Quick ROI (112 per recent CDC study)
  • Increase efficiency/quality

Audit Softwares Reason for Being
Popular Audit Software Tools
  • _at_Risk
  • Access (Microsoft)
  • ACL
  • Easytrieve
  • Excel (Microsoft)
  • IDEA
  • Monarch
  • SAS
  • WizRule

End-Goal of Business Intelligence Software
  • The optimal BI solution is deployed across the
    entire enterprise, equipping hundreds or
    thousands of employees with analytic information.
    From line managers to the executive suite it
    gets widely deployed and used. Users can access
    real-time data,manipulate it,drill down to find
    root causes,analyze trends,and provide a check
    and balance.
  • Workers at every level get the information they
    need to make the right decisions,at the right
    time,resulting in a more effective,responsive,and
    profitable company. (Informatica)

A Strong Information Communication Channel
  • Obtaining external and internal information, and
    providing management with necessary reports on
    the entitys performance relative to established
  • Providing information to the right people in
    sufficient detail and on time to enable them to
    carry out their responsibilities efficiently and
  • Development or revision of information systems
    based on a strategic plan
  • Managements support for the development of
    necessary information systems

Whats the Difference?

Group Exercise
  • 1. Do you regularly do an information and
    communication audit?
  • 2. What is preventing you from doing an
    information and communication audit?
  • 3. Could this be a new audit service?

Business Intelligence In Action
  • Business Intelligence provides
  • Increased visibility into the organization
  • Timely access to specific quantification
  • CEO asks Bob why sales are down
  • Report will take a week to deliver
  • Bob resorts to qualitative data interviews to
    determine we must have discounted products which
    was common recently
  • If report was delivered, Bob could have noted
    that the eastern regions major customer had
    reduced orders after a multitude of complaints
    were receive
  • With the report, Bob now has a specific problem
    and solution to report

Then What are the Benefits of Using an Audit
Software in Conjunction With a BI Tool?
  • Audit software is
  • Independent of the systems being used to generate
  • One tool versus the many BI tools used in a
    company lowering training costs
  • Capable of performing some audit-specific tests
  • Many tools maintain audit logs for workpapers

What Are They Looking For?Clarity for navigation
and opportunity identification
  • Auditors - Looking for answers to audit questions
    (Is management reporting accurate sales, are
    payables complete, etc.) Trust but verify
  • Fraud Investigators Looking for fraud (Where is
    the evidence of fraud, where is the audit trail,
  • Management How can I better manage my business?
    (have I reported all sales, paid vendors
    appropriately, etc.)

Balanced Scorecard Measures
  • Executives understand that using financial
    accounting measures such as ROI and EPS can give
    misleading signals for continuous improvement and
    innovation activities todays competitive
    marketplace demands. The traditional financial
    measures worked well for the industrial era, but
    they are out of step with the skills and
    competencies companies are trying to master today
  • ----Kaplan and Norton, The Balanced Scorecard

How Do You Look? Turning data into better actions
  • 1. Learn to ask the right questions

2. Determine the answer using audit software
3. Deliver the answer using the most convenient
Learn to Ask the Right Questions
  • Personal experience
  • Community experience
  • Case studies
  • Brainstorm/Risk assess
  • Hire a consultant

Determine the Answer
  • Standard process reports
  • Ad hoc reports
  • Statistical analysis
  • Relationship analysis (finding answers without
    asking questions)

Deliver the Answer Empowering Management
  • Use the most efficient medium
  • Get the information in the hands of the end user
    in the format they most desire (i.e., PDA, Web
    page, print out, etc.)
  • Consider personalized information portals
  • Design proactive triggers for key actions

Im Confused Should Management or Auditors Do
  • Auditors should help management design these
    systems (if they have not done so already)
  • Auditors should NOT be the report bottleneck
    systems should integrate their findings
  • Auditors should ensure information channels are
    flowing accurately, completely, and efficiently.
  • Auditors should then ensure that report answers
    are being acted upon

How Is Rich Doing It?
  • ACL and Access are used as ad-hoc reporting tools
  • ACL is used for batch applications
  • Access and Excel are used for end user report

Using the best tools for their requisite strengths
Prototype and Bridge
Data Provided by MIS on Server
Data Analyzed in an Ad-Hoc Fashion by ACL/IDEA
and Reports Reviewed
Selected Reports Are Developed Using An ACL Batch
and Reported in Access/Excel
Recent Quotes
  • In these days, the most important thing is to
    help customers extract additional value from
    investments theyve already made. Companies are
    not looking to rip and replace systems, theyre
    looking to extend them Peter Graf,
    SVP-Marketing at SAP
  • Theres also plenty of room for apps focused on
    special business problems that can be implemented
    quickly and show high ROI Peter Gassner VP -

Mending the Divide Between IT and Operational
Group Exercise
  • Who completes your audit software work?
  • -It Auditor
  • -Operational Auditor
  • -IT/Operational Auditor

Auditors Role
  • Identify opportunities for audit software
  • Define test/report requirements
  • Promote benefits to the client
  • Assist in obtaining/verifying data for processing
  • Evaluate results of processing

