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Leveraging Excel-Based Analytics in Your Audit and
S-Ox Testing of Procurement to Accounts Payable Cycle
March 11, 2015
AuditNet and AuditSoftwareVideos.com Collaboration
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Today focused on providing practical data analysis training
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About Jim Kaplan, CIA, CFE
President and Founder of AuditNet®, the global resource for auditors (now available on Apple and Android devices)
Auditor, Web Site Guru,
Internet for Auditors Pioneer
Recipient of the IIA’s 2007 Bradford Cadmus Memorial Award.
Author of “The Auditor’s Guide to Internet Resources” 2nd Edition
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About AuditNet® LLC
• AuditNet®, the global resource for auditors, is available on the Web, iPad, iPhone, Windows and Android devices and features:
• Over 2,000 Reusable Templates, Audit Programs, Questionnaires, and Control Matrices
• Training without Travel Webinars focusing on fraud, audit software (ACL, IDEA, Excel), IT audit, and internal audit
• Audit guides, manuals, and books on audit basics and using audit technology
• LinkedIn Networking Groups
• Monthly Newsletters with Expert Guest Columnists
• Book Reviews
• Surveys on timely topics for internal auditors
Introductions
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Webinar Housekeeping
This webinar and its material are the property of Cash Recovery Partners LLC. Unauthorized usage or recording of this webinar or any of its material is strictly forbidden. We are recording the webinar and you will be provided with a link to that recording as detailed below. Downloading or otherwise duplicating the webinar recording is expressly prohibited.
Webinar recording link will be sent via email within 5‐7 business days.
NASBA rules require us to ask polling questions during the Webinar and CPE certificates will be sent via email to those who answer ALL the polling questions
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Page 4
Disclaimers
The views expressed by the presenters do not necessarily represent the views, positions, or opinions of AuditNet® or the presenters’ respective organizations. These materials, and the oral presentation accompanying them, are for educational purposes only and do not constitute accounting or legal advice or create an accountant‐client relationship.
While AuditNet® makes every effort to ensure information is accurate and complete, AuditNet® makes no representations, guarantees, or warranties as to the accuracy or completeness of the information provided via this presentation. AuditNet® specifically disclaims all liability for any claims or damages that may result from the information contained in this presentation, including any websites maintained by third parties and linked to the AuditNet® website
Any mention of commercial products is for information only; it does not imply recommendation or endorsement by AuditNet®
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Richard B. Lanza, CPA, CFE, CGMA
• Over two decades of ACL and Excel software usage• Has written and spoken on the use of audit data analytics for
over 20 years.• Received the Outstanding Achievement in Business Award by
the Association of Certified Fraud Examiners for developing the publication Proactively Detecting Fraud Using Computer Audit Reports as a research project for the IIA
• Assists with much of the Auditnet® research projects• Recently was a contributing author of:
• Global Technology Audit Guide (GTAG #13) Fraud in an Automated World – Institute of Internal Auditors.
• Data Analytics – A Practical Approach - research whitepaper for the Information System Accountability Control Association.
• Cost Recovery – Turning Your Accounts Payable Department into a Profit Center – Wiley and Sons.
Please see full bio at www.richlanza.com
Learning ObjectivesA/P and Procurement
Complete a multiple perspective visualization review of your accounts payable data including time based, amount based, company/profit center based, enterer, etc.
Learn various ways, including digital, letter and word analytics, to understand over 80% of the data population within a few minutes or hours…with the remaining 20% available for more specific review.
Run over 20….key, proactive error and fraud tests in the areas of the accounts payable, vendor masterfiles, and purchase order files, all in Excel.
Map the report results to an audit program to produce an analytically-enabled audit program.
Discover the top frauds and corruption schemes along with top cost efficiencies to enact within accounts payable reviews.
