Risk & Compliance

Aided by Data Analytics, Internal Auditors Dig Deep

Internal auditors who incorporate data analytics will reap the benefits of real-time risk management.
Alissa PonchioneDecember 11, 2013

Internal auditors are becoming more aware of the power of data analytics and how it can help them find anomalies and highlight trends. Indeed, by incorporating data-analytics tools into their auditing practice, internal auditors are able to manage risk continuously and in real time, according to experts during a Pricewaterhouse Coopers webinar “The Internal Audit Analytics Conundrum: Finding Your Path With Data.”

“When you talk about analytics, it can mean different things to different people,” explained Duncan Barnard, managing director of risk assurance at PwC. But even if the definition of data analytics is fluid, companies know that it’s important. In fact, according to a PwC study, which surveyed 1,700 internal-audit leaders, CFOs and CEOs, 85 percent said data analytics is important to strengthening audit coverage, and yet only 31 percent of respondents are using data analytics regularly.

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Data analytics enables auditors to do more with less, explains Vikas Agarwal, PwC’s managing director of data analytics. Indeed, if companies make the investment in data-analytic tools up front, they’ll see a greater return on their effort, he adds.

For internal auditors, the challenge is turning that data from disparate sources (financial, compliance, unstructured data like email, etc.) into meaningful information, Barnard says. However, when data analytics is applied to auditing practices, it can increase risk coverage, make the audit cycle more efficient, offer real-time data, help auditors manage risk and build a more collaborative organization.

Payroll-services company Paychex launched a pilot program to explore what data analytics can do for its audit operations. “A couple of years ago, we were getting asked to do more with less and looking for more value-added audits,” Sean Miller, the firm’s director of internal audit, explained during the webinar. When he reviewed the company’s auditing process, it wasn’t effective or efficient. Data analytics tools seemed like the best solution.

But he ran into some cultural barriers when implementing the tools. The idea was new to the company and employees were hesitant to adopt it. Miller also had to figure out how to sell the investment to senior management as well as the audit team. The goal of the pilot program is to ease the company into data anlaytics, he says.

In addition, internal auditors must work with the information-technology department. At Paychex, IT didn’t want to give auditors access to the data source, so Miller had to work with them and garner their support to pull the right data for audits.

Denise Cicchella, executive director and founder of Auspicium, says her construction-auditing consulting company uses data analytics on a regular basis for recalculations and trend analysis.

“As great as an auditor may be, they eventually get tired. The computer doesn’t get tired,” she says. For example, data analytics helps spot anomalies auditors may miss. If a project is 20 percent completed, but the company has been billed at 60 percent “that would raise a red flag,” she says, adding that data-analytics tools help find patterns an auditor may not be able to pick up on immediately, including such misdeeds as collusion and bid rigging.

Not only does data analytics help with more accurate recollection, it also helps find missing data, which is often an indication of an error, or even worse, fraud, she says. In fact, if used correctly, analytics can help find a needle in the haystack, validate efficient controls and effectively help navigate around complex issues. Data analytics can make information “meaningful, quick to digest and relevant,” Barnard says.

Barnard says auditors can embed data-analytics tools throughout the audit process. During risk assessment, data analytics allows for continuous monitoring so auditors can figure out key risk indicators, upload the data and use it on an ongoing basis. “People weren’t thinking about ongoing risk-assessment process, but it’s getting a lot of attention today,” he adds.

Ultimately, data analytics can permeate a company, helping it grow and mature. Miller says the practice is benefiting Paychex by putting the tools “in the hands of people that knew the business” and allowing them to do “more sophisticated work.” The audit team can be pioneers for data analytics. “Audit can serve that role [as trailblazer],” says Barnard.