Focus More on the I
  • The printer tycoons began their reign around
    1520.and by 1580 or so, the printers, with their
    focus on technology, had become ordinary
  • Their place was taken by what we now call
    publishers, people and firms whose focus was no
    longer on the T in IT, but on the I. They
    focused more on the MEANING of information, not
    its production.
  • Peter F. Drucker

Focus More on the I
  • "Technology is just part of the solution.It is
    the combination of both people and
    technology....that is where the magic happens
  • John Mertyl-President, Tomoye

Focus More on the I
  • Internal auditors are in an exceptional position
    to provide business intelligence to internal
    customers given their knowledge
  • holistically about the business
  • of accounting and finance
  • in the areas of risk and what can go wrong
  • of data management, security, and basic
  • Rich Lanza

IT Teams Role(This role could be served by the
same person)
  • Responsible for obtaining data
  • Process all reports
  • Assist in evaluating results
  • Maintain and forward documentation

Where we are Today
Accounting and Audit Skills
Technology Skill
Where We Need to be
Accounting and Audit Skills
Technology Skills
Lessons Learned Database
  • Document work completed for subsequent audits
  • Summarize results
  • Have a Knowledge Base Champion

(No Transcript)
Four Cardinal Faults WhenUsing Audit Software
  • Not getting everyone involved
  • Not planning ahead to define requirements/get
  • Not documenting work for next year
  • Being afraid to try

Audit Software Changing the Audit Process
The Audit Software Process
12 Tools of Audit Software
  • Stratify
  • Recalculate
  • Export
  • Sequence Duplicates
  • Sequence Gaps
  • Sample
  • Sort
  • Summarize
  • Join
  • Merge
  • Extract
  • Age

Pointing you in the right direction
predict balances for comparison to
actual simulate results analyze digit and number
patterns for exceptions assess the relative size
of transactions and balances
  • Regression
  • Monte Carlo Analysis
  • Digital Analysis
  • Stratifications / Comparisons

Regression Variable Examples
  • (Computer Log Analysis) - of network lines,
    of employees, minutes of network access between
    500 p.m. and 900 a.m., and of remote access
  • (Unauthorized payments) - of checks issued,
    of vendors paid, of vendors paid that have the
    same address as employees, of payments made
    immediately below the approval limit (e.g.,
    between 900 and 999 for a 1,000 approval limit),
    and month of year

Why Digital Analysis?
  • Quickly highlights issues
    (less than 2 hours per audit)
  • Expands audit coverage
  • Its proven
  • It can instantly be applied
  • (no training necessary)

What does it do?
  • Analyzes all types of data
  • Reconciles data to THE LAW
  • Looks for Trends
  • Identifies Duplication Patterns
  • Round Number Search

Continuous Digital Analysis is the Answer
The Audit Process Without Audit
SoftwareWorking around the system
  • Planning - Questionnaires, some analyticals, and
    review prior year workpapers
  • Internal Control - Complete process memo, select
    samples and vouch to support
  • Substantive Procedures Scan reports, select
    manual samples, complete manual recalculations,
    vouch to support, perform physical inspection,
    inquire and observe with the client

Statement On Auditing Standards 80
It may be difficult or impossible for the
auditor to access certain information for
inspection, inquiry, or confirmation without
using information technology.
The Audit Process With Audit Software Working
through the system
  • Planning - Stratifications, stronger analyticals,
    and exception reporting on key indicators (using
    100 of the data)
  • Internal Control - Verify data and applications,
    identify dirty data, select samples, review
    exception reports on controls
  • Substantive Procedures Research exception
    reports, perform minimal sampling and use the 12
    tools of audit software

Practical example
  • Accounts payable system
  • Planning activities
  • Through file import and analysis, you can come up
    with the did you know that. . . questions that
    help management identify risks
  • Insignificant areas can be located and eliminated
  • Control evaluation and verification
  • Authorization levels
  • Check mathematical accuracy and cutoff
  • Check for duplicate payments

Increase Efficiency/Quality
  • Checking the mathematical accuracy of schedules
  • Stratifying information for scope testing
  • Exception reporting can complete 100 testing in
    less time
  • Samples (when needed) can be selected in less

Group Exercise
  • Where can I use audit software for improved

Improve Service / Add Value / Provide New
  • Provide clients with better business advice
  • Provide better information to run their business
  • Reduce the audit burden by directly accessing
    data and generating desired reports

Group Exercise
  • Where can I use audit software for adding value
    and giving new perspectives?

Getting Down and Dirty
  • 1) Plan the attack
  • Identify key risk area
  • Develop process flow diagram and memo
  • Develop data flow diagram and memo
  • Assess integration issues and control gaps
  • 2) Run the audit tests

Fraud and the CAAT Auditor
Document Purpose
  • The purpose of this document is to assist
    auditors, fraud examiners, and management in
    implementing data analysis routines for improved
    fraud prevention and detection. To that end, the
    document provides
  • General guidance in the implementation of audit
  • A comprehensive checklist of data analysis
    reports that are associated with each
    occupational fraud category per the Association
    of Certified Fraud Examiners classification
  • A report description and data file(s) needed to
    effectuate each identified report.

