Adopting Data Analysis Software – A CPA Firm’s Journey

Case Study: Padgett Stratemann & CO., LLP

Having the best tools for conducting audits ranked high on Pat Lonsdale's priorities when he left Ernst & Young for the Padgett Stratemann & Co., LLP in San Antonio, TX.

"One of my big concerns was resources, and what I found was Padgett Stratemann is at the forefront in terms of technology," said Lonsdale, the CPA firm's senior manager.

Lonsdale arrived at Padgett Stratemann in 2003, and it was a time when the use of IDEA® – Data Analysis Software was in its infancy at the company. Padgett Stratemann was a member of the McGladrey & Pullen network, and that was how Lonsdale was introduced to IDEA.

"We use their audit methodology and they were starting to incorporate IDEA into their audit approach,” Lonsdale recalled. "As we investigated a little more, we could see it was a pretty powerful product."

In a nutshell, Lonsdale describes IDEA as "better than Excel on steroids," but he adds that there really is not much comparison between the two.

Offering one example, Lonsdale noted its versatility in searching for unrecorded liabilities. With IDEA, he could electronically join a subsequent check register database and an accounts payable database, then automatically see what subsequent disbursements have already been accrued. This can dramatically reduce the population of subsequent disbursements subject to manual testing, while at the same time providing the auditor with a more in-depth audit procedure.

"Prior to IDEA, we would look at support for any check over 'X' amount. We request support for all those checks," he said. "That could be a pretty cumbersome and time-consuming process. Now with IDEA, we have a more thorough and a more efficient means of testing."

One of IDEA's most common uses is statistical sampling. Antiquated non-statistical sampling methods rely on a more labor intensive process of using random or haphazard samples that tend to be more time consuming. IDEA can import your subject population and select a statistical sample according to parameters set by the user.

The program selects the sample for you, Lonsdale said, then evaluates your sample and lets you know if it’s statistically valid.

"Many times, it is a more efficient form of testing," he said. "When it is not more efficient, it is more thorough."

Institutionalizing the use of IDEA throughout the company depended on a commitment to train staff and ensure support. Fortunately, Lonsdale said staff found IDEA to be fairly intuitive. Following what he described as a minor learning curve, accountants handle the analysis software with relative ease.

Company-wide adoption began with Lonsdale and a co-worker traveling to Houston for a three-day class at Audimation Services, Inc., the sole U.S. distributor of IDEA. They came back the anointed "IDEA champions," Lonsdale recalled, and began sharing their knowledge of the software with fellow accountants.

Padgett Stratemann's workforce fluctuates in the high 100s to the low 200s. The majority of the firm's client base is comprised of owner-managed companies with annual earnings of $15 million annually to $150 million. With that said, the firm still serves many companies over the $150 million mark, in addition to publicly traded entities.

Being a full-service firm that handles auditing and taxes for such a wide range of clients, Padgett Stratemann accountants sometimes see mom-and-pop operations that use antiquated accounting systems that are a challenge to electronically import. They also encountered huge corporations with transaction lists in the millions - stratospheric numbers that are impossible for other systems when it comes to data manipulation.

The staff would agree that IDEA handles it all with ease. Ricky Robinson, one of the firm's heavy IDEA users, said he works on telephone company records.

"I might have to extract one file with millions of lines," Robinson said. "I don't think there's any way I could have done that without IDEA."

And despite the fact that much of his work becomes routine, Robinson added that he is continually learning with IDEA. Because the software allows the use of custom-made statistical formulas, there seems no end to its flexibility.

"Just in the last year, I found three or four new things I could do with it," Robinson said.

Robinson was an exception to how most employees learn IDEA. His first encounter with it was as a university student during a class project. Most newcomers to the firm go through a week-long boot camp; during that period, their initiation to IDEA is a two-hour whirlwind tour of IDEA basics. After years of bringing new accountants up to speed, Padgett Stratemann has in a place a streamlined, tiered training system.

Newcomers are first briefed on which situations they will most likely be using IDEA. They are introduced to a small cadre of IDEA champions; these are the in-house experts. And they are given the software.

Restricted to notebook computers, as per the licensing agreement, accountants had to use keys plugged in to a USB port to operate the software. In the beginning, the firm had a limited number of licenses, whereby accountants were allowed to check out keys as needed.

"But if you don't use it, you revert to your old way of doing things," Lonsdale said. "So we incorporated IDEA into our audit approach as much as possible, and have come to the point where we now have licenses for all of our auditors."

The company's use of IDEA has progressed to the point that keys are no longer required. Everyone from manager and below has the software on their laptop, he said, and they should all be able to import files and do basic data manipulation.

Lonsdale has since passed the IDEA champion torch to others. Two audit department managers and Casey Raim, an information technology expert, form the company's in-house IDEA brain trust these days.

IDEA was not designed as an IT tool, Raim said. But its data manipulation capabilities are so powerful, she realized it had uses beyond statistical analysis and fraud detection. She found IDEA made it much easier to run Padgett Stratemann's internal reports.

When Raim studied IDEA at Audimation's headquarters, she was the only IT person in class, she said. Yet, she was already familiar with it.

"I had already been using IDEA for a couple of years," Raim said. "I went to Houston thinking I was probably wasting my time. But I went to class to figure out faster ways of doing what I was already doing, and in that I succeeded."

Raim's duties related to IDEA are primarily in supporting auditors with extraordinary import situations. Converting data from its original format into IDEA can sometimes be somewhat involved, she said.

"When our auditors don't have the time to import it, I can step in and help out," she said.

IDEA's ability to juggle such large amounts of data give Padgett Stratemann a leg up over its competition, Lonsdale said.

In the seven years since Lonsdale and the Padgett Stratemann team began incorporating IDEA into their daily work environment, they have found the software's capabilities have invariably exceeded their needs.

"I know we do not use it to its full capability," Lonsdale said. "But what we do use it for, it's not complex, it is efficient, and it's thorough."