ACL Presentation given in Connection 2009 in NYC

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Audit Transformation
Manuel Coello
Continuous Monitoring
Stanley Works

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The story: How an Internal Audit Department was able
to achieve +$1.5M in benefits with zero capital and the
use of ACL
• $1.1M cash recovered through the
Continuous Monitoring Program and
special projects
• Transformed Internal Audit practices
through the use of CAATTs
• Served as catalyst for driving “change”
in the Company

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Brief background
§ Stanley Works
– Founded in 1843 and based in New Britain, CT
– Manufactures Tools and Security Solutions
– Grew revenue from $2.2B in 2003 to $4.5B in 2008
– 16,000 employees worldwide

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ACL was used to deliver unprecedented audit value
Payments
CONTINUOS
1 MONITORING
Payroll
Travel Expenses
INTERNAL Introduce CAATTs
2 Performed off-field work
AUDITS
SPECIAL Vendor Litigation
3
PROJECTS Government compliance

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Spent time crafting a master plan

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Continuous Monitoring – Vendor Payments
1 Per 2002 benchmark study by IOMA:
1.6% of vendor payments are erroneous
The “Two” tests: Challenges:
Same invoice paid: Ø 9 different systems/
1. By two different systems large volume of data
2. By two different businesses Ø Info in different tables
Ø Unsure of what to test
3. To two different vendors
The “Typo” tests: ACL Solution:
1. Same invoice number and Ø Import large files
vendor number but different date Ø Duplicate functionality
2. Same amount, vendor and date Ø Join/Relate Tables
but different invoice number
Ø Repetition through
3. Same vendor and date and scripts
similar amount

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Aggressively focused on remediation

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Continuous Monitoring – Payroll
Unusual Transaction Tests: Suspicious Employees Tests:
1. Payment beyond termination dates 1. Duplicate EE/similar names
2. Multiple changes in rate 2. Salaried EE without email
3. Excessive overtime 3. EEs with same bank account but
different last name
4. Multiple or unusual bonuses
4. EE and vendor with same address,
5. EE with both merit increases and
bank account or Tax ID/SSN
lump sum merit increases
5. Hourly EE with “regular” as only
earnings
ACL Solution:
Ø Merged 52 payroll files into one ACL file
Ø Filtered false positives
Ø Cross-tab/summary/analysis

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Internal Audit - CAATTs
2 2008 Report to the Nation on Occupational Fraud & Abuse:
Typical U.S. organization loses 7% of its annual revenues to fraudulent activity
Fraud/Risky Areas Analysis
1. Suspicious invoice sequence 1. Collectability analysis
2. Benford Law 2. AR/Inventory write-offs
3. Payment for even multiples 3. Excess and obsolete
4. Segregation of duties 4. Journal Entries
5. FCPA 5. Data Analysis (Subledgers)
Compliance Operational
1. Invoices falling below approval 1. Vendor/Customer terms
limit 2. Purchase of unneeded material
2. FA useful lives 3. Purchase price history
3. Customer credit limits 4. Aged open PO / shop orders
4. Sales price overrides 5. P-cards and T&E
5. Completeness of Master Files

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Summary
§ Looking back
– Results were achieved that seemed impossible
– Internal Audit has created value above and beyond the typical control
recommendations
– The paradigm is changing that auditors are here to hurt us
§ Looking forward
– Taking the project to the next level by acquiring upgraded technology and
reengineering the audit processes
– Bringing the Continuous Monitoring program to Europe
– Training department staff in ACL “all-team-effort”