Posted: Jan 28, 2021
People often get turned off by the term â€śaudit.â€ť Traditionally, itâ€™s a long and tedious process of testing sample data, identifying an error rate, and extrapolating that error rate to the entire population. However, advances in technology and an explosion of data have changed the game to the point where organizations now have access to a breadth and depth of information all with a click of a button.Â
The Power of Audit Analytics
Analytics allows organizations to effectively understand data and gain greater insight into the factors that affect their performance and turn it to their advantage. Audit analytics in particular allow for businesses to analyze their internal controls to enhance the audit quality and deliver more robust business insights.
We now have the technology to set up and automate the audit process using existing tools and software in the market, creating a data model that studies the entire set of data rather than just a sample. This capability makes it easier to identify risks, investigate anomalies, and provide insights to impact future performance.
One example of the power of audit analytics is when it comes to risk â€“ audit analytics goes above just identifying risks; it allows the user to set risk-based criteria and then search the entire data set for all occurrences that meet these characteristics. This allows the organization to limit its traditional audit features to simple confirmatory vouching of data that has already been filtered thus increasing the likelihood of identifying and mitigating errors and fraud.
There are two core benefits that are derived from the use of audit analytics â€“ the creation of continuous and automated monitoring and optimizing processes for improved future performance.Â
1. Continuous Monitoring
Companies can gain a lot of value by establishing a data model to detect errors in financial data or control deficiencies on a continuous basis rather than performing assessments at monthly, quarterly, or annual intervals. Automating the analytics can significantly reduce the time and effort and can lead to quicker results and insightful impact.â€ŻÂ
By drawing information from specific sources and data models to identify unique benchmarks and patterns, companies can use the information to compare company performance against industry standards. As a result, these performance metrics can be set as KPIs to create an environment where processes are continuously being improved.Â
2. Optimizing Processes
With this option of looking at the dataset as a whole, itâ€™s also easier to find inefficiencies in processes that might go unnoticed on a surface level but could be impacting the organization at its core. This level of analysis can support organizations in discovering areas where they are struggling and can set the business on track to more productive solutions.Â
Audit Analytics can also do more than just analyze the current operations of the business – they can also be used to anticipate the future. Through predictive analytics, organizations can use past performance and historical trends to assess future performance which allows them to plan ahead more effectively. With this, auditors are able to anticipate future risks for the organization and put into place measures that will minimize the impact and in turn, maximize the results.â€Ż
Ways Your Organization can use Audit Analytics
Some companies might think they donâ€™t have enough data to properly use audit analytics or that the type of data they have might not be sufficient or even that theyâ€™re too small of a company, but thatâ€™s simply not true. To take advantage of audit analytics, you donâ€™t necessarily need sophisticated data repositories or datasets — all thatâ€™s needed are the key basics common to all organizations: payroll and employee data, client lists, POâ€™s and invoice data. Using a phased approach based on what is important to your organizational objectives there is so much that can be done.
A couple of examples:Â
To optimize and ensure expenses are accounted for, expense analytics have the ability to aggregate any expenses related to a client sale to understand the true cost of sales and the return on investment of sales activities, or even perform a breakdown of expenses by key categories and compare costs within each category by time period to identify unexpected trends.
WhenÂ it comes to payroll and human resources, this type of analytics can help determine how effectively a company uses its employees by evaluating output to labour costs or billable hours to total hours worked, determine the key source for turnover issues, target key employees for retention, or investigate any inconsistencies or fraudulent time entry.
Looking at procurement analytics allows you to determine any historical seasonal trends in purchasing and whether or not it aligns with historical seasonality in sales, look at the breakdown of procurement spend by geography or department, as well as visualize current stock levels and quantify the cost of premiums paid to make spot purchases when safety stock is depleted, or how often products are on backorder.Â
This is key in managing duplicate orders or payments made to vendors, determining if there are any variances between invoice amounts and Accounts Payable (amounts) by invoice number, or comparing equipment and material rates across multiple vendors to ensure that you are getting the best rates when it comes to vendor negotiation or even putting together a list of potential vendors.Â
Ultimately, an audit is an opportunity for a company to learn about its performance and financial position and understand what it could be doing better to prepare for the future. Utilizing analytics can put measures in place to detect trends, find and correct lags in the business performance, and set your business up for future success.Â
Have the information you need to make informed decisions, begin your journey to becoming a data-driven organization today by getting in touch with our team at Pontem. Contact us today at [email protected] and letâ€™s talk about how your organization can unlock the value of your data.Â