Need for the Document
  • The need for this document arises from the fact
    that there are many publications that discuss
    auditing for fraud using a computer but there was
    no comprehensive resource for the types of audit
    reports that needed to be run for each individual
    fraud type .until now.
  • It is hoped that through the dissemination of
    this new information that more consideration and
    analysis will be done using audit software to
    prevent and proactively detect organizational

Fraud Categories Aligned to Reports
  • Conflicts of Interest
  • Bribery / Illegal Gratuities / Extortion
  • Fictitious Revenues / Timing Differences
  • Understated Liabilities and Expenses
  • Overstated Assets/Valuation
  • Improper Disclosures
  • Non-Financial Fraudulent Statements
  • Cash Larceny
  • Skimming
  • Inventory Misuse / Larceny
  • Billing Schemes
  • Payroll Schemes
  • Expenses Reimbursement Schemes
  • Check Tampering
  • Register Disbursements

Continuous Monitoring
  • Continuous Auditing is an assurance engagement
    resulting in an independent auditors report,
    issued at short intervals or on an immediate
    basis, that includes
  • an opinion on a written assertion by management
    that evaluates, using suitable criteria, subject
    matter for which management is responsible or
  • an opinion that provides a direct evaluations,
    using suitable criteria, of subject matter for
    which management is responsible

Continuous Auditing
  • Continuous monitoring provides an additional
    control layer
  • comparing data across multiple sources
  • independent of system being audited
  • able to process large volumes of data
  • prompt notification of issues

Not So Fast!!!.We Need to Walk Before We Run
  • Real time financial reporting will help solve
    stock price volatility Forbes
  • XBRL provides a common platform for critical
    business reporting processes and improves the
    reliability and ease of communicating financial
    data among users internal and external to the
    reporting enterprise. XBRL.ORG

Continuous MonitoringIssues and Solutions
  • Issue
  • Many of these systems would be too costly to
    develop to effectively monitor all major
    systemsand would then require a team of auditors
    to review the report information.
  • Solutions
  • Focus on risk prone areas first, show the
    economic value of monitoring reports, and
    organically grow systems, using a common
    architecture, throughout the organization.
  • Have the CFO/CEO as the main customers of this
    business intelligence will help to sell it
    throughout the organization.
  • Most cost is driven by system customizations
    (i.e., ERP customizations) which should be
    reduced as much as possible.

Continuous MonitoringIssues and Solutions
  • Issue
  • Instant reporting could be inaccurate and, if not
    reviewed before submitting, could lead to
    devastating impacts in the business/economy
  • Solutions
  • This is not a current concern as the continuous
    auditing routines could be internal, can be
    reviewed, and has the Audit Committee as the main
    final reporting customer.

Continuously Monitor/Build Automated Intelligence
  • Select top exception reports
  • Identify key analyticals
  • Build automated routines to execute on a timed
  • Iterate the reports based on findings over time

Considering Production-Grade System Reports
  • Full-service toolset (i.e., Cognos) implemented
    by MIS
  • Real-time updates
  • Centralized data mart for past versions
  • Professional-grade data import tools
  • Automatic notification (Email, Pager)
  • Personalized Web dashboard
  • Audit trails of all processing/reviews
  • Unified security

The ProcessUse a Software Lifecycle Approach
  • Business case
  • Actors and use cases
  • Process flow
  • Page design flow
  • Data flow diagram

Group Question
  • Can auditors develop a continuous monitoring
    system and pass it to management?
  • What are the risks inherent in doing this?
  • Do they ever need to pass it on?,,,,could it be
    an independent control layer?

Transition Summary
  • Identify audit areas susceptible to the
    application continuous auditing
  • Start focusing on the real shocker
  • Get the data
  • Get a beta version of the software
  • Run the tests, shock management, and cement the
    need for improved analysis/intelligence
  • Inventory skill set of audit team and develop
    additional training plan
  • Prepare preliminary budget for implementation
  • Obtain any remaining senior management buy-in
  • Begin analysis/intelligence in the next shocker

Audit Software Capability Summary
  • Provides Transactional Integrity (transactions
    are authorized, exist, accurate, complete, etc.)
  • Assists in Complying with Sarbanes Oxley
  • Efficiently Validates SarbOx Control Activities
  • Key reports can provide control monitoring for
    gap areas
  • Interactive Business Analysis for Improved
    Organizational Transparency
  • Lightweight / Non-intrusive / Flexible
  • Auditors Are in the Best Position to Provide
    Company Analysis Given Their Financial and Risk
  • Quick ROI
  • Supports Information and Communication Audits in
    Line with COSO
  • Independently Performs Data Integrity Reviews
  • Improves the Efficiency and Quality of Audits

Maximizing Company Benefits and Business
Intelligence Through Audit Software
  • Developed by Richard B. Lanza, CPA, PMP
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