Top 10 excel analytic tests to minimize fraud and process risks
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The document provides an overview of a webinar on the top 10 Excel analytic tests to minimize fraud and process risks. It discusses stratifying data, codifying data to run round numbers, identifying duplicate payments, calculating average days payable outstanding, conducting vendor background checks and geomapping, analyzing general ledger entries that don't net to zero, analyzing enterers and approvers, identifying the other side of revenue entries, applying Benford's Law and digital analysis, and using red flag and textual analytics. The webinar demonstrates how to automate audit steps into Excel analytics using a case study and applies the analytics across the audit lifecycle.
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Top 10 excel analytic tests to minimize fraud and process risks
- 1. Top 10 Excel Analytic Tests to Minimize Fraud and Process Risks April 19, 2017
- 2. About Jim Kaplan, CIA, CFE President and Founder of AuditNet®, the global resource for auditors (now available on iOS, Android and Windows 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 1
- 3. About AuditNet® LLC • AuditNet®, the global resource for auditors, is available on the Web, iPad, iPhone, Windows and Android devices and features: • Over 2,500 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 • Surveys on timely topics for internal auditors Introductions Page 2
- 4. Housekeeping and Disclaimers This webinar and its material are the property of AuditNet® LLC. Unauthorized usage or recording of this webinar or any of its material is strictly forbidden. We are recording the webinar. Downloading or otherwise duplicating the webinar recording is expressly prohibited. 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. Webinar recording link will be sent to the Email registered in GoToWebinar. Submit questions via the chat box on your screen. NASBA rules require us to ask polling questions during the Webinar and CPE link will be sent via email within 5 business days to those who answer ALL 6 polling questions (no partial CPE). CPE certificates and 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. Post Webinar Feedback. Please complete the feedback questionnaire to help us continuously improve our Webinars Page 3
- 5. Additional Disclaimers While AuditNet® makes every effort to ensure information is accurate and complete, AuditNet® makes no representations, guarantees, or warranties as to the accuracy or completeness of the information provided via this presentation. AuditNet® specifically disclaims all liability for any claims or damages that may result from the information contained in this presentation, including any websites maintained by third parties and linked to the AuditNet® website. The views expressed by the presenters do not necessarily represent the views, positions, or opinions of Grant Thornton, LLP 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. Any mention of commercial products is for information only; it does not imply recommendation or endorsement by AuditNet® Page 4
- 6. Data Files & Video Data Files Please see GoToWebinar console Not all files are available as part of the webinar All others, please contact Rich Lanza [email protected] Video Will be made available in the next 3 days by AuditNet® Email will be sent from the Go To Webinar system CPE Will be made available in the next 3 days by AuditNet® Email with link to download the certificate will be sent from Gensend.io (you must be able to receive mail from gensend.io) Page 5
- 7. Richard B. Lanza, CPA, CFE, CGMA • Director of Data Analytics for Grant Thornton, LLP • Assists audit teams daily in the use of analytic software • Nearly 25 years of ACL, Excel and other software usage • Has written and spoken on the use of audit data analytics for over two decades • 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 • 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. • In 2015, discovered a new textual analytic technique using letters called the Lanza Approach to Letter Analytics (LALA)TM For more information Email Rich at [email protected] 6
- 8. Today’s Agenda Based on past experience, learn why we selected our top 10 analytic tests. Use a case study set of examples in payables and general ledger to see how audit steps can be automated into analytics using Excel. Use Excel as audit software, able to mimic practically all data analytic commands found in more advanced tools. Apply analytics across the entire lifecycle from risk assessment, to planning, fieldwork, and reporting. Page 7
- 9. Test #1 – Stratify Data
- 10. Getting Started: Pivot to New Sheet Page 9
