Data analytics gives us the ability to take large amounts of complex data and turn it into something meaningful. Not everyone understands how databases are set up, or how the numbers within rows and columns indicate critical issues, which is why data visualization tools are becoming more valuable to business stakeholders.
Carl Seyfarth, with Seyfarth & Seyfarth CPAs, P.C., is taking full advantage of the new dashboards and other features available in IDEA 10 to improve communication with his clients, and to give his firm a competitive advantage when bidding against larger firms.
“Numbers don’t speak to everyone the same way,” said Seyfarth. “When I meet with audit committees, I take a variety of dashboards with me to give them some insights into the audit process. Showing them data in a visual format gives them a better understanding of the risk assessment and testing process. It also shows the client that we are using advanced audit techniques in our work, which gives them a comfort level.”
Seyfarth & Seyfarth is a two-person firm that works primarily with school districts and not-for-profits.
The firm uses IDEA reports and visualization features to help explain findings from the analysis including:
- Benford’s Law Charts – Using the “Benford’s Law, where 1s are expected more frequently than 9s, Benford’s Law is highly effective for detecting fraud and patterns within databases. This feature within IDEA allows you to drill down into the data sets to examine irregularities or abnormalities in transactions in greater detail.
- Summary of Earnings – Visual comparisons between different types of earnings – contractual, vacation, bonuses, salaried, hourly, etc. This helps to determine which payments are the most risky and develop a sample/audit plan accordingly.
- Risk Assessments – Mix of sampling and analysis of 100% of the data population to give stakeholders assurance that infractions and errors are being detected and reviewed.
- Payments Data – Display the transactions and use charts to show stratification and timing of payments, including the dollar amount.
- Vendor Data – Show spikes in vendor payments to see which vendors are paid the most.
- Employee Salaries – Without disclosing the individual names, review salary information with the board of directors to get a sense of total pay, highest, average and low amounts.
- Sales by Month – Look for odd dips or spikes within the data over a period of time to indicate changes in policy, internal controls or leadership.
“The advantage of visualization is being able to see patterns over time and follow them down into the details,” said Seyfarth. “Whether new leadership has been appointed, or a bad practice has been shut down, our clients can clearly see the impact on the business.”
Completeness is also an important element when discussing findings. Seyfarth stresses the importance of assuring the audit committee that 100% of the data was analyzed – leaving no room for speculation about the findings.
For example, when finding related party information, IDEA can help you look at payments and receipts to identify possible gaps. Some clients don’t supply a complete set of legal bills, but IDEA allows you to extract all the payments to known attorneys or vendors and look for any that are missing or that may have been charged to other accounts.
“When we meet with clients, we’re prepared to discuss unusual transactions, unresolved debts, trends and anomalies we’ve uncovered,” added Seyfarth. “Our discussions are more productive when we have a foundation of business insights to work from and meaningful questions to ask.”
Seyfarth utilizes the Audimated Apps such as the Word List Maker App, which he uses to identify “risky” words within Adjusting Journal Entry (AJE) descriptions. He appends a Boolean field to help extract the risky words, then uses the Looping Search App to find all the AJEs that contained those words. As a reminder, the Audimated Apps are available for a free 6-month trial in the Marketplace.
Visualization can be a powerful communication tool, especially for those who absorb information better in color and graphic formats. The release of IDEA 10.2 includes new enhancements including the ability to build reusable dashboard views, which can be reused for any period of data without having to edit the design or manually change elements.
For example, you can create a composite view of sales for one month, and then reuse the design for all future months by selecting the “Reuse” option and switching the source data to the latest data available. The Reuse function is backwards compatible, even if additional columns are added to the layout of sales data in the future.
Another enhancement is the addition of multi-series analysis to compare different periods of data in the same chart. You can dashboard sales performance year-over-year, month-over-month to quickly identify trends. Visit the CaseWare Analytics blog to see what else is new in IDEA 10.2.
Special thanks to Carl Seyfarth for his contribution to this article to help more firms use these techniques and improve overall audit quality. Seyfarth & Seyfarth CPAs, P.C. is based in Malone, NY. Carl can be reached at firstname.lastname@example.org or 518.483.0880.