The document provides information about a webinar on using Microsoft Excel in audits. It discusses how Excel can be used as audit software to perform data analysis and identify potential issues. The webinar will demonstrate how to use pivot tables and visualizations in Excel to analyze spending trends, detect outliers, and identify anomalies. It will also discuss using text analysis and key word searches to identify red flags and using sampling techniques in Excel. The overall goal is to help auditors leverage technology to improve the efficiency and effectiveness of their work.
1. Using Microsoft Excel in
Your Next Internal and
External Audit
February 18, 2015
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2. 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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4. 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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5. 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
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)
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6. 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
7. 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….
8. 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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9. 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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10. 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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11. 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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12. 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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14. 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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15. Dashboarding Graphing
YOU 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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16. 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.
17. 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
18. 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
19. 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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20. 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.
21. 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
22. The Power of VLookup()
Matchingvendorto
employeeaddresses
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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)
23. 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/Do
wnloadableDocuments/AU-0035theiia.org0.pdf
NYSSCPA
http://www.nysscpa.org/cpajournal/2005/505/essentials/p
36.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 $100
2. Over $100 to $1,000
3. Over $1,000
Start from highest to lowest – Excel picks the first
matching item
24. 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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25. 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
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Stratification Types
By Month
By Department
By Business Partner (Vendor / Customer)
By Account
By Enterer
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26. 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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27. Using Vlookup to Combine
Scores
Create a record number
Relate sheets based on VLookup
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Vendors Over $50K
To Score Ratio
28. Analytic Command Center
The 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
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()
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29. 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
30. 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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31. 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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files, macros, scripts, etc.
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