Using Microsoft Excel in Your Next Internal and

External Audit

February 18, 2015

AuditNet and AuditSoftwareVideos.com Collaboration

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Resource links

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Today focused on providing practical data analysis training

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About Jim Kaplan, CIA, CFE

President and Founder of AuditNet®, the global resource for auditors (now available on Apple, Windows, and Android devices)

Auditor, Web Site Guru,

Internet for Auditors Pioneer

Recipient of the IIA’s 2007 Bradford Cadmus Memorial Award.

Author of “The Auditor’s Guide to Internet Resources” 2nd Edition

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About AuditNet® LLC

• AuditNet®, the global resource for auditors, is available on the Web, iPad, iPhone, Windows and Android devices and features:

• Over 2,000 Reusable Templates, Audit Programs, Questionnaires, and Control Matrices

• Training without Travel Webinars focusing on fraud, audit software (ACL, IDEA, Excel), IT audit, and internal audit

• Audit guides, manuals, and books on audit basics and using audit technology

• LinkedIn Networking Groups

• Monthly Newsletters with Expert Guest Columnists

• Book Reviews

• Surveys on timely topics for internal auditors

Introductions

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Webinar Housekeeping

This webinar and its material are the property of  Cash Recovery Partners LLC. Unauthorized usage or recording of this webinar or any of its material is strictly forbidden. We are recording the webinar and you will be provided with a link to that recording as detailed below. Downloading or otherwise duplicating the webinar recording is expressly prohibited.

Webinar recording link will be sent via email within 5‐7 business days.

NASBA rules require us to ask polling questions during the Webinar and CPE certificates will be sent via email to those who answer ALL the polling questions

The CPE certificates and link to the recording will be sent to the email address you registered with in GTW. We are not responsible for delivery problems due to spam filters, attachment restrictions or other controls in place for your email client.

Submit questions via the chat box on your screen and we will answer them either during or at the conclusion.

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If GTW stops working you may need to close and restart. You can always dial in and listen and follow along with the handout.

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Disclaimers

The views expressed by the presenters do not necessarily represent the views, positions, or opinions of AuditNet® or the presenters’ respective organizations. These materials, and the oral presentation accompanying them, are for educational purposes only and do not constitute accounting or legal advice or create an accountant‐client relationship. 

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Richard B. Lanza, CPA, CFE, CGMA

• Over two decades of ACL and Excel software usage• Has written and spoken on the use of audit data analytics for

over 20 years.• Received the Outstanding Achievement in Business Award by

the Association of Certified Fraud Examiners for developing the publication Proactively Detecting Fraud Using Computer Audit Reports as a research project for the IIA

• Assists with much of the Auditnet® research projects• Recently was a contributing author of:

• Global Technology Audit Guide (GTAG #13) Fraud in an Automated World – Institute of Internal Auditors.

• Data Analytics – A Practical Approach - research whitepaper for the Information System Accountability Control Association.

• Cost Recovery – Turning Your Accounts Payable Department into a Profit Center – Wiley and Sons.

Please see full bio at www.richlanza.com

Learning Objectives“The Trailers for 2015”

Use a case study set of examples in payables, general ledger, and travel and entertainment spend to see how audit steps can be automated into Excel.

Use Excel as audit software, able to mimic practically all data analytic commands found normally in more expensive tools.

Get started with and quickly maximize Pivot Tables, turning them into effective data mining tools able to unearth almost any audit finding.

Visualize and otherwise chart changes over time and/or other chart dimensions.

Discover a key word analytic and the value of completing word and letter summaries.

Learn to select a sample in Excel and consider scoring for improved hit rates and reduction of false positives.

Discover how analytics can maximize the annual audit plan and better ensure focus is placed on organizational risk.

Using analytics across the entire lifecycle from risk assessment, to planning, fieldwork, and reporting

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What You Should Find With Analytics

Better Business Understanding = Business Risk &

Opportunity Identification

Compliance

Fraud

Key Control Failure

Other Control Failure

Cost Recovery ($$$)

Process Inefficiencies

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Ultimately, the above all lead to people, process and technology improvements

Prio

rity

Cost Recovery Opportunity

Accounts that are sole sourcedAccounts that have too many vendorsCategories that map to the “recovery list”Assess to industry cost category benchmarksTop 100 vendorsTrend analysis over time Trend analysis by vendor (scatter graph)

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Go Bionic!

