using microsoft excel in your next internal and external audit - learning the key process steps
TRANSCRIPT
Using Microsoft Excel in Your Next Internal and
External Audit
February 18, 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, Windows, 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
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• 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.
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Disclaimers
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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 Objectives“The Trailers for 2015”
Use a case study set of examples in payables, general ledger, and travel and entertainment spend to see how audit steps can be automated into Excel.
Use Excel as audit software, able to mimic practically all data analytic commands found normally in more expensive tools.
Get started with and quickly maximize Pivot Tables, turning them into effective data mining tools able to unearth almost any audit finding.
Visualize and otherwise chart changes over time and/or other chart dimensions.
Discover a key word analytic and the value of completing word and letter summaries.
Learn to select a sample in Excel and consider scoring for improved hit rates and reduction of false positives.
Discover how analytics can maximize the annual audit plan and better ensure focus is placed on organizational risk.
Using analytics across the entire lifecycle from risk assessment, to planning, fieldwork, and reporting
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What You Should Find With Analytics
Better Business Understanding = Business Risk &
Opportunity Identification
Compliance
Fraud
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
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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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
Getting Bionic Using Excel> Understanding Your Data and the Associated Business Process
> Using a 3D Analytic Model
It’s The Trends Looking at 100%….Right?
Trend categories of spend and revenue
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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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….
Polling Question #1
What type of sampling did we not explain?Random
Flowchart
Stratified
Transactional Score
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We Need A 3D Analytic Model
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Specific Tests Using the 5 Ws Data Case Studies
Who (PEOPLE STILL COMMIT ERRORS AND FRAUD)
Authorized users / data / application / program object testing
Trending based on activity or risk (transactional score)
Employee scoring based on all activity posted
Structured Data
Unstructured Data
What
Number / digital analysis
Textual analytics / Key word analysis
Stratify / Aging / Classify / Statistics
Above/Below Average and Z Score Testing
Posted Account / Company / Business Unit / Geography
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Above/Below Averages
Multiple items under an approval limit
Transaction is 5 x above average activity for an account
Low ratio of duplicate transactions to all vendor transactions
Below average days payable or sales outstanding
Above average credit limit to all customers
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Above Average Analysis
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Focus on 2 and 3 Std Deviations
Consider Sampling “Strata of Z”
New Functions To Learn
Average – Provides the mean
Stdev – Provides the standard deviation
Standardize - Z Score
Norm.Dist - Percentile per value
Percentile – Value for a percentile
Count – Counts the observations
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Polling Question #2
What is an example of a WHAT question in the general ledger analytical tests?Extract entries entered by an unauthorized user
Identify weekend journal entries
Summarize entry by account type
Summarize by who entered the entry
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Specific Tests Using the 5 Ws Data Case Studies
Where
GeoMap Employees to OFAC list match (multi-bar chart)
Addresses that do not match the geo-map
Quarterly analysis by address line
When Date grouping or difference scatter chart
Near period end to other timeframes
Weekends / Odd times ( ESPECIALLY FOR A GIVEN PERSON)
Why (ARE WE LOOKING AT THE ACTIVITY) Transactional score
Deviation
Past / Current reason to be concerned
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Graphing and Visualization
Graphing the Data
With your mouse pointer anywhere in the Pivot, select the Pivot Chart button
Whatever is in the Pivot will be in the Chart
Use slicers to build interactivity
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Grouping Date Ranges
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3 D Rotation of Enterer/Month
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Scatter Chart (Val and Vol)Vendor Differences Yr 1 to 2
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Scatter Graph Explanation
1 – high dollar change and low count (outliers)
2 – charges that make sense
3 – changes that don’t make sense
4 – inefficiency that is developing
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Dashboarding GraphingYOU NEED TO AUTOMATE THIS
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Polling Question #3
What Pivot Table function is used to create a chart?Pivot Data
Group Date
Pivot Chart
Line Chart
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Red Flag (Key) Word Phrases
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?
