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Advanced analytics in internal audit and compliance


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This presentation is the on key trends in risk and analytics in the market place today as well as a case study and live demonstration of analytics through data visualization and success factors to …

This presentation is the on key trends in risk and analytics in the market place today as well as a case study and live demonstration of analytics through data visualization and success factors to developing and sustaining an analytics program.

Presented at the Creating value and trust: Navigating risk and meeting customer expectations, PwC's Internal Audit Ethics and Compliance Retail and Consumer Roundtable for internal audit and ethics and compliance executives, April 2014.

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  • 1. Advanced Analytics in Internal Audit and Compliance April, 23 2014
  • 2. PwC 2 Today’s Discussion Key Trends in Risk Analytics Today Trends we are seeing in the market, and defining the value proposition for Advanced Analytics in Internal Audit and Compliance Analytics in Action Retail case study and live demonstration of analytics through data visualization Implementing a Successful Program Key success factors to develop and sustain a data analytics program
  • 3. PwC Key Trends in Risk Analytics Today 3
  • 4. PwC Characteristics of analytics today Visualization Dashboarding Trending & comparisons Data Financial, Operational Structured, Unstructured, Internal, External Analytics; discovery and communication of meaningful patterns in data Big data; collection of large and complex data sets Speed and portability; available anytime, anywhere 4
  • 5. PwC Major themes we’re seeing at our most successful clients Data Connectivity Direct access into enterprise-level data resources Balanced Talent Mix Strong analytics capability at the core, with training for audit, shared service and business users Self Service Capabilities w/ Visualization Approachable and intuitive technology that can be used by the business Collaboration Integrated working environment with analysts and business stakeholders 5
  • 6. PwC Quantifiable but not Always Tracked to Amounts: • Improve operational effectiveness • Reduce regulatory and compliance risk exposure • New policies and procedures enacted Value Proposition Qualitative: • Higher quality management conversations • Risk focused testing • Visual focus on trends and outliers • Adoption of analytics by business users • Strengthened relationships Quantifiable: • Reduce costs • Increase revenue/profitability • Reduced BI development cost by leveraging data visualization tools • Reduced hours (for internal audit) 1. Increase risk coverage, quality, and business impact 2. Greater efficiency through ‘right time’ analytics 3. Better understanding of the business through analytics 4. Cultivate business relationships and drive deeper discussion on issues and opportunities What are the benefits? 6
  • 7. PwC Analytics in Action 7
  • 8. PwC Case Study: Internal Audit Data Analytics – Retail Pricing Audit Client Challenges Action Value Delivered • A large retailer needed to assess key risks and controls related to product pricing. • Internal Audit incorporated the use of data analytics into each phase of the audit life cycle. • Gained an understanding of potential anomalies and trends related to pricing. • Identified key risk indicators (KRI) • Developed targeted analytics around those KRIs that would identify potential exceptions. • Developed dashboard’s to interact with the data and ‘audit by sight” • Enabled Internal Audit to approach audit of pricing process using a risk based approach, focused on risk indicators within the data. • Collaboration with the business enabled by visual analytics • Identified potential issues and trends relating to pricing that were not initially apparent at the onset of the audit. • Positively impacted perception of Internal Audit by the business. 8
  • 9. PwC Auditing Approach Leveraging Data Analytics Business Development 1 5 4 2 3 Foundation Fieldwork Quality Reporting Planning 1. Foundation: Leverage data to identify key risks to be addressed through the Audit Plan 2. Planning: Plan and scope the audit to focus on high risk areas and newly identified risks 3. Fieldwork: Develop risk based and value added analytics for the audit 4. Reporting: Analyze results to quantify impact, and report findings utilizing data visualization 5. Quality: Monitor managements responses through Dashboards 9
  • 10. PwC Issue Action I. Foundation: Risk Assessment Annual quarter over quarter revenue decline Analyze financial data to gain insight over declines in net revenue. Internal audit identified product pricing as a key risk area Impact Analyze key financial data and adjust their audit plan to address their high risk areas. 10
