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Using Process Mining for Internal Auditing
The value of an internal audit to the success of a business is in the increase in effectiveness and efficiency of the business organization and processes through minimisation of risks, which can arise for example from known or unknown violations of process and compliance regulations.
Motivated by various scandals and the economic crisis which now lies behind us, the role of the internal audit has been reconsidered, and a desire has been expressed for proactive methods of operating instead of reactive methods. Regardless of how vigorously this desire has been expressed, process mining fits perfect with this discussion about trends, like continuous auditing, in which technology plays a central role. In contrast with other analytical auditing tools, process mining offers an explicit view of the processes.
1. Process auditing and process understanding in the digital world
The classical approach to process auditing is to conduct interviews, observe processes, and take samples. The results are exhaustively compiled, and in many cases depict more of the desired processes and less of the actual processes.
Business processes are supported these days by ERP and BPM systems, which on the one hand are too complex to give a complete overview, but on the other hand can create a digital log of all individual activities. Process mining uses these digital traces to reconstruct a process reality from start to finish, including all actual occurring variations and deviations. The auditor gains an understanding of the process at least an eye-‐to-‐eye level with those responsible for the process.
2. Maximum „sample“ of 100%
In the classic method, natural limits are set for the size of the sample. The more complex the process under investigation, the smaller the sample tends to be. This limits its meaningfulness to the entire process.
For process mining, these limitations do not apply. The representation of processes and testing are always based on 100% of all logged business transactions, for example for possible compliance violations.
3. Visualisation of process risks, exceptions, and controls
Unfortunately, things don't always run the way they should. The greater the deviation in the individual progress of a business transaction from the desired process or core process, the greater the possibility of risk to the business. In order to actually evaluate the risk, you must verify whether the internal controls grasped any process exceptions which would leave behind digital traces in the system. Process mining uses special filters to visualise all process exceptions upon request, and also shows the existence or absence of controls.
4. Increase quality and reduce costs
The experiences of auditing departments have shown that audit preparation and planning is an ideal deployment phase for process mining.
The auditor can analyse the process more effectively and more efficiently, recognise possible risks, and better prepare the actual audit than before the deployment of process mining.
The expenses for audit preparation are significantly reduced and at the same time the quality of the audit is increased, since it takes place with much more focus by using the previously acquired knowledge.
The bottom line is that process mining reduces the total expenditure for an audit by about 25%.
5. Continuous monitoring and auditing
In almost all organisations, the auditing work follows a yearly plan and each audit takes place once a year. For especially important or risk-‐laden processes, this is not enough. Behind the keyword „continuous auditing“ hides the desire for a continuous monitoring of processes.
Process mining represents an ideal cornerstone for this, because it automatically reconstructs the actual process in the given intervals from the current "digital traces" with all variations and required key figures, and the auditor has a constant overview of the processes and the effectiveness of the internal system controls.
6. Process mining as a growth sector in internal auditing
Process mining helps the auditor to position themselves as an advisor for value-‐oriented improvements within the business. He is no longer dependent on subjective statements from those involved in the process and those responsible and samples, rather his statements are based on objective facts and efficient analysis.
The auditor is the supplier of strategic and operatively valuable analysis, and a sought-‐after partner for top management.
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