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Retrospective data analytics slides

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A Retrospective in Analytic Auditing and What’s Ahead

Description

The speaker will outline salient best practices in establishing an analytic program based on lessons learned looking back on the past two and a half decades. Specific learning objectives include:
o Review key dates in the last two decade’s timing that led to the advancement of audit data analytic programs.
o Highlight lessons learned over the years through case study examples.
o Outline the effective culture around the analytics program to serve as its foundation.
o Learn to apply analytics across the entire lifecycle from risk assessment, to planning, fieldwork, and reporting.
o Present analytic best practices being deployed by top performing organizations.

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Retrospective data analytics slides

  1. 1. A Retrospective in Analytic Auditing and What’s Ahead About Jim Kaplan, CIA, CFE  President and Founder of AuditNet®, the global resource for auditors (available on iOS, Android and Windows devices)  Auditor, Web Site Guru,  Internet for Auditors Pioneer  IIA Bradford Cadmus Memorial Award Recipient  Local Government Auditor’s Lifetime Award  Author of “The Auditor’s Guide to Internet Resources” 2nd Edition Slide 1
  2. 2. About AuditNet® LLC • AuditNet®, the global resource for auditors, serves the global audit community as the primary resource for Web-based auditing content. As the first online audit portal, AuditNet® has been at the forefront of websites dedicated to promoting the use of audit technology. • Available on the Web, iPad, iPhone, Windows and Android devices and features: • Over 2,800 Reusable Templates, Audit Programs, Questionnaires, and Control Matrices • Webinars focusing on fraud, data analytics, IT audit, and internal audit with free CPE for subscribers and site license users. • Audit guides, manuals, and books on audit basics and using audit technology • LinkedIn Networking Groups • Monthly Newsletters with Expert Guest Columnists • Surveys on timely topics for internal auditors Introductions Slide 2 HOUSEKEEPING This webinar and its material are the property of AuditNet® and its Webinar partners. Unauthorized usage or recording of this webinar or any of its material is strictly forbidden. If you logged in with another individual’s confirmation email you will not receive CPE as the confirmation login is linked to a specific individual This Webinar is not eligible for viewing in a group setting. You must be logged in with your unique join link. We are recording the webinar and you will be provided access to that recording after the webinar. Downloading or otherwise duplicating the webinar recording is expressly prohibited. If you have indicated you would like CPE you must attend the entire Webinar to receive CPE (no partial CPE will be awarded). If you meet the criteria for earning CPE you will receive a link via email to download your certificate. The official email for CPE will be issued via NoReply@gensend.io and it is important to white list this address. It is from this email that your CPE credit will be sent. There is a processing fee to have your CPE credit regenerated post event. Submit questions via the chat box on your screen and we will answer them either during or at the conclusion. You must answer the survey questions after the Webinar or before downloading your certificate. Slide 3
  3. 3. IMPORTANT INFORMATION REGARDING CPE! SUBSCRIBERS/SITE LICENSE USERS - If you attend the entire Webinar you will receive an email with the link to download your CPE certificate. The official email for CPE will be issued via NoReply@gensend.io and it is important to white list this address. It is from this email that your CPE credit will be sent. There is a processing fee to have your CPE credit regenerated post event. NON-SUBSCRIBERS/NON-SITE LICENSE USERS - If you attend the entire Webinar and requested CPE you must pay a fee to receive your CPE. No exceptions! We cannot manually generate a CPE certificate as these are handled by our 3rd party provider. We highly recommend that you work with your IT department to identify and correct any email delivery issues prior to attending the Webinar. Issues would include blocks or spam filters in your email system or a firewall that will redirect or not allow delivery of this email from Gensend.io Anyone may register, attend and view the Webinar without fees if they opted out of receiving CPE. We are not responsible for any connection, audio or other computer related issues. You must have pop-ups enabled on you computer otherwise you will not be able to answer the polling questions which occur approximately every 20 minutes. We suggest that if you have any pressing issues to see to that you do so immediately after a polling question. Slide 4 The views expressed by the presenters do not necessarily represent the views, positions, or opinions of AuditNet® LLC. 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® LLC Slide 5