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Bionic Auditors Are Born!Leverage technology to impress the execs

Find the next real issue or at least feel you really looked

Getting Bionic Using Excel> Understanding Your Data and the Associated Business Process

> Using a 3D Analytic Model

It’s The Trends Looking at 100%….Right?

Trend categories of spend and revenue

Trend by person and title entering and approving

Trend the trial balance for a variety of periods

Trend vendors / customers (it is possible via the G/L)

Trend before and after quarter end

But You Need the Auditor To “Blink” At The Data

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Or the Deviations?Unexpected Trends or Spikes

Specific Queries Align sub ledger to the trial balance or general ledger

• Even for reasonableness!....and to review activity trends

Above average testing and auto-extraction

Duplication testing (sales, vendors, etc.)

Employee to vendor bank account match (disparate data match)

Entries posted by employees not authorized to post transactions

Sampling Techniques Sampling (Random / Statistical / Stratified)

Record / Transaction Scoring

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But You Still Need the Auditor To “Blink” At

The Data….

Polling Question #1

What type of sampling did we not explain?Random

Flowchart

Stratified

Transactional Score

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We Need A 3D Analytic Model

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Specific Tests Using the 5 Ws Data Case Studies

Who (PEOPLE STILL COMMIT ERRORS AND FRAUD)

Authorized users / data / application / program object testing

Trending based on activity or risk (transactional score)

Employee scoring based on all activity posted

Structured Data

Unstructured Data

What

Number / digital analysis

Textual analytics / Key word analysis

Stratify / Aging / Classify / Statistics

Above/Below Average and Z Score Testing

Posted Account / Company / Business Unit / Geography

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Above/Below Averages

Multiple items under an approval limit

Transaction is 5 x above average activity for an account

Low ratio of duplicate transactions to all vendor transactions

Below average days payable or sales outstanding

Above average credit limit to all customers

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Above Average Analysis

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Focus on 2 and 3 Std Deviations

Consider Sampling “Strata of Z”

New Functions To Learn

Average – Provides the mean

Stdev – Provides the standard deviation

Standardize - Z Score

Norm.Dist - Percentile per value

Percentile – Value for a percentile

Count – Counts the observations

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Polling Question #2

What is an example of a WHAT question in the general ledger analytical tests?Extract entries entered by an unauthorized user

Identify weekend journal entries

Summarize entry by account type

Summarize by who entered the entry

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Specific Tests Using the 5 Ws Data Case Studies

Where

GeoMap Employees to OFAC list match (multi-bar chart)

Addresses that do not match the geo-map

Quarterly analysis by address line

When Date grouping or difference scatter chart

Near period end to other timeframes

Weekends / Odd times ( ESPECIALLY FOR A GIVEN PERSON)

Why (ARE WE LOOKING AT THE ACTIVITY) Transactional score

Deviation

Past / Current reason to be concerned

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Graphing and Visualization

Graphing the Data

With your mouse pointer anywhere in the Pivot, select the Pivot Chart button

Whatever is in the Pivot will be in the Chart

Use slicers to build interactivity

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Grouping Date Ranges

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3 D Rotation of Enterer/Month

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Scatter Chart (Val and Vol)Vendor Differences Yr 1 to 2

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Scatter Graph Explanation

1 – high dollar change and low count (outliers)

2 – charges that make sense

3 – changes that don’t make sense

4 – inefficiency that is developing

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Dashboarding GraphingYOU NEED TO AUTOMATE THIS

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Polling Question #3

What Pivot Table function is used to create a chart?Pivot Data

Group Date

Pivot Chart

Line Chart

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Red Flag (Key) Word Phrases

Lessons from WorldCom/ MCI

The fraud was accomplished primarily in

two ways:

1.Booking "line costs" (interconnection

expenses with other telecommunication

companies) as capital expenditures on

the balance sheet instead of expenses.