Distinguish between the top major accounting systems used when extracting accounts payable and vendor masterfile data and obtain a standard data request to aid the extractions
How scoring can use a customized weighting system to flag suspicious journal transactions for multiple reasons
Discover setting up a program of regular fraud risk management surrounding financial statement frauds using a general ledger data mart.
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Go Bionic!
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Bionic Auditors Are Born!Leverage technology to impress the execs
Find the next real issue or at least feel you really looked
Sounds Catchy….By Why What the Boss Cares About
External Audit Control Testing / Financial Testing
Fraud Detection External Audit Expectation Gap
Something stolen every day – what is a “flagrant foul”
Smart Stuff (Strategic Sourcing – in 1993)
Control Enhancement – (Adding Brakes)
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Prio
rity
Analytic Value in P2P Best Case Value Chain
Better Business Understanding = Business Risk &
Opportunity Identification
Undeterred Fraud
Compliance / Rulebook Issue
Key Control Failure
Other Control Failure
Cost Recovery
Process Inefficiencies
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Ultimately, the above all lead to people, process and technology improvements
Prio
rity
Top Frauds in P2P
2014 Report to the Nation – Association of Certified Fraud Examiners
11
Surveillance is the quickest and lowers fraud impacts
2014 Report to the Nation – Association of Certified Fraud Examiners
12
3x less value
Getting Bionic Using Excel> Understanding Your Data and the Associated Business Process
> Using a 3D Analytic Model to Mine Data
It’s The Trends Looking at 100%….Right?
Trend categories of spend
Trend by person and title entering and approving
Trend the trial balance for a variety of periods
Trend vendors / customers (it is possible via the G/L)
Trend before and after quarter end
But You Need the Auditor To “Blink” At The Data
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How Fraud Grows Over Time
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Or the Deviations?Unexpected Trends or Spikes
Specific Queries Align sub ledger to the trial balance or general ledger
• Even for reasonableness!....and to review activity trends
Above average testing and auto-extraction
Duplication testing (sales, vendors, etc.)
Employee to vendor bank account match (disparate data match)
Entries posted by employees not authorized to post transactions
Sampling Techniques Sampling (Random / Statistical / Stratified)
Record / Transaction Scoring
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But You Still Need the Auditor To “Blink” At
The Data….
We Need A 3D Analytic Model
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Polling Question #1
How much was fraud value reduced from the median fraud with surveillance? 2x
3x
4x
5x
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Using the 5 Ws Data Mining
Who (PEOPLE STILL COMMIT ERRORS AND FRAUD)
Authorized users / data / application / program object testing
What
Digital analysis / Textual analytics / Key word analysis / Stratify
By General Ledger Account (Distribution Analysis)
Where
Geomapping
When
Date grouping or difference scatter chart
Near period end to other timeframes
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And Why is why you are looking at the item
such as a transactional
score….
Are Your Vendors Real?IRS TIN Matching Program
Validates U.S. Tax Identification NumbersCan submit up to 100,000 TIN submissions at a timeMake sure all punctuation is removedSee http://www.irs.gov/taxpros/ and enter “TIN matching program” in the search box
Are Vendors On a Watch ListSam.Gov
Are Vendors On a Watch ListCIA Chiefs of State
https://www.cia.gov/library/publications/world-leaders-1/
Combine perspectives3 D Rotation of Enterer/Month
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Stratification Types
By Month
By Department
By Business Partner (Vendor / Customer)
By Account
By Enterer
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Stratify Your Data – In Excel
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Cost Recovery Opportunity
Accounts that are sole sourcedAccounts that have too many vendorsCategories that map to the “recovery list”Assess to industry cost category benchmarksTop 100 vendorsTrend analysis over time Trend analysis by vendor (scatter graph)
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S-Ox Benefits In Addition to A/P is Ripe for Cost Recovery
Accurate financial statement reporting Identifies hidden assets Corrects overstated expenses
Detects fraud and deters fraudsters Think of recovery projects as a proactive whistle blowing hotline
to detect fraud (mostly with vendors) Remember that employees and vendors will ask “Will I get
caught?” so if no one is looking…..fraud has more of a chance to happen.
