AuditSoftware.Net Blog by Rich Lanza

Continuous Automation of Anti-Fraud Procedures

2008-05-18T13:49:00.000-07:00

I am being asked more and more to speak on automating anti-fraud procedures. I believe that accounts payable is the best place to start (payroll tends to be under tight management review so you can only add so many phony employees before someone figures it out) and it is why this tends to be the #1 area for discussion.

Once a data analysis review is completed in this area, it is only natural to automate this activity so that the tests run on a consistent basis....monthly or quarterly is usually sufficient.

Thoughts welcome,
Rich Lanza

2008 seems to be the year of cost recovery

2008-01-05T11:51:00.000-08:00

In the U.S., with Sarbanes-Oxley efforts starting to slow down as it becomes more routine, companies are spending more time focusing on process improvements and more specifically, finding cash. This is especially true as the U.S. economy is slowing with other hanging issues over the economy (i.e., sub prime mortgages).

I have been spending a lot of time over the last six months focused on cash recovery (see my website http://www.findmillions.net/) and have seen more interest starting in November 2007 than ever before in this area. I urge you to consider more cost recovery efforts in your company as they are a great way to pay for your department's costs. I run a monthly free webinar on the topic if anyone is interetsed.

Is anyone else seeing this trend?

What webinars do you want to see?

2007-07-23T08:21:00.000-07:00

What topics interest you for webinars? We at AuditSoftware.Net want to provide you with the most timely content and education related to the use of audit technology.....but need your help.

Let us know by posting comments to this blog on what webinars most interest you.

Thanks,
Rich Lanza

Best Practice Fraud Detection Methodology

2007-07-15T09:59:00.000-07:00

I am not sure there is such a thing but I have been working recently on a best practice methodology for detecting fraud in computer systems. I started with my Proactively Detecting Fraud research (see AuditSoftware.Net Bookstore for more information) and came to a quick method that does the following:

1) Focuses on external information sources such as US Government and business directory databases.
2) Runs a variety of query reports.
3) Mines data using tools like Excel Pivot tables to find trends that may not be quickly apparent to the user.

Any thoughts here, feel free to Email me or reply to this post.

How to we pay for all of this technology....cash recovery!

2007-03-30T06:57:00.000-07:00

In the last few weeks, I lauched a new website, Find Recovery Auditors (www.findrecoveryauditors.net) which is an offshoot of my efforts with AuditSoftware.Net.

I developed it to show everyone how to save money with technology...which is what I have been doing all my career and it has been a blast.

Check it out,
Rich

How can so many entries be analyzed?

2007-01-08T06:11:00.000-08:00

Saw a great quote in an article on data analysis that noted to review 100,000 journal entries at a client would take close to 1,000 person days to audit.

While maybe not that large, if you think it through, most mid-sized companies have at least 5,000 journal entries and probably 250,000 lines to these entries. Without a computer, how could these be reviewed effectively from an audit or fraud detection perspective?

Food for thought and comments are welcome,
Rich Lanza

How do you know which spreadsheets to review?

2006-12-01T13:11:00.000-08:00

Excel has permeated all of our business processes as it provides a flexible and simple-to-create development platform. However, the mini-systems built in Excel can be rife with errors given the lack of software methodology, poor security, and ease-of-change that comes with the Excel territory.

So how can you assess the risk of your entire Excel universe? You could manually open spreadsheets and asses them against a checklist of common list of risk symptoms. That process could take months to finish and, once done, all of the spreadsheets under review could have been changed….for the worse.

What’s needed is a methodology that allow you to efficiently analyze your entire Excel risk universe, and the automation to do it in minutes. Tools exist to make this happen and see the below link for more information on an upcoming learning event:

http://www.mrexcel.com/webinar.html

When Microsoft is not the best choice for audit software

2006-10-06T15:55:00.000-07:00

While the Microsoft products can be fantastic tools in an examination, their relative weaknesses should be understood so they don't become the trusty hammers when what is needed is a set of pliers. Therefore the focus here is arming the fraud examiner with key considerations when making a data analysis software decision, which encompasses Excel,™ Access,™ and other fraud specific tools like IDEA,™ ActiveData,™ and ACL.™
The considerations are organized into these sections: 1) file sizes, 2) speed, 3) error prevention, 4) functionality, 5) data import, and 6) training.

