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The Rules of Nature and Audit


What’s missing is often as important as what’s present. The rules of nature apply very well to audit if you consider, “Everyone knows it, but do you test for it?”

Let’s start with time and space. An employee clocks in at home instead of the job site. There are only so many minutes in a day, hours in a week, weeks in a month, and months in a year. Do the numbers make sense in their time and space? You can only be in one place at a time. Does the data make sense in the business cycles, sequence and order? Events often follow a natural cycle. Identify where dates are out of sequence and validate that “once in a lifetime events” occur only once. An example would be if you are looking at a historical data set, there should not be any future dates in the dataset.

Another rule of nature is the existence and required combinations of products or services. A product must exist to be legitimately sold or resold. What is missing? What is unique? Lastly, look at the cause and effect. Every action has a ripple effect which should be documented. If inventory goes missing, the purchase and removal from the inventory system may provide the evidence you need.

When you have the data needed to answer those questions, do some old-fashioned brainstorming – What has gone wrong, then who? Find the people first, then the money will follow. You can learn a lot from the past, so assess and evaluate the historic or past issues. What types of mistakes have been made in the past? Were they financially damaging? What does the data and documentation look like when it did go wrong?
 

Investigate the “Who”

 

  • Who made the mistakes?
  • What positions did they hold?
  • Are they still employees, and if so, what does their file say about them?
  • What were they responsible for in the organization?
  • Is it a manager or supervisor that is the concentration of the issues? Therefore, is it a culture or tone at the top problem?

 

Investigate the Process

 

  • How is your root cause effecting the process?
  • Where are the shortcuts?
  • Who could make the mistake?
  • Are there management overrides?
  • What kind of control is in place and how did it miss the target?
  • When did this become a problem?
  • Were these issues more prevalent at certain times of the year?
  • Was there a change in the business environment?
  • Was there a drastic economic environment change, such as recession, market shift, or product launch? Maybe the problem exists in the geographic concentration or is the issue culture driven?
  • What phase of the process are you auditing?

To answer these questions, you’ll need to understand the both the client’s organizational chart and its operations. If fraud is discovered, it begs the question of how the mistakes could benefit the individuals involved in the process. A good place to start is to look at enhancements and processes where no one is currently auditing. Using your critical thinking ability and your data gathering skill, all these questions could be answered and added to the auditor opinion and gives true insight into the business.
 

Resources within IDEA

 
The Discover task in CaseWare IDEA® also does a quick analysis and gives you these insights ready to visualize to the client – and show them how valuable you are to their overall strategy and business intelligence. If you’re unsure about where to start, Discover can point you in the right direction.

Field Stats can be used to get statistics on numeric, time and date fields in a database. Its exceptionally helpful for checking totals, understanding the ranges of values in the database, testing for cut-off dates or amounts, identifying areas that require further investigation. In IDEA 10.3, Character Field Stats has been added to help:

  • Identify incomplete records, anomalies and deficiencies (e.g., instances where there is no authorizer)
  • Detect gaps in the data that may indicate fraud or errors
  • Drill down into the records for further investigation

Interested in learning how IDEA simplifies every audit with 100+ push-button analytic commands and built-in features to help you import, analyze and automate your work?

Contact [email protected] to schedule a live online demonstration.

Information for this article was sourced from a presentation by Chris Peters, GPS Consultants, LLC, during the 2017 IDEA Innovations Conference in Houston. GPS Consultants is an IDEA Integration Partner specializing in custom IDEAScript development, business process automation and data analysis consulting.


Automate Procedures , Best Practices , CaseWare IDEA , Data Analytics , Fraud



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