Collusion is the leading method for almost all of the headline frauds and vendor audits / strategic sourcing reduces the “spread” to make vendor conflicts less attractive
Quantifies the need for improvement and focus in future year audits
Distribution Analysis
Remove subtotals for improved visibility
Focus on sole source and multi source vendors
Scroll out and drill to details as needed
GeoMapping With Excel 2013 or Office 365
Polling Question #2
What Pivot Table function is used to create a chart?Pivot Data
Group Date
Pivot Chart
Line Chart
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Analytic Audit Programs
Integrating analytics with checklists
BBC Reith Lecture SeriesWhy Doctors Fail
http://www.bbc.co.uk/programmes/b04sv1s5
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• Doctors are not challenged…by anyone• Disturbances – Attitudes, systems, and human behavior play
more of a role than technology
• Ignorance (failure to know) & Ineptitude (failure to apply knowledge)• 1929 – Intern proves heart surgery can be done and is fired
• And…people are too polite to “confuse someone with facts”• “Outliers” by Malcolm Gladwell
• Use a checklist so you don’t miss a step• Top recommendation of the series – get a memory jogger
• 2M infections in the US alone due to not following a checklist
• Person at the time doesn’t know what they should have known
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BBC Reith LecturesThe Future of Medicine
Audit Objectives and Questions
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Test Set LayoutPayables Test Set for ACL
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Process to Report Mapping
Please note this data file
Fraud Task to Report MappingMapping Fraud Tasks to Reports
Proactively Detecting FraudUsing Computer Audit ReportsIIA Research Paper / CPE Course
See the IIA’s website at www.theiia.org
The purpose of this document is to assist auditors, fraud examiners, and management in implementing data analysis routines for improved fraud prevention and detection.
A comprehensive checklist of data analysis reports that are associated with each occupational fraud category per the
Association of Certified Fraud Examiner’s classification system.
Specific Queries For BuildingAnalytics Into Checklists
Some Procedures Require Inquiry
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The Process Categories
Purchase Requisition & Approval
Vendor Selection & Entry
Receiving
Invoice Processing
Payment Processing Pcard Processing
Accounting
User Security
Information and Communication
Control CircumventionWhat’s Hiding In the Records?
Who
Don’t confuse me with facts – I’m picking XYZ Review the trail of bidding to see regardless of 3 bid
process…why did it always swing a vendor’s way
Person deletes user access and trail Obtain quarterly data for testing
What
Edit the positive pay check list prior to bank upload
Same amount right under a limit
When
Weekend, late timed entries
Post the charge to a past period
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Many Can Be MadeInto Analytics
Purchase Requisition & Approval Approver and enterer segregation of duties test
Purchase values are intently placed under approval limits
PO to non-PO spend and 2-way vs. 3-way matching
Purchase order pricing analysis over time by item Assess your pricing to external databases – strategic sourcers
Cataloging vendors into different business lines
Excel, Outlook, Word, and Text document analysis of buyers Post it note scavenger hunt
Vendor Selection & Entry Sole vendors for a given category or too many
Bad vendor data (blank or inaccurate address, TIN, duplicates, etc.) Obtain and match vendor masterfiles between periods (get it quarterly)
Geomapping or Vlookup analysis of employee to vendor information Identify “bad” addresses or unusual locations for a business
Vendor to invoice entry segregation of duties test Vendor entry and approval – the next step to improved control
Polling Question #3
What is the name of positioning address data on a map?Geoflowing
MapQuesting
Geomapping
Trending
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The Power of VLookup()
Mat
chin
g ve
ndor
to
empl
oyee
add
ress
es
Page 45
Many Can Be MadeInto Analytics
Receiving Three way match testing
Adjustment analysis by enterer, date, stratification, and time of day
Invoice Processing Invoices by entry type (focus on manual vs. automated feeds with controls)
Duplicate invoices (and payments)
Incorrect invoice price to purchase order/contract pricing
Adjustment analysis by enterer, date, stratification, and time of day
Invoices right under an approval limit
Bad invoice data (blank or inaccurate information) Obtain and match invoices entered between periods (get it quarterly)
Look for odd invoice average lengths and round dollar amounts
Many Can Be MadeInto Analytics
Payment Processing Vendor paid to vendor on payment list in bank account and name
Gaps in check sequence
ACH transfers increased 11 percent per year from 2000 to 2010 – Excel issue!