  • 11. PwC Issue Action II. Planning: Project Risk Assessment Varying gross margins across 3 retail channels Utilized data visualization software to analyze the stores by retail channel. Impact Identified limited controls around product price overrides/adjustments have been identified Unexpected spikes in price overrides 11
  • 12. PwC Issue Action II. Planning: Audit Scoping Identify high risk stores affecting gross profit through the use of overrides Utilized data visualization software to analyze the total price override amounts against gross profit to identify outliers and anomalies Impact Identified stores that had negative gross profits or negative overrides Discovered that products can have price overrides that result in losses Negative gross profit due to price overrides 12
  • 13. PwC III. Fieldwork: Targeted Analytics Testing Instances where the override amount is less than the cost of the item. Total amount and frequency of overrides by store and sales associate. Total amount and frequency of overrides by override code. Trending of overrides by store over the audit time period. Override reason codes leading to negative gross profit 13
  • 14. PwC IV. Reporting: Confirm and Report Results Internal Audit team determined there were no controls around overrides of product prices Sales associates overriding to negative gross profit Sales associates entering in negative override amounts Outlier of sales associate with potential unusual activity 14 Gross Profit vs. Override Amount by Sales associate
  • 15. PwC Issue Action V. Quality: Remediation Follow Up Monitor managements response to the findings of the pricing audit Utilized data visualization software to leverage the analytics and dashboards created during the assessment, scoping, and testing phases Impact Ability to continuously monitor the compliance in a consistent manner with minimal manual effort 15
  • 16. PwC Implementing a Successful Program 16
  • 17. PwC Core components of a data analytics strategy There are five core components to consider when developing a data analytics strategy • Consistent • Sustainable • Efficient • Financial, Operational • Structured, Unstructured • Internal, External Change People Data ProcessInfrastructure & Tools Business Value • Ownership • Accountability • Talent Development • Maintainable • Intuitive • Adaptable • Collaborative • Timely • Relevant Vision Acceptance Mandate Funding Relationships 17
  • 18. PwC Measure your success PwC Audit and business impact DataAnalyticsMaturity Low High Level 0 Initial / Developing Level 1 Relevant Level 2 Consistent Level 3 Integrated Level 4 Embedded Level 5 Transformational • Limited but growing capabilities • Ad hoc activities resulting in unpredictable and inefficient performance • Success based on individual competence • Capabilities developed and adopted • Capabilities used to drive audits • Defined goals and standardized processes and tools • Capabilities are well developed and practiced with appropriate governance • Data sources are readily available • Activities begin to become repeatable and key metrics are developed • Core analytics skillsets within 5- 10% of department • Scale is achieved for department specific teams • Improvement methodologies are implemented • Monitoring occurring for metrics and controls • Analytics risk models being adopted by the business • Analytics changing auditor behaviors • New value propositions • Alignment to consistent platform that can be leveraged across lines of defense • Game changing to audit delivery and value • Capability limited to very few individuals • Inconsistent effectiveness • Limited audit or business value 18
  • 19. PwC A phased approach An iterative deployment methodology ensures stakeholder value is achieved and business needs are meet as conditions change PwC Define a clear, strategic vision Develop roadmap Execute pilot Phased Roll- out Assess solution Analyze current/ future state Refine & execute plan Financial • Expense reports • pCard analytics • P2P analytics • Revenue financial controls • Store risk and performance analytics • Cost Allocation Re-performance • FCPA/OFAC • Country Risk Assessment • Audit Planning • Price Changes / overrides • Inventory shrink analytics • High risk product identification • Trends by store, items, override category • Supply Chain Movement ($ & Time) • Inventory vs Sales • Procurement / working capital analysis Areas we commonly see client leveraging advanced data analytics… Operational 19
  • 20. PwC Key Considerations PwC • Start small, think big, and evolve over time • It’s not about the tool, it’s about capabilities • Don’t underestimate the complexity of the data • Analytics is an iterative process • Need a strong analytics center • Strong relationship and reputation are crucial • Don’t underestimate change • Stakeholder value can be enormous 20
  • 21. Thank You! This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers LLP, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. © 2014 PricewaterhouseCoopers LLP, a Delaware limited liability partnership. All rights reserved. PwC refers to the US member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see for further details.