Leveraging CAATs in  Small Audit Departments

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Today's Agenda. Internal Audit

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Leveraging CAATs in Small Audit Departments

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1. Leveraging CAATs in Small Audit Departments

2. Today’s Agenda Internal Audit – new challenges, new opportunities New role for data analytic technology Challenges to data access and analysis Analytical tools Continuous auditing/monitoring for integrated assurance Case study examples Key success factors Summary Q&A

3. New Challenges, New Opportunities SOX created new demands/opportunities Internal Audit viewed as internal controls experts – now responsible for change and discovery Key role in achieving compliance with SOX – overall role of IA shifting Greater demands without increased resources Compliance is an ongoing issue – not a one-time event

4. New Role for Data Analytics In Internal Audit Extend use beyond technical users or specialists Increase frequency of controls testing and scope at the transaction level Use during audit planning stages for maximum benefit In Management Embed technology solutions in critical business processes

5. Applications of Data Analytics General examples Travel & entertainment: expense claims, merchant analysis Asset management: depreciation, value calculations Salaries and payroll: overtime, bonuses General ledger: account reconciliation, financial ratios Accounts receivable: credit limits, discounts Inventory control: turnover rates, price/cost variance

6. Areas for Data Analytics Industry-specific examples Banking: loan reviews, portfolio analysis Education: grants compliance, financial aid Government: tax compliance, purchasing management Healthcare: patient billing, charges and claims Insurance: claims processing, investment securities Retail: gift card fraud, inventory shrinkage

7. Challenges for Internal Audit

8. Internal Auditors Survey

9. Audit Technology Requirements: A Checklist

10. Use of Spreadsheets Categories of use Financial Operational Analytical Risk considerations Complexity and size Purpose and use Number of users Frequency and extent of changes Potential for error Risk of error Recent audits of 54 spreadsheets found that 91% had errors* 30-90% of spreadsheets suffer from at least one major error* “The Use of Spreadsheets: Considerations for Section 404 of the Sarbanes-Oxley Act,” PwC, July 2004

11. Specialized Data Analysis Software Review 100 percent of transactions No limit on file size Compare data from different applications & systems Perform tests that are designed for audit and control purposes Conduct tests proactively Ability to automate high-risk areas to catch fraud before it escalates Maintain comprehensive logs of all activities performed

12. Accessing Data for Enhanced Productivity

13. Data Analytics Approaches

14. Continuous Auditing

15. Continuous Auditing Benefits Key to ensuring internal controls are in place and operating effectively Exposes control weaknesses to prevent fraud Reveals anomalies close to time they occur to detect fraud early Existence is a deterrent

16. Internal Controls: Roles and Effort

17. Continuous Assurance

18. CCM Process

19. Enterprise Business Processes

20. The Audit Cycle

21. Planning Audits traditionally done on rotational basis Applying data analysis technology: Use ad-hoc testing to determine areas of greatest risk Use findings to plan audit Benefits Allows audits to focus on areas of highest priority and risk Case study Food Lion (Delhaize Group)

22. Preparation Typically make requests for data from IT Extracts can take weeks May not be what you needed, or may not be complete Requires new requests

23. Challenges in Data Extraction

24. Client/Server System

25. Substantive Testing Traditionally done by sampling or spot checks Using data analysis technology: 100% of data for more complete, accurate testing Full range of approaches to suit type of analysis Ad hoc Periodic Continuous auditing

26. Continuous Auditing Goal Need for timely, ongoing assurance over risk management and the overall control environment Role of continuous auditing Provides more frequent, more timely, analyses to better manage control deficiencies and risk Application areas Continuous control assessment Identification of control deficiencies Identification of fraud, waste, abuse Continuous risk assessment Examination of consistency of processes Development of enterprise audit plan Support to individual audits Follow-up on audit recommendations

27. Continuous Auditing Benefits Key to ensuring internal controls are in place and operating effectively Exposes control weaknesses to prevent fraud Reveals anomalies close to time they occur to detect fraud early Existence is a deterrent

28. Peer Review Typically manual, limited process Made far easier with ACL audit trail Historical record Each step is captured Promotes collaboration Enhances quality of overall audit department Supports professional development among team members

29. Report Findings Without the use of audit tools May be incomplete May require re-keying of findings Time-consuming With data analysis technology, reporting is streamlined Cut and paste charts, graphs into audit report Incorporate context of findings Export to standard working paper or reporting packages Complete, accurate and defensible findings

30. Small Audit Shop Case Study

31. Seven Steps to Success Obtain executive commitment to data analytics Select the right solution to meet all requirements Use strategically by incorporating into audit plan Develop a data access strategy Enable multiple users for maximum impact Ensure users are well trained Apply a continuous audit approach

32. In Summary Integrated data analytic technologies can benefit small audit departments by: Increasing efficiencies and shorten the audit cycle Providing broader, deeper coverage Providing increased assurance of accuracy of findings Ensuring independence Driving corporate performance through detection of Fraud Revenue leakage Business process inefficiencies Supporting regulatory compliance

33. Contact

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