- 11. Getting Around The Pivot Right click on the amount fields (data part) to see field list and edit various Pivot Table options Select from the Top Ribbon Menu the Options and Design menus for Pivot Tables (Excel creates them when a Pivot Table is created) – best and easiest way to make changes Page 10
- 12. Stratify Your Data – Ver 1 Page 11 =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
- 13. Stratify Your Data – Ver 2 Page 12
- 14. Stratification Types By Month By Department By Business Partner (Vendor / Customer) By Account By Enterer Page 13
- 15. Polling Question #1 Page 14
- 16. 2. Codify Data To Run Round $s…and More
- 17. Text Functions Page 16 LEFT() With a determined set of characters in a set string, the first character is returned from, the left of the cell LEN() Identifies the number of characters in a set and returns that as a number in the cell LOWER() UPPER() Lower case letters substitute upper case letters (reverse for upper) MID() Identifies characters in a set based on a start position and number of characters which is determined by the user PROPER() Capitalizes the first letter of each character and the remaining are lowercase RIGHT() Pulls the last set of character from a set and the number of character is set by the user TEXT() Returns the text version of a number with a specified number format (i.e., =TEXT(C999,"0.00") will convert 12345 into a text version of 12345.00) TRIM() Keeps single spaces only between words and removes all other spaces
- 18. Text Functions Page 17 CONCATENATE() Combines numerous strings to one stream (You can also use the & character to combine/merge/join fields) REPT() Repeats a character as many times as the user wants i.e. : =REPT (“J”,10) wll lead to ‘JJJJJJJJJJ CHAR() Identifies a character with a number which is presented in the cell.This number then can be used to convert other CHAR to the number translate code from other sources (i.e., CHAR(127) is a nonprintable character and CHAR(9) is a tab) CLEAN() From a text string, it removes the nonprintable characters
- 19. Math Functions Page 18 VALUE() A number is given to identify a string now as a number ISNA() Returns true if the formula leads to a NA solution – This is normally combined with IF so =IF(ISNA(C3/D3),0,(D3/D3)) AVERAGE() Is the mean of a range of cells set in the average function MEDIAN() Provides the middle number between the largest set value of numbers and the lowest value of numbers MAX() Provides the top value in a set of values MIN() Provides the lowest value in a set of values STDEV() Calculates the standard deviation for a range of numbers
- 20. Math Functions Page 19 ABS() Turns a negative or positive number into a positive number MOD() Determines whether a number is round to a divisor set by the user (i.e. : divisor equals 1000 and all numbers where MOD() are =0 would be round to 1000) ROUND() Sets a number to a specified decimal place
- 21. Date and Time Functions Page 20 DATE() A date is created with a year, month, and day (i.e. : 2015,10,7) DAY() By pointing to a specific field the function identifies the day HOUR() Identifies a hour in a time field which is set to military time (0:00- 23:00 hrs.) MINUTE() Identifies the minutes in a time field which is set at 0-59 MONTH() Identifies the month in a time field which is set as 1=January NOW() Sets to the actual current date and time TODAY() Sets to the actual date
- 22. Date and Time Functions Page 21 NETWORKS () Identifies the ACTUAL Network days in a whole number from start to finish dates. (weekends and holidays are excluded unless specified) SECOND() Identifies seconds in a time field ie:0-59 WEEKDAY() Identifies a day during a specified week in a specific timeframe. 1=Sunday WEEKUM() Identifies a specific week number in the calendar year YEAR() Identifies a year with a specific number i.e: 1900-9999
- 23. Polling Question #2 Page 22
- 24. 3. Duplicates and 4. Averages
- 25. 3. Duplicate Payments • Same Vendor Number; Same Amount; Same Date • Same Vendor Number; Same Amount; Different Invoice Number • Same Amount; Same Date; Different Vendor • Same Vendor; Same Amount; Different Date Page 24
- 26. Reducing False Positives http://bit.ly/1Pdz3Df 25 Blog article explains specifically explains how to: Remove noise Filter top predictors Duplicate hit rates increased to 50% vs. less than 1%
- 27. 4. Calculating an Average DPO Create a calculated field for check less invoice date (DPO) – in data or the Pivot Add sum of Invoice Amount and Average of newly calculated field Page 26
- 28. Average Income per Zip Code – IRS - 2013 Quick Link: http://1.usa.gov/28YzTSX 27
- 29. Polling Question #3 Page 28
- 30. 5. Vendor Background and Geomapping
- 32. Specific Business Partner Information Yellow Pages http://www.yellowpages.com/ http://www.bbb.org/ http://www.linkedin.com http://glassdoor.com IP Address Lookup www.iplocation.net for Email and reverse DNS lookup State Websites Business Listings and Incorporation Documents Unclaimed Property http://www.statelocalgov.net/ 31