Pcards are popular and have purchase management controls
Numerous payments to the same vendor
Payments = 0
Days payable outstanding averages by vendor for each quarter
Stratify each quarter by DPO and compare in a Pivot
Invoices With Entry Dates After Payment Dates
Accounting Reconcile the subledger data to the general ledger accounting
Unrecorded liabilities Invoices entered after with invoice dates prior to month end
Age the open invoice debits and credits http://bit.ly/1FzYA2r - Best Audit Finding in $$$ Terms
Getting Over False PositivesMain Complaint of Reports
Improved duplicate testing Check it is paid on a different check or enterer
What is the ratio of duplication for that vendor?
Match On First 10 Characters Of The Name (Wildcard Search Of EPLS Name Throughout The Vendor Name Field ACL Script)
Utilize transactional scoring to improve hit rates Learn over time, make it smarter, fine tune
Running the system continuously keeps you abreast of any deviation in the system You should get the same result every time (see letter laws later)
Why it needs to be made continuous (even semi-annual is useful)
Get the Right Data for Your P2P Review
Mapping Data to ScriptsStep #1 Before Asking
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Where’s The Tables?
Invoice Header
Invoice Distribution
Vendor Masterfile
Vendor Master Log Changes
Purchase Order
Price Table
Tax Table
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Asking For DataThe Data Request
Polling Question #4
Which audit objective question below is most easily automated?Does the company have a written code of ethics?
Does the company follow approval limits prior to invoice approval?
Do adequate written procedures exist for invoice processing?
Is check stock safeguarded?
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Red Flag (Key) Word Phrases
Textual Analytics Summary
It works fast to quickly gain a perspective of the business process data: Can work in real-time with the data while talking to the client – no prep
needed…meaningful questions in seconds Look for deviations over a 3 year moving average to the current period
If Digital Analysis / Benford’s Law is latitude, textual analytics is longitude Text is far richer in business value and providing a picture than simple digit
theory The unique word chart provides a more normalized view of activity while total
word occurrences by letter provides a more dynamic chart The trends can be seen quickly to ask relevant questions and also to
highlight fraud
Why not use another approach, like Benford’s Law, to look at ALL data quickly by trending on a natural law of letter usage for that business approach
Lessons from WorldCom/ MCI
The fraud was accomplished primarily in
two ways:
1.Booking "line costs" (interconnection
expenses with other telecommunication
companies) as capital expenditures on
the balance sheet instead of expenses.
2.Inflating revenues with bogus
accounting entries from "corporate
unallocated revenue accounts".
In 2002, a small team of internal auditors
at WorldCom worked together, often at
night and secretly, to investigate and
reveal $3.8 billion worth of fraud….
Per Wikipedia – MCI Inc.
Red Flag Word Phrases/Words
• One could build a database of suspicious words and then search the entire data file for these words, looping back to the table to get the next word:
• bribe• fraud• plug• etc.
• Summaries can be done by person and collectively for additional collusion reviews
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Words On The Rise / Words Equal
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Key Word Trending
Letter AnalyticsBenford’s Law Of Words? Lanza’s Letter Fingerprint?
A Law For Letters and Words?
Polling Question #5
What was one of the phrases used in the MCI case? Line management
Cost recovery
Key controls
Line costs
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Narrowing the Focus With Transaction Scoring
Auditors Inherent Need To Sample
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The practice of selecting individual items from a population to estimate
properties of that population…. given confidence levels around top error patterns and expected errors.