Letter AnalyticsBenford’s Law of Letters?
See the Caesar Cipherhttps://www.youtube.com/watch?v=sMOZf4GN3oc
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
Polling Question #4
What was one of the phrases used in the MCI case? Line management
Cost recovery
Key controls
Line costs
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Specific Queries and Sampling
Top Sided Journal EntriesRisk Factor Reports
Entries to revenue with offsets NOT in accounts receivable or cash
Extract nonstandard or manual journal entries (versus a created system such as an accounts payable ledger posting) for further analysis.
Extract journal entries posted on weekends and holidays.
Extract journal entries relating to the prior year that were made just immediately following a fiscal-year end.
Extract general ledger transaction amounts (debit or credit) that exceed the average amounts for that general ledger account by a specified percentage. (Five times the average is the default.)
Extract journal entries that equate to round multiples of 10,000, 100,000, and 1,000,000.
Extract journal entries with key texts such as “plug” and “net to zero” anywhere in the record.
Extract journal entries that don’t net to zero (debits less credits).
Extract journal entries made to suspense accounts and summarize by the person entering and corresponding account numbers.
Specific Accounts Payable & Travel & Entertainment Tests
(What) Extract payables that equate to round multiples of 10,000, 100,000, and 1,000,000.
(When) Extract transactions posted on weekends and holidays.
(When) Identify longest time to enter an invoice
(Who) Extract T&E transactions when a person was on a paid vacation per Human Resource records
(Who) Match employee to vendor address
(What) Extract T&E transactions that are per disallowed categories
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Identify the Longest Time to Enter a Vendor Invoice
The Power of VLookup()
Mat
chin
g ve
ndor
to
empl
oyee
add
ress
es
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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)
Sampling Books / Links
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Sampling: A Guide for Internal Auditors Barbara Apostolou, Ph.D., CPA
AU Section 350 http://www.aicpa.org/Research/Standards/AuditAttest/DownloadableDocuments/AU-0035theiia.org0.pdf
NYSSCPAhttp://www.nysscpa.org/cpajournal/2005/505/essentials/p36.htm
Stratify Your Data – Ver 1
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=IF(B4>1000,“3. Over $1000",IF(B4>100,“2. Over $100 to $1,000",IF(B4<=100,“1. Up to $100")))
This will create three strata:1. Up to $1002. Over $100 to $1,0003. Over $1,000
Start from highest to lowest – Excel picks the first matching item
Stratify Your Data – Ver 2
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Polling Question #5
In order for the stratification of value to work, what is the last setting of the Vlookup? FALSE
MAYBE
TRUE
YES
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Benefits of Stratified Sampling
Focuses attribute testing at larger values In dollars
In risk
Allows for more varied subsamples
Allows for error rate calculations by typeDepartment
Location
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Stratification Types
By Month
By Department
By Business Partner (Vendor / Customer)
By Account
By Enterer
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Narrowing the Focus With Transaction Scoring
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”.
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Using Vlookup to Combine Scores
Create a record number
Relate sheets based on VLookup
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Vendors Over $50K To Score Ratio
Analytic Command CenterThe Goal In Mind
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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!
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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 Starting 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
In the Queue
February 19 - Importing Data - The Complete Course in All File Types and Data Tricks to Get Your Data Ready for Analysis
February 24 - Conducting basic Data Analysis with IDEA
February 25 - Profile Your Organization and Employees for Their Fraud Quotient
February 25 - Spreadsheets & CAATs for Data Analysis
March 11 - Leveraging Excel-Based Analytics in Your Audit and S-Ox Testing of Procurement to Accounts Payable Cycle - A Case Study Approach
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
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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 Auditnet® 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
Today’s Session Will Be Loaded For Viewing Within 5 Days
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Sample files, scripts, and macros in ACL™, Excel™, - $49 – Best deal on the web for data files, macros, scripts, etc.
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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