- 34. Is Your Organization Working With Terrorists? Page 33 https://sanctionssearch.ofac.treas.gov/
- 35. Are Vendors On a Watch List Sam.Gov Page 34
- 36. CIA Chiefs of State https://www.cia.gov/library/publications/world-leaders-1/ Page 35
- 37. Are Your Vendors Real? IRS TIN Matching Program Validates U.S. Tax Identification Numbers Can submit up to 100,000 TIN submissions at a time Make sure all punctuation is removed See http://www.irs.gov/for-Tax-Pros and enter “TIN matching program” in the search box Page 36
- 38. Power Map for Excel 2013 See: www.MrExcel.com Page 37
- 39. Tests 6 to 8 on the Lifeblood of the Organization…..the General Ledger
- 40. 6. Entries Not Netting to Zero Pivot Table the journals by entry number Create a Calculated Field in the Pivot Table to be the difference between the debit and credit values Filter where the entries do not net to zero 39
- 41. Polling Question #4 Page 40
- 42. 7. Enterer and Approver Analysis PivotTable the enterers (rows) and approvers (columns) Calculate a % of transaction count 41
- 43. 8. Other Side of Revenue Entry Code the revenue accounts Pivot table the entries associated with revenue Add the journal entry field to the Pivot Table to then identify the journals for extraction Filter only on revenue accounts Use Vlookup() to extract entry details Pivot table the extracted revenue entries 42
- 44. 9. Benford’s Law and Digital Analysis
- 45. I’ve Got Your Number – Mark J. Nigrini, Ph.D. Journal of Accountancy - http://bit.ly/1skDvZe Random numbers follow a pattern as defined in table at left Focus is placed on the first digits of amount fields Digital analysis can be applied to ledger data over time 44
- 46. Number Ranking Summarize each amount of the journal entries (Pivot or ACL) Rank each number in order of occurrence Look for new numbers appearing this quarter Score each item in a sliding scale May be easiest to use a stratified score Decide if unique is weirder than non-unique Select samples based on unusual numbers Page 45
- 47. Polling Question #5 Page 46
- 48. 10. Red Flag and Textual Analytics
- 49. 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. Page 48
- 50. Can You Read This? It deosn't mttaer in waht oredr the ltteers in a wrod are, the olny iprmoetnt tihng is taht the frist and lsat ltteer be at the rghit pclae. 49
- 51. Word Summary Analysis Split account or journal description field Copy and paste each column to the end Add a type (or few type) fields Pivot table on the combined list of words by types 50
- 52. Page 51 A Benford’s Law For Words?
- 53. Useful Links on LALA http://bit.ly/1jFD87b - Blog announcing the discovery of letter analytics. http://bit.ly/1RZpolz - Research Paper #1 – Focused on explaining the letter analytic concept with reference to a benchmark for the English Language and an analysis of British song titles from 1960 to 1999. http://bit.ly/1QebYkL - Research Paper #2 – Provides a more in-depth analysis of the population of text data and how letters can explain text variations over time more quickly than word summaries. Three examples are provided including Shakespeare’s plays, Berkshire Hathaway shareholder reports and my personal Emails. http://bit.ly/1W0CAZO - Predictive Analytics Times article on how Word clouds analysis could improved with letter analytic visualizations http://bit.ly/1TGwvPS and http://bit.ly/21mEbsU - ACFE Fraud Magazine articles on “The Benford’s Law of Words – Parts 1 and 2” 52
- 54. Polling Question #6 Page 53
- 55. Questions? Any Questions? Don’t be Shy! Page 54
- 56. Data Files & Video Data Files Please see GoToWebinar console Not all files are available as part of the webinar All others, please contact Rich Lanza [email protected] Video Will be made available in the next 3 days by AuditNet® Email will be sent from the Go To Webinar system Page 55
- 57. AuditNet® Training on the Go See www.auditnet.org Offering 9 Unique Training Courses / 18 CPE Video playback of past / missed courses Don’t forget the data files and templates to get you started https://www.auditnet.org/training Page 56
- 58. AuditSoftwareVideos.com Now Free (But Not for Long!) 70+ Hours of videos accessible for FREE subscriptions Repeat video and text instruction as much as you need Sample files, scripts, and macros in ACL™, Excel™, etc. available for purchase Bite-size video format (3 to 10 minutes) >> Professionally produced videos by instructors with over 20 years experience in ACL™, Excel™ , and more Page 57
- 59. Thank You! Jim Kaplan AuditNet® LLC 1-800-385-1625 Email: [email protected] www.auditnet.org Richard B. Lanza, CPA, CFE, CGMA Contact Information D: +1 732 516 5527 M: +1 732 331 3494 Email: [email protected] Page 58