  4. 4. AuditNet® and cRisk Academy If you would like forever access to this webinar recording If you are watching the recording, and would like to obtain CPE credit for this webinar Previous AuditNet® webinars are also available on-demand for CPE credit http://criskacademy.com http://ondemand.criskacademy.com Use coupon code: 50OFF for a discount on this webinar for one week Slide 6 Richard B. Lanza, CPA, CFE, CGMA • Director of Audit Data Analytics for Grant Thornton, LLP • Over 25 years of ACL, Excel and other software usage • 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 • Recently was a contributing author of: • Detecting Corruption with Analytics: A Roadmap – The International Institute for Analytics • Global Technology Audit Guide (GTAG #13) Fraud In An Automated World – Institute Of Internal Auditors. • Cost Recovery – Turning Your Accounts Payable Department Into A Profit Center – Wiley And Sons. • Data Analytics: A Roadmap for Expanding Capabilities (published 2018 in partnership with the IIA's Internal Audit Foundation) • In 2015, discovered a new textual analytic technique using letters called the Lanza Approach to Letter Analytics (LALA)TM Slide 7 The views expressed by the presenters do not necessarily represent the views, positions, or opinions of Grant Thornton, LLP. These materials, and the oral presentation accompanyingthem, are for educational purposes only and do not constitute accounting or legal advice or create an accountant-client relationship. rich.lanza@us.gt.com
  5. 5. Today’s Agenda Review key dates in the last two decade’s timing that led to the advancement of audit data analytic programs Highlight lessons learned over the years through case study examples Outline the effective culture around the analytics program to serve as its foundation Learn to apply analytics across the entire lifecycle from risk assessment, to planning, fieldwork, and reporting Present analytic best practices being deployed by top performing organizations Slide 8 Rich Lanza 30 Year Career in a Slide Slide 9 Start – 1980s Fast Food Math TRS 80 Lotus 123/Excel Accounting Intern Current Grant Thornton, LLC Audit Data Analytics Controls and Risk Analytics 1990s KPMG – MUS Sample ACL and IDEA Centralized Analytics Writing / Speaking AuditWatch Early 2000s AICPA / CPA2Biz Toys “R” Us Application & Research Buyers Guide Cost Recovery 2004 - 2016 Cash Recovery Partners, LLC Audit Software Partners LLC AuditNet ® AuditSoftwareVideos.com
  6. 6. Why Are We Still Talking About Implementing Analytics? Distrust of Technology Audit report issued by Marwick, Mitchell & Co. based on their audit of Northern Shoe Company, Duluth, Minnesota - February 5, 1908 The adding machine in its riper place is an excellent institution but when it is resorted to on every occasion for the simple addition of two and two it becomes not only useless but dangerous…….Apart altogether from the time wasted in this way, the use of the machine which at first may be due to laziness on the part of the employee becomes at length a necessity for it is a well-known fact that the constant use of any mechanical calculator leads inevitably to trophy of the calculating faculty. A man who cannot calculate nimbly and accurately is of very little use as a bookkeeper. We would strongly advise that the adding machine be removed from the office or its use very much restricted. Slide 11 https://caats.ca/
  7. 7. Slide 12 News Flash: Projects Fail Nothing New – KPMG Study  56% of firms have had to write off at least one IT project in the last year as a failure.  The average loss incurred – approximately $13 Million  The single biggest write-off - almost $210m  Among the reasons cited for failure:  inadequate planning  poor scope management  poor communication between the IT function and the business “IT project failure is rampant – KPMG” The Register Published 26th November 2002 http://www.theregister.co.uk/2002/11/26/it_project_failure_is_rampant/ What Did the I.I. Analytics Find? Slide 13
  8. 8. AuditNet® Survey - 2012 Data Analysis Audit Software • Profile of Over 550 Responses: • 70% 10 or less auditors • 30% had not purchased data analysis software • Cost was the top reason for not buying the software followed by training • 57% felt that training was the key reason analytics is not required on audits • 59% of auditors do not require analytic steps in audits Slide 14 AuditNet®’s 2017 State of Technology Use By Auditors – 408 Responses Slide 15
  9. 9. Reasons For Not Using Data Analytic Software 2015 AuditNet® Audit Data Analysis Software Survey Slide 16 Top Five Reasons For Not Implementing Audit Technology The software costs too much(budget constraints) We do not have a budget for audit software training The training costs too much The annual support costs too much Audit management does not mandate it's use Slide 17 AuditNet®’s 2017 State of Technology Use By Auditors – 408 Responses
  10. 10. How Can We Increase Analytic Usage? Take My Manual Audit, circa 1998 Make data analytics a priority on every audit  Data exists for every process  Try to use analytics in every audit and explain if you do not Replace manual tests with automated ones  You need to replace to provide the time for analytics  Do one less audit and spend the time “thinking” this year  Focus on I T testing – user and segregation of duties testing Slide 19
  11. 11. Analytic Benefit in Sum: Doing More With Less Page 20 2015 AuditNet® Audit Data Analysis Software Survey Surveillance is the quickest and lowers fraud impacts 2016 Report to the Nation – Association of Certified Fraud Examiners Slide 21 2/3 less costly 3x detection time
