Using Microsoft Excel in Your Next Internal and External Audit - Learning The Key Process Steps

Using Microsoft Excel in
Your Next Internal and
External Audit
February 18, 2015
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Page 1

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
Page 2
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Introductions
Page 3

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Page 5

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
Page 7

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
Page 8
Ultimately, the above all lead to people,
process and technology improvements
Priority
Cost Recovery Opportunity
Accounts that are sole sourced
Accounts that have too many vendors
Categories that map to the “recovery list”
Assess to industry cost category benchmarks
Top 100 vendors
Trend analysis over time
Trend analysis by vendor (scatter graph)
9

Go Bionic!
Page 10
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
Page 12
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
Page 13
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
Page 14
We Need A 3D Analytic Model
Page 15

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
Page 16
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
Page 17

Above Average Analysis
Page 18
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
Page 19

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
Page 20
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
Page 21

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
Page 23

Grouping Date Ranges
Page 24
3 D Rotation of Enterer/Month
Page 25

Scatter Chart (Val and Vol)
Vendor Differences Yr 1 to 2
Page 26
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
Page 27

Dashboarding Graphing
YOU NEED TO AUTOMATE THIS
Page 28
Polling Question #3
What Pivot Table function is used to create
a chart?
 Pivot Data
 Group Date
 Pivot Chart
 Line Chart
Page 29

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
Page 32
Words On The Rise / Words Equal
Page 33
Key Word Trending

Letter Analytics
Benford’s Law Of Words?
Lanza’s Letter Fingerprint?
A Law For Letters and Words?
Letter Analytics
Benford’s Law of Letters?
See the Caesar Cipher
https://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
Page 37

Specific Queries and Sampling
Top Sided Journal Entries
Risk 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
Page 40
Identify the Longest Time to
Enter a Vendor Invoice

The Power of VLookup()
Matchingvendorto
employeeaddresses
Page 42
Auditors Inherent Need
To Sample
Page 43
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
Page 44
Sampling: A Guide for Internal Auditors
 Barbara Apostolou, Ph.D., CPA
AU Section 350
http://www.aicpa.org/Research/Standards/AuditAttest/Do
wnloadableDocuments/AU-0035theiia.org0.pdf
NYSSCPA
http://www.nysscpa.org/cpajournal/2005/505/essentials/p
36.htm
Stratify Your Data – Ver 1
Page 45
=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 $100
2. Over $100 to $1,000
3. Over $1,000
Start from highest to lowest – Excel picks the first
matching item

Stratify Your Data – Ver 2
Page 46
Polling Question #5
In order for the stratification of value to
work, what is the last setting of the
Vlookup?
 FALSE
 MAYBE
 TRUE
 YES
Page 47

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 type
 Department
 Location
Page 48
Stratification Types
By Month
By Department
By Business Partner (Vendor / Customer)
By Account
By Enterer
Page 49

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”.
51

Using Vlookup to Combine
Scores
Create a record number
Relate sheets based on VLookup
Page 52
Vendors Over $50K
To Score Ratio

Analytic Command Center
The Goal In Mind
54
Analytic Audit
Command Center
1.Accounts Payable
2.Accounts Receivable
3.Financial Statement
4.General Ledger
5.Inventory
6.Payroll
7.Revenue
Data
Mart
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()
Page 55

Questions?
Any Questions?
Don’t be Shy!
Page 56
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
Page 59

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!
Page 60
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
Page 61

Thank You!
Jim Kaplan
AuditNet® LLC
1-800-385-1625
Email:info@auditnet.org
http://www.auditnet.org
Richard B. Lanza, CPA, CFE, CGMA
Cash Recovery Partners, LLC
Phone: 973-729-3944
Cell: 201-650-4150
Fax: 973-270-2428
Email: rich@richlanza.com
http://www.richlanza.com
Page 62

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