2.Inflating revenues with bogus

accounting entries from "corporate

unallocated revenue accounts".

In 2002, a small team of internal auditors

at WorldCom worked together, often at

night and secretly, to investigate and

reveal $3.8 billion worth of fraud….

Per Wikipedia – MCI Inc.

Red Flag Word Phrases/Words

• One could build a database of suspicious words and then search the entire data file for these words, looping back to the table to get the next word:

• bribe• fraud• plug• etc.

• Summaries can be done by person and collectively for additional collusion reviews

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Words On The Rise / Words Equal

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Key Word Trending

Letter AnalyticsBenford’s Law Of Words? Lanza’s Letter Fingerprint?

A Law For Letters and Words?

Letter AnalyticsBenford’s Law of Letters?

See the Caesar Cipherhttps://www.youtube.com/watch?v=sMOZf4GN3oc

Textual Analytics Summary

It works fast to quickly gain a perspective of the business process data: Can work in real-time with the data while talking to the client – no prep

needed…meaningful questions in seconds Look for deviations over a 3 year moving average to the current period

If Digital Analysis / Benford’s Law is latitude, textual analytics is longitude Text is far richer in business value and providing a picture than simple digit

theory The unique word chart provides a more normalized view of activity while total

word occurrences by letter provides a more dynamic chart The trends can be seen quickly to ask relevant questions and also to

highlight fraud

Why not use another approach, like Benford’s Law, to look at ALL data quickly by trending on a natural law of letter usage for that business approach

Polling Question #4

What was one of the phrases used in the MCI case? Line management

Cost recovery

Key controls

Line costs

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Specific Queries and Sampling

Top Sided Journal EntriesRisk Factor Reports

Entries to revenue with offsets NOT in accounts receivable or cash

Extract nonstandard or manual journal entries (versus a created system such as an accounts payable ledger posting) for further analysis.

Extract journal entries posted on weekends and holidays.

Extract journal entries relating to the prior year that were made just immediately following a fiscal-year end.

Extract general ledger transaction amounts (debit or credit) that exceed the average amounts for that general ledger account by a specified percentage. (Five times the average is the default.)

Extract journal entries that equate to round multiples of 10,000, 100,000, and 1,000,000.

Extract journal entries with key texts such as “plug” and “net to zero” anywhere in the record.

Extract journal entries that don’t net to zero (debits less credits).

Extract journal entries made to suspense accounts and summarize by the person entering and corresponding account numbers.

Specific Accounts Payable & Travel & Entertainment Tests

(What) Extract payables that equate to round multiples of 10,000, 100,000, and 1,000,000.

(When) Extract transactions posted on weekends and holidays.

(When) Identify longest time to enter an invoice

(Who) Extract T&E transactions when a person was on a paid vacation per Human Resource records

(Who) Match employee to vendor address

(What) Extract T&E transactions that are per disallowed categories

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Identify the Longest Time to Enter a Vendor Invoice

The Power of VLookup()

Mat

chin

g ve

ndor

to

empl

oyee

add

ress

es

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Auditors Inherent Need To Sample

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The practice of selecting individual items from a population to estimate

properties of that population…. given confidence levels around top error patterns and expected errors.

This is statistical sampling vs. judgmental (nonstatistical)

Sampling Books / Links

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Sampling: A Guide for Internal Auditors Barbara Apostolou, Ph.D., CPA

AU Section 350 http://www.aicpa.org/Research/Standards/AuditAttest/DownloadableDocuments/AU-0035theiia.org0.pdf

NYSSCPAhttp://www.nysscpa.org/cpajournal/2005/505/essentials/p36.htm

Stratify Your Data – Ver 1

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=IF(B4>1000,“3. Over $1000",IF(B4>100,“2. Over $100 to $1,000",IF(B4<=100,“1. Up to $100")))

This will create three strata:1. Up to $1002. Over $100 to $1,0003. Over $1,000

Start from highest to lowest – Excel picks the first matching item

Stratify Your Data – Ver 2

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Polling Question #5

In order for the stratification of value to work, what is the last setting of the Vlookup? FALSE

MAYBE

TRUE

YES

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Benefits of Stratified Sampling