  12. 12. My Top Audit Savings Ever http://bit.ly/2Fb5oOd Over $100MM identified, $40MM recovered Led to people, process and technology improvements  It focused on turning the “F” word into the “R” word Was based on a simple aging report  Positive values were aged separate of negative values Slide 22 Crossing the Chasm by Geoffrey Moore Slide 23
  13. 13. Learning from Other Professions Engineers, AutoCAD and the 1990s Attorneys and E-Discovery efficiency Medical profession  Collecting, collating and categorizing physicians’ experiences  Correlations between DNA and disease  Robotic and virtual guided surgery  Predictive modeling of mental state from phone messages ...some people will be replaced, the remaining will be augmented Slide 24 Follow the external auditors  Identify top areas of manual effort or deficiency Collaborate with I.T. (They have budget)  Build testing modulus to automate security and data privacy concerns  Make their life easier / Reduce risk in their areas of domain  Play to their ego / They can use best practice automated control Collaborate with BPOs (They have more budget)  Make their life easier / Reduce manual testing & questions  Reduce risk in their areas of domain  Focus less on risk testing and more on business value opportunities Slide 25 People Collaborate With the “Purse Strings”
  14. 14. Train everyone (Opportunists and Champions)  Different training for each group  Both are experts in their own right  Communicate frequently Train staff with competency based training  Allow team members to gain internal certifications  Just in time training of key skills seen as most desirable Have an internal or external coach  Get the experience you need when you need it – private lesson style  Provide a safe place to talk about what worked….and what didn’t Slide 26 People Training Approaches Have a backup  There can not only be one! Code their knowledge  Less than 45% have ever scripted their work Document, save, and videotape your work  Audit logs in software, flowcharts, and documents take minutes to develop to the hours to later remember what was done  Video editing (Camtasia) can be used to show how to run applications for future auditors Slide 27 People Closing the “Lone Ranger” Revolving Door
  15. 15. Flipping the Model of Analytics Slide 28 Data Management Extraction, Transformation and Enrichment
  16. 16. Overcoming Data Challenges Normalizing data is 80% of the time (in the beginning)  “By most accounts, 80 percent of the development effort in a big data project goes into data integration and only 20 percent goes toward data analysis.” — Intel Corporation Data is in every process  It may not be ERP / It may be in your “Big Data”  90% of data is text Audit (Internal & External) is the best partner to get the data  They are independent / Not proving the data is a scope limitation  Tend to establish the most secure data warehouses Page 30 Automated Data Normalization Store procedures for data cleanup once Create a normalized set of data fields named by YOU Ensure data quality tests are run prior to analysis Automate these routine tasks to increase analyst’s time Enrich the data by organizing it by type codes Page 31
  17. 17. Sample Data Validation Accounts Payable Other Questions Make a checklist (to make sure you follow it): Statistical analysis should also be completed as part of the validation analysis Agreement to batch totals, sample data and hardcopies is critical Page 32 Codify Journal Entry Data Type of account – Revenue, expense, etc. Balance Sheet impact and strata category Income Statement impact and strata category If the entry has a revenue posting in it If the entry is associated with a key words table of unusual words Manual vs. automated entry The rank, average value, and std deviation for that account, if relevant Slide 33
  18. 18. Asking Questions of Data Lessons from WorldCom/ MCI Slide 35 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…. 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".
  19. 19. 101 ACL Applications Over 100 reports including all scripts, audit objectives, comments to scripts and suggested audit steps to take with the results Page 36 Reducing False Positives http://bit.ly/2H5lYM5 37 Blog article explains specifically explains how to: Remove noise Filter top predictors Duplicate hit rates increased to 50% vs. less than 1%
  20. 20. Focusing Our Lens With Our Eyes and Statistical Models Query Viewpoints Slide 39
  21. 21. Getting Around The Pivot  Right click on the amount fields (data part) to see field list and edit various Pivot Table options  Select from the Top Ribbon Menu the Options and Design menus for Pivot Tables (Excel creates them when a Pivot Table is created) – best and easiest way to make changes Slide 40 Benford’s Law: The Basis of Digital Analysis 41
  22. 22. Scatter Chart Slide 42 Scatter Chart Explanation Slide 43 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
  23. 23. Key Control Reports & Scoring Of the top scored reports for “fraud”, find the highest percentage vendors, enterers, approvers etc. Look for patterns in the score and the people related to the transactions. Slide 40 Transactional Score Benefit Patterns Example Slide 45