To read more, please see the article on AuditSoftware.net.

Don't Test Internal Controls, Test the Circumvention

2006-09-21T18:19:00.000-07:00

People have asked me recently at seminars how I perform internal control testing. I replied that I focus not so much on testing internal controls (i.e., how many time did Joe, the rightful approver, approve an invoice). Rather, I focus on testing for any circumvention (i.e., how many times did Sue post invoices just under the approval limit so that Joe would not need to approve and therefore ever see the invoice).

Consider this in your query approach....focus on the circumvention and therefore the potential issues that could arise in the internal control structure. The test results will be more fruitful.

Comments are welcome.

Proactive Journal Entry Testing - A Must For Auditors

2006-09-08T09:07:00.000-07:00

When looking at some of the recent large-scale frauds, such as WorldCom, management override around the journal entry process was the key contributing factor (according to an Oct. 30, 2002 article in The Wall Street Journal). This is to be expected because the easiest route to changing the books and records is for executive management to post a top-side journal entry.
Audit Standard #99 makes specific references to using data analysis to support the audit process and AICPA Practice Alert 2003-02 provides specific guidance on journal entry tests that should be performed on every audit. As much as possible, these reports should be automated (vs. having someone manually scan general ledgers).

See my website, AuditSoftware.Net for a comprehensive list of automated journal entry tests.

Using other peoples' test ideas

2006-07-29T06:43:00.000-07:00

There is no sense re-inventing the wheel and to that end, auditors need to use their network to identify top audit tests. This network could be their friends and associates but there is no reason why it can't be the Internet as well.

Auditnet.org has free and subscription based (only $100 per year at the maximum) access to more audit programs and control matrices that you would ever need. Check them out!

The Overlooked Audit — Spreadsheets

2006-07-14T15:45:00.000-07:00

A spreadsheet is one of the greatest software tools used by accounting and finance professionals. While spreadsheets can make accounting work easier, they are also ripe ground for errors and fraud: entry and copy/paste errors are common in spreadsheets, given that there are generally no controls to prevent such occurrences; virtually no security features available in spreadsheets applications; the false sense of security or "comfort factor" given spreadsheets ubiquity in the marketplace. Spreadsheets therefore become the least expected link in producing errors in financial records and for commiting fraud.
To learn more about this issue, pelase see a short article on the topic. Also see a free whitepaper on using Excel as an audit software.

Happy Auditing,
Rich

Comprehensive Market Research Completed in Sarbanes-Oxley and Audit Software

2006-06-16T03:44:00.000-07:00

Over 850 hours over the past two years was invested to identify, analyze, and map over 145 technology vendors supporting Sarbanes-Oxley compliance, fraud detection, and financial statement audits. Given the niche market for these technologies, there have been limited studies to date, especially to this extent.

From this research, the three co-authors identified numerous best practices, industry trends, and a clear definition of how the various technologies can be integrated for maximum organizational benefit. Aside from these holistic findings, more specific vendor selection criteria and detailed vendor analysis was completed for each of the over 145 vendors.

“Anyone looking to use technology in improving the efficiency of their Sarbanes-Oxley engagements or simply to do more with less given the lack of affordable financial professionals can learn something from this research. I have learned more in the past two years writing this research than in the last 14 years I have spent working in this technology space”, notes Rich Lanza, President of Audit Software Professionals and one of the co-authors.

Mort Goldman, CEO of 408 West and the second co-author, states, “The audit and control industry has left it’s mark on the CIO office more than ever before in the last two years. The extensive time spent to date needs to be automated in order for CIOs to attend to the business”.

“In the past two years, we have seen more interest and associated product releases in audit, anti-fraud, and assurance technology than in the past 10 years combined. This will continue into 2006 and beyond as companies see the value of integrating audit technology into their business”, notes Dean Brooks, President of Ekaros Analytical Inc. and the final co-author of the 2005 Buyer’s Guide to Audit, Anyti-Fraud, and Assurance Software.

To learn more on the research, please click here.

There are simply not enough audit software users

2006-06-01T17:16:00.000-07:00

At our recent software expo, a panel of vendors agreed hands down that the most common reason customers don't buy isn't because they already have someone else's product — it's because they tend not to use audit software at all.