This is statistical sampling vs. judgmental (nonstatistical)
Approach - Transactional Score Benefits
The best sample items (to meet your attributes) are selected based on the severity given to each attribute. In other words, errors, as you define them, can be mathematically calculated….so best to tailor them
Instead of selecting samples from reports, transactions that meet multiple report attributes are selected (kill more birds with one stone). Therefore a 50 unit sample can efficiently audit: 38 unbalanced entries 22 round entries 18 unique entries
….and they are the best given they are mathematically the most “severe”.
63
Using Vlookup to Combine Scores
Create a record number
Relate sheets based on VLookup
Page 64
Vendors Over $50K To Score Ratio
Analytic Command CenterThe Predictive and Detective
66
Analytic Audit
Command Center
1.Accounts Payable
2.Accounts Receivable
3.Financial Statement
4.General Ledger
5. Inventory
6.Payroll
7.Revenue
DataMart
Local
Analytic
Toolkit
Feedback
from all
locations
Recovery Auditors
Shared Services
Polling Question #6
What function is mainly used to align all scores in a spreadsheet?MOD()
FIND()
MID()
VLOOKUP()
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Questions?
Any Questions?Don’t be Shy!
Page 68
Course Calendar and Approach
Offering 13 Training Courses / 26 CPE 8 foundational classes
5 practical courses for specific audit areas
Get More For Your Training Dollar $20 per CPE for individual course / $17 on a subscription
Much lower rates for groups – BEST WAY TO TRAIN
Don’t forget the data files and templates to get you started
Courses Started Feb 2015 and Run Twice a Month
Effective Analytic Training Strategies
Don’t Be a Lone Ranger: Train the Team
Build on a Common Learning Ground - ExcelTM
Be Consistent With Bi-Weekly Learning & Discussion
Use Templates: To Serve As Analytic Audit Programs
Get Data Files and Report Templates
Watch Videos When You Need Just In Time Reminders
Benchmark Your Department – Auditnet’s New Survey on Training the Auditor - http://bit.ly/1aXwchm
Data Files Provided in the CourseMore Available For Purchase
Additional files shown in the course but not provided can be purchased by contacting Rich Lanza ([email protected] / 973‐729‐3944)
In the Queue
March 12 - Continuous Monitoring using Advanced Statistical Analysis
March 17 - Basic Script Writing in IDEA
March 18 - Effective Analytics to Detect T&E and P-Card Fraud
March 20 - Using advanced @Functions
March 24 - Advanced Script Writing in IDEA Part 1
March 25 - How to Request, Import and Normalize Data for a Variety Accounting Packages
April 8 - Learning Advanced Yet Simple To Run Textual Analytics To Better Understand “What’s the Word” in Your Company
Bolded dates are part of the Minutes to Analytics Training
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Keywords and Textual Analytics Offers
Free Dec 3, 2014 webinar videos are on www.AuditSoftwareVideos.com (2 Hrs. NO CPE) Over 250 people attended / Theory and How Tos
Keyword Data Files based on research are available: $79 - Most comprehensive list available for public use
Over 2,000 key word / phrases and word analysis
Upcoming Research – “What’s The Word” FREE word macro tool will complete a word summarization
Get involved! – Email [email protected] to pre-sign up!
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AuditSoftwareVideos.com
Many videos accessible for FREE subscriptions
Sample files, scripts, and macros in ACL™, Excel™,
Bite-size video format (3 to 10 minutes)
Professionally produced videos by instructors with over 20 years experience in ACL™, Excel™ , and more
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Thank You!
Jim KaplanAuditNet® LLC
1-800-385-1625Email:[email protected]://www.auditnet.org
Richard B. Lanza, CPA, CFE, CGMACash Recovery Partners, LLC
Phone: 973-729-3944Cell: 201-650-4150Fax: 973-270-2428
Email: [email protected]://www.richlanza.com
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