Focuses attribute testing at larger values In dollars

In risk

Allows for more varied subsamples

Allows for error rate calculations by typeDepartment

Location

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Stratification Types

By Month

By Department

By Business Partner (Vendor / Customer)

By Account

By Enterer

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Narrowing the Focus With Transaction Scoring

Approach - Transactional Score Benefits

The best sample items (to meet your attributes) are selected based on the severity given to each attribute. In other words, errors, as you define them, can be mathematically calculated….so best to tailor them

Instead of selecting samples from reports, transactions that meet multiple report attributes are selected (kill more birds with one stone). Therefore a 50 unit sample can efficiently audit: 38 unbalanced entries 22 round entries 18 unique entries

….and they are the best given they are mathematically the most “severe”.

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Using Vlookup to Combine Scores

Create a record number

Relate sheets based on VLookup

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Vendors Over $50K To Score Ratio

Analytic Command CenterThe Goal In Mind

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Analytic Audit

Command Center

1.Accounts Payable

2.Accounts Receivable

3.Financial Statement

4.General Ledger

5. Inventory

6.Payroll

7.Revenue

DataMart

Local

Analytic

Toolkit

Feedback

from all

locations

Recovery Auditors

Shared Services

Polling Question #6

What function is mainly used to align all scores in a spreadsheet?MOD()

FIND()

MID()

VLOOKUP()

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Questions?

Any Questions?Don’t be Shy!

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Course Calendar and Approach

Offering 13 Training Courses / 26 CPE 8 foundational classes

5 practical courses for specific audit areas

Get More For Your Training Dollar $20 per CPE for individual course / $17 on a subscription

Much lower rates for groups – BEST WAY TO TRAIN

Don’t forget the data files and templates to get you started

Courses Starting Feb 2015 and Run Twice a Month

Effective Analytic Training Strategies

Don’t Be a Lone Ranger: Train the Team

Build on a Common Learning Ground - ExcelTM

Be Consistent With Bi-Weekly Learning & Discussion

Use Templates: To Serve As Analytic Audit Programs

Get Data Files and Report Templates

Watch Videos When You Need Just In Time Reminders

Benchmark Your Department

In the Queue

February 19 - Importing Data - The Complete Course in All File Types and Data Tricks to Get Your Data Ready for Analysis

February 24 - Conducting basic Data Analysis with IDEA

February 25 - Profile Your Organization and Employees for Their Fraud Quotient

February 25 - Spreadsheets & CAATs for Data Analysis

March 11 - Leveraging Excel-Based Analytics in Your Audit and S-Ox Testing of Procurement to Accounts Payable Cycle - A Case Study Approach

March 25 - How to Request, Import and Normalize Data for a Variety Accounting Packages

April 8 - Learning Advanced Yet Simple To Run Textual Analytics To Better Understand “What’s the Word” in Your Company

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Keywords and Textual Analytics Offers

Free Dec 3, 2014 webinar videos are on www.AuditSoftwareVideos.com (2 Hrs. NO CPE) Over 250 people attended / Theory and How Tos

Keyword Data Files based on research are available: $79 - Most comprehensive list available for public use

Over 2,000 key word / phrases and word analysis

Upcoming Auditnet® Research – “What’s The Word” FREE word macro tool will complete a word summarization

Get involved! – Email rich@richlanza.com to pre-sign up!

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AuditSoftwareVideos.com

Today’s Session Will Be Loaded For Viewing Within 5 Days

Many videos accessible for FREE subscriptions

Sample files, scripts, and macros in ACL™, Excel™, - $49 – Best deal on the web for data files, macros, scripts, etc.

Bite-size video format (3 to 10 minutes) Professionally produced videos by instructors with over 20 years experience in ACL™, Excel™ , and more

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Thank You!

Jim KaplanAuditNet® LLC

1-800-385-1625Email:info@auditnet.orghttp://www.auditnet.org

Richard B. Lanza, CPA, CFE, CGMACash Recovery Partners, LLC

Phone: 973-729-3944Cell: 201-650-4150Fax: 973-270-2428

Email: rich@richlanza.comhttp://www.richlanza.com

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