Forensic Accounting – Data using CAATTs · Forensic accounting is the application of accounting...
Transcript of Forensic Accounting – Data using CAATTs · Forensic accounting is the application of accounting...
Forensic Accounting –Data Mining using CAATTs
© �ikunj S. Shah
Nikunj S. ShahB.Com.,LL.B.,F.C.A.,DISA(ICA),CIA(USA), ACFE
Session Contents
� Forensic Accounting – What is?, Areas, Skills required
� The need for CAATTs
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� The need for CAATTs
� Types of CAAT tools
� The process of Fraud Examination using CAATTs
� An Introduction to Excel and IDEA
� Important Functions in Excel to detect Red Flags
� Advance Features in Excel for data analysis
What is Forensic Accounting?
Forensic means “Relating to, used in, or appropriate for courts of law or for public discussion or argumentation” (Am. Heritage Dictionary, 4th ed.)
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Accounting means, “a system that provides quantitative information about finances” (WordNet 2.0)
Forensic accounting is the application of accounting skills to provide quantitative financial info. about matters before the courts
Skill sets required
Accounting & Business reporting systems
Auditing
standards &
procedures
Evidence Information
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Investigative
techniques
Forensic
Accountant
Litigation
processes &
procedures
gathering
Computer
Science
Technology
Criminology
The need for CAATTs
The current business scenario:
�High Volumes
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�High Volumes
�Complexities
�Increased reliance on automated systems
�Compliance requirements
The need for CAATTs
The onus of detecting frauds on:
�Board of Directors:
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“The prime responsibility for the prevention and detection of fraud (and other illegal acts) is that of the board, as part of its fiduciary responsibility for protecting the assets of the company.” -Para 5.23 “The Cadbury Report” on Corporate Governance, 1992
-Audit Committee shall review the findings of any internal investigations made by the internal auditors into matters where there is suspected fraud or irregularity or a failure of internal control systems of a material nature and report the matter to the board. -Clause 49 of the listing agreement, SEBI
The need for CAATTs
The onus of detecting frauds on:
�CEOs / CFOs:
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-Certify that Cash flow does not contain any materially untrue statement or omit any material fact or contain statements that might be misleading
-No transactions entered into by the company during the year which are fraudulent, illegal or violative of the company's code of conduct
-that they have evaluated the effectiveness of the internal control systems of the companyClause 49 of the listing agreement, SEBI
The need for CAATTs
The onus of detecting frauds on:
� Internal Auditors:
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� Internal Auditors:
Internal auditors should have sufficient knowledge of fraud to be
able to identify indications that fraud might have been committed.
Statement on Internal Auditing Standards No. 3, IIA
The need for CAATTs
CAATTs – Only practical means for
establishing what the facts really are as
they:
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they:
�Help apply intuition, knowledge and skill
with far greater impact
�Identify indicators of fraud or red flags
�Document findingsNote: results of Data Analysis may not constitute a proof for fraud.
Types of CAAT tools
�Spreadsheet software, Database management
systems, Word processors (mobile phones?)
Generalized Audit Software (GAS):
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�Generalized Audit Software (GAS):
ACL, IDEA, SoftCAAT
�Concurrent Audit techniques
�Integrated Test Facility (ITF)
�Systems Control Audit Review File (SCRAF)
�Continuous and Intermittent Simulation (CIS)
The process of Fraud Examination
using CAATTs
Categories of Fraud Investigation
�Specific Allegation
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�Specific Allegation
�Exception Reporting
The process of Fraud Examination
using CAATTs
The knowledge of a possible fraud
Verify how convincing allegation is
Phase I
Pre Investigation
Phase II
Plan & Design
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Verify how convincing allegation is
Arrive at its possible monetary impact
Assign to An investigator
Phase III
Execution
The process of Fraud Examination
using CAATTs
Understand Business, Operations and Controls (both manual and automated)
Phase I
Pre Investigation
Phase II
Plan & Design
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Consider appropriateness of using Data Analysis for conducting examination
Determine precise objectives to be achieved from data analysis.
Determine data required
Phase III
Execution
The process of Fraud Examination
using CAATTs
Request data
Store files and MD5s
Phase I
Pre Investigation
Phase II
Plan & Design
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Import data
Perform tests
Evaluate results
Conclude & determine further course of action
Phase III
Execution
An Introduction to Excel and IDEA
A comparison of popular tools used for
data analysis: GAS & Excel
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Feature GAS Excel
Row Limitation No Yes (1048576)
Features specific to
Investigation and Audit
Yes No
Automatic Documentation Yes No
Allows data to be changed No Yes
An Introduction to Excel and IDEA
Tests and Excel Functions and Features
for data analytics:Test Function/Feature
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Test Function/Feature
Verify that values in transaction files match
with master files
VLOOKUP
Identify Duplicate vendor payments IF, AND, OR
Select Samples RAND
Extract transactions matching multiple
criteria
Auto Filters, Advance
Filters
Stratify Payments, Summarise discounts
by sales person, etc.
Pivot Tables
An Introduction to Excel and IDEA
Relative application of Excel functions
and features in Fraud InvestigationLookups If, CountIf, SumIf
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Sort
20%
Filter
15%
Pivots
18%
Lookups
15%
If, CountIf, SumIf
11%
Paste Special, Go To,
Conditional Format
8%Sub Totals
3%
Statistical Functions
5%
Macros
5%
Other
13%
Important Functions in Excel to
detect Red Flags
�=IF() function to Detect ‘Gaps’
�=IF & =AND() function to implement ‘Same Same
Same’ and ‘Same Same Different’ Audit test
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Same’ and ‘Same Same Different’ Audit test
�Detect sales made at other than authorized rates
�Advance Features in Excel for Analysis (Advance
Filters and Pivots)
�Implement the 80-20 principal to detect high
value (maybe high risk) items
Sales made at other than
authorized rates:
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Finding: Was the sale of Product Code A003 to Venus Enterprises @ Rs.
15/- justifiable?