  24. 24. Focusing on the Edges of the Normalized Curve Slide 46 Expanding Our Data Perspective Moving past structured data
  25. 25. The Population of Data Type Slide 48 Structured Data  Accounting records  Sub ledger details  Monthly performance measures Unstructured Data  Documents (Excel, PDF, Word)  Emails  Network Logs External Data  Geomap Service  OFAC, SAM.Gov Watch Lists  IRS Tax ID Match Top Areas To Start Your Own (Big) Data Analytics General Ledger Revenue Cycle Accounts Payable Procurement Payroll Expenses T&E Spend Customer and Vendor Feedback Employee Feedback / Whistleblower Hotline Process Feedback (Defects, Notes) Slide 49
  26. 26. 80% of Data is Text Based When Did You Last Audit Text? It works fast to quickly gain a perspective of the business process data:  Look for deviations over a 3-year moving average of phrase usage  Help with new accounting standards relying on contract analysis If digital analysis/Benford’s Law is latitude, letter 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 to highlight fraud Why not use another approach, such as Benford’s Law, to look at ALL data? Slide 50 Behavioral Analysis Key Words and the Fraud Triangle Slide 51 Opportunity CHANNEL STUFFING COOKIE JAR RESERVES FRAUDULENT SHAM QUID PRO QUO SECRET ACCOUNT Rationalization DON’T KNOW WHAT ELSE TO DO PIECE OF THE ACTION TREAT ME THIS WAY WORRY ABOUT IT LATER THEYLL BE SORRY Pressure FROM PETER TO PAY PAUL MANAGE EARNING TICKING TIME BOMB WALL STREET EXPECTATIONS Per AuditNet® Key Words http://bit.ly/2oCgEJO
  27. 27. American Language’s First Letters - COCA Slide 52 The Benford’s Law of Words Journal Entry Analysis Word usage in ledger • Same words tend to occur year over year • Changes may indicate some change in the client that could affect risk assessment Slide 53 http://bit.ly/1TGwvPS and http://bit.ly/21mEbsU - ACFE Fraud Magazine articles on “The Benford’s Law of Words – Parts 1 and 2”
  28. 28. What’s Ahead? Strengthen the Three Lines of Defense The Three Lines of Defense Common Constraints • Slow, manual • Lack of coordination • Human subjectivity • Magnitude of data with limited data resources The Opportunity • Insights to identify, monitor, control and mitigate risks across 3 lines of defense • Analytic processes directly aligned with COSO framework • An opportunity to create efficiencies and improve effectiveness of the 3 lines of defense The Result • Active data monitoring reduces fraud losses and fraud detection time by 50% • Create an opportunity shape the business' direction and create value across the organization Slide 55
  29. 29. Audit Analytics Panel February 22, 2018 (90 minute video) http://bit.ly/2CXAcMs Key Notes Slide 56 80% of the time getting the data / 20% of the time doing analysis Random samples are defensible / 100% analysis is insightful The definition of a test is transforming using data Embedding KPI analytics into the ERP rollout plan We are at the cusp of continuous auditing It is becoming the expectation from companies The receptivity has never been greater Data Analytics IIA Research Guides Other Thought Leadership • Internal Audit Analytic Surveys – Grant Thornton partnered with the Internal Audit Foundation >> https://www.grantthornton.com/library/articles/advisory/2017/internal-audit-new-value-data-analytics.aspx • White Paper – Driving Enterprise Value through Data Analytics >> https://www.grantthornton.com/library/articles/advisory/2017/enterprise-value-through-data-analytics.aspx • Data Analytics: A Roadmap for Expanding Capabilities (published 2018 in partnership with the IIA's Internal Audit Foundation) • Data Analytics: Elevating Internal Audit's Value (published 2016 in partnership with the IIA's Internal Audit Foundation) Books Slide 57
  30. 30. Lumen by Grant Thornton LLP http://gt-us.co/2I2EK8f Slide 58 Questions? Any Questions? Don’t be Shy! Slide 59
  31. 31. More Courses by Rich Lanza In the Queue for 2018 Many additional training opportunities are available on www.auditnet.org June 6 Super-Data-Charging Your Corruption Reviews With Integrated Analytics September 12 The Future of Auditing and Fraud Detection December 12 When Data Visualizations and Data Imports Just Don’t Work Slide 60 Learn More: Go to AuditNet® AuditNet® and cRisk Academy If you would like forever access to this webinar recording If you are watching the recording, and would like to obtain CPE credit for this webinar Previous AuditNet® webinars are also available on-demand for CPE credit http://criskacademy.com http://ondemand.criskacademy.com Use coupon code: 50OFF for a discount on this webinar for one week Slide 61
  32. 32. AuditSoftwareVideos.com Now Free (But Not for Long!) 70+ Hours of videos accessible for FREE subscriptions Repeat video and text instruction as much as you need Sample files, scripts, and macros in ACL™, Excel™, etc. available for purchase Bite-size video format (3 to 10 minutes) >> Professionally produced videos by instructors with over 20 years experience in ACL™, Excel™ , and more Slide 62 Thank You! Jim Kaplan AuditNet® LLC 1-800-385-1625 Email: webinars@auditnet.org www.auditnet.org Richard B. Lanza, CPA, CFE, CGMA Contact Information D: +1 732 516 5527 M: +1 732 331 3494 Email: rich.lanza@us.gt.com Slide 63

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