The main clients of the software vendors at the recent NJ tech expo were the Big 4 and the Fortune 500 companies. However, it is rare even for these large organizations to have more than a small cadre of power users. We estimate that in general, no more than five percent of auditors do 50 percent of the computer-assisted auditing work. What this means is that "it is a numbers game". Departments with 20 or more auditors will find it relatively easy to implement new software and to ensure that it gets used. Keep in mind though that a department with 2,000 auditors may have only 20 to 100 power users. Meanwhile, small CPA firms and departments with five or fewer people will generally not have a 'power user' on staff. Usage is therefore much more haphazard.

So if you want to learn a competency to make you "stand out", learning audit software is a definite bonus....given so few people know it well. If you are just getting started do so with some simple small steps. The time is ripe now that audit processes have become clearer, staff is harder than ever to find and the tools are being made easier to use. Good Luck and please use all of the tools in auditsoftware.net which are at your disposal.

(Free) North Jersey Software Expo Website

2006-05-04T18:50:00.000-07:00

If you didn't make the May 1st and 2nd audit software show, please see the website devoted to the event at the below link:

2006 North Jersey Expo Site

You can get all of the vendor presentations....it almost feels like you were there.

Let me know your thoughts,
Rich Lanza

Risks in Spreadsheets - Anyone Auditing Them?

2006-04-21T03:54:00.000-07:00

I have written a few articles on the risks of spreadsheets (click here for one) yet am always amazed how few people are auditing them. I know this given when I tell them I am building a training course on the topic, they immediately are interested and start considering all of the risks within their company (or ones they are developing themselves).

Anyone auditing spreadsheets for errors and fraud? Feel free to let us know through the blog reply feature.

Thanks,
Rich Lanza

The North Jersey IIA Software Expo Set for May 1 and 2, 2006

2006-02-17T17:51:00.000-08:00

If you have never been to the Institute of Internal Auditor software expos, held in New Jersey (close to the Newark airport) you truly should go to the next one being held in Fairfield, New Jersey on May 1st and 2nd, 2006.

It is free to attend and browse the expo as it is a great way to learn about all of the audit software available in ther marketplace. You can meet the vendors, talk to other auditors, and listen to educational sessions focused solely on audit software.

To learn more, click here and see the listings for the May 1st and 2nd sessions (as the expo spans two days). If nothing else, it is a great way to earn 13 CPE credits.

Feel free to post comments.

Staff Retention - A Growing Issue

2006-02-14T17:39:00.000-08:00

Staff retention in the audit field (and the CPA market in the U.S.) is in major shambles these days. Business Week notes that it is one of the top priorities for 2005.

I believe one reason that people leave companies is bad technology. I just visited a company yesterday that continues to have over 100 bodies in a department (not auditing) solely due to the fact that technology is poorly implemented.

Translating that to the audit world and also noting that more younger people are entering the workforce, I believe that the quality workers will gravitate to companies that implement technology. Smart people don't want to waste their brain cells working on administrative tasks that clearly could be automated (i.e., various audit tests).

I see this as a growing problem unless companies start to truly adopt technology better both in their transaction processing and audit departments.

Feel free to comment to me at rich@auditsoftware.net

The Buyer's Guide Is Now Available For Audit Software

2006-02-14T17:34:00.000-08:00

I did want to let everyone know that over 500 hours from 3 researchers (me included) went into the release of the 2005 Buyer's Guide to Audit, Anti-Fraud, and Assurance Software which is available for sale at my website.

Please see the following link if interested:
See the Buyer's Guide

Anyone looking to implement audit software should take a look at the book as for the price of the lowest audit software on the market, you can get a rundown of all of the products along with the key best practices to employ when using the tools.

technology on audits

2006-02-14T16:50:00.000-08:00

I start to wonder if a new audit standard or regulation came out requiring technology on audits, would that change the mindset. That mindset is one that focuses on the "fires" of now and not building for the future. I remember the great line from the personal development coach Tony Robbins, "I am too busy paying the bills to design a new and better life for myself".

I still see everyone sample testing 30-50 items in 1,000,000 populations when the tools exist to do more precise and higher quality tests.

Will common sense reign......or do we really need another law to force what we know should be done?

Feel free to comment to me at rich@auditsoftware.net