How analytics should be used in controls testing instead of sampling
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Sampling has existed as a standard for controls testing since controls testing began. We’ve developed algorithms to tell us how many samples we should pull and how many errors we can have and still pass the control. We’ve even developed algorithms to tell us how many more samples we can test if the control didn’t pass the first time. If your goal is simply to do the minimum to pass a SOX audit, then these behaviors should probably continue. If your goals also include really improving the operations of the organization to make it stronger then a more holistic approach is needed, such as analysis on 100% of the population, rather than a small sample. Most controls analytics do not require a degree in data science, but they do require the controls team begin changing its behaviors. Join us to understand what it takes to begin this change, it’s not as challenging as you might think. Learning Objectives Understanding the advantages of analytics vs sampling How to Identify controls where analytics can be applied Real life examples of controls and their associated analytics How to effect a change
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How analytics should be used in controls testing instead of sampling
- 1. 20-4-2020 1 How analytics should be used in controls testing instead of sampling Ken Petersen April 2020 RSA Archer About Jim Kaplan, CIA, CFE President and Founder of AuditNet®, the global resource for auditors (available on iOS, Android and Windows devices) Auditor, Web Site Guru, Internet for Auditors Pioneer IIA Bradford Cadmus Memorial Award Recipient Local Government Auditor’s Lifetime Award Author of “The Auditor’s Guide to Internet Resources” 2nd Edition 1 2
- 2. 20-4-2020 2 About AuditNet® LLC • AuditNet®, the global resource for auditors, serves the global audit community as the primary resource for Web-based auditing content. As the first online audit portal, AuditNet® has been at the forefront of websites dedicated to promoting the use of audit technology. • Available on the Web, iPad, iPhone, Windows and Android devices and features: • Over 3,000 Reusable Templates, Audit Programs, Questionnaires, and Control Matrices • Webinars focusing on fraud, data analytics, IT audit, and internal audit with free CPE for subscribers and site license users. • 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 HOUSEKEEPING This webinar and its material are the property of AuditNet® and its Webinar partners. Unauthorized usage or recording of this webinar or any of its material is strictly forbidden. If you logged in with another individual’s confirmation email you will not receive CPE as the confirmation login is linked to a specific individual This Webinar is not eligible for viewing in a group setting. You must be logged in with your unique join link. We are recording the webinar and you will be provided access to that recording after the webinar. Downloading or otherwise duplicating the webinar recording is expressly prohibited. If you meet the criteria for earning CPE you will receive a link via email to download your certificate. The official email for CPE will be issued via [email protected] and it is important to white list this address. It is from this email that your CPE credit will be sent. There may be a processing fee to have your CPE credit regenerated if you did not receive the first mailing. Submit questions via the chat box on your screen and we will answer them either during or at the conclusion. You must answer the survey questions after the Webinar or before downloading your certificate. 3 4
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- 4. 20-4-2020 4 Ken Petersen • Currently Product Manager of TeamMate Analytics • 25+ years developing and implementing systems • In the Governance, Risk & Compliance space since 2002 • BSBA from Ohio State, MBA from University of Dayton, PMP certified • [email protected] How analytics should be used in controls testing instead of sampling 7 Learning Objectives In this Webinar, attendees will: Understand the advantages of analytics vs sampling Learn how to identify controls where analytics can be applied See real life examples of controls and their associated analytics Learn how to effect a change 8How analytics should be used in controls testing instead of sampling 7 8
- 5. 20-4-2020 5 POLLING QUESTION 1 Why Perform Analytics? 1) The Standards say so 2) COVID-19 - You do not have to be on site, in person, to do analytics On a Gartner Internal Audit webinar in March 2020 with over 1000 CAE’s, the topic was remote work as an internal auditor – what’s working and what’s not working. A huge percentage of attendees (58%) stated that a lack of a data analytics program means they cannot work right now – they are too dependent on being present in the office. 3) Finding money 4) Increased assurance and reduced risk 10How analytics should be used in controls testing instead of sampling 9 10
- 6. 20-4-2020 6 Analytics Advantages Sampling contains risks Sample is not representative of the population as a whole Efficiency The risk of incorrect acceptance is the risk that the sample supports the conclusion that the recorded account balance is not materially misstated when it is materially misstated. The risk of incorrect rejection is the risk that the sample supports the conclusion that the recorded account balance is materially misstated when it is not materially misstated. Effectiveness The risk of assessing control risk too low is the risk that the assessed level of control risk based on the sample is less than the true operating effectiveness of the control. The risk of assessing control risk too high is the risk that the assessed level of control risk based on the sample is greater than the true operating effectiveness of the control. Most fraud cannot be identified with sampling, many controls are intended to, among other things, prevent fraud Provides deeper insight into the operations of the organization 11How analytics should be used in controls testing instead of sampling Demonstration 12How analytics should be used in controls testing instead of sampling 11 12
- 7. 20-4-2020 7 Controls conducive to analytics Look for the word “Sample” in the testing procedure Your organization may use other key words, “Data”, “Transactions” Won’t apply to data that is not electronic May not be appropriate for reviewing documentation May not be appropriate for data that are not transactions, e.g. monthly balance sheets May not apply for the entire scope of the control Level 2 Can document review be converted to data analysis? 13How analytics should be used in controls testing instead of sampling POLLING QUESTION 2 13 14
- 8. 20-4-2020 8 Demonstration 15How analytics should be used in controls testing instead of sampling How do we change The individual must recognize a need for a change The desire to change needs to be stronger than the perceived and real difficulty of changing 16How analytics should be used in controls testing instead of sampling 15 16
- 9. 20-4-2020 9 Our auditors can’t do analytics 17 Requires database skills Requires programming skills How analytics should be used in controls testing instead of sampling 0 1 2 3 4 5 6 7 8 9 10 0 1 2 3 4 5 6 7 8 9 10 Desiretochange Difficulty of changing (perceived /real) When change occurs How do we change 18 Change No Change How analytics should be used in controls testing instead of sampling 17 18
- 10. 20-4-2020 10 How do we change Change can have a chain reaction Change can be temporary or lasting Other factors and people can influence our desire to change and difficulty of change The desire to change and the difficulty of change can change over time Change can have side effects, good and bad Our documentation improved because of analytics Employee satisfaction increased when they started doing analytics 19How analytics should be used in controls testing instead of sampling POLLING QUESTION 3 19 20