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    Date: 9 May 2008   

Compiled by Mr. M. Sathya Kumar  

 

 

Using Computer-Assisted Audit Tools (CAATs) for Continuous Control Monitoring

 

Introduction :

Pauline the ‘Head – Electronic Data Interrogation and Compliance’ of a Management School for Audit was presenting on the ‘Role of Internal Audit and Management Assurance Services in contemporary Audit’ at an Internal Audit Congress. The question most commonly encountered by every Internal Auditor is :

“To what extent can I automate my audit function, so as to serve as a proactive Management Assurance Tool ?”

Pauline presented the role of the auditor in the new environment in terms of IT :

(1) control reviews and risk-assurance services,

(2) physical document-based audits

(3) compliance with the statutes and other regulatory authorities.

Pauline strongly recommended the implementation of Continuous Control Monitoring (CCM) using CAATs as a means of increasing the extent of realtime transaction testing by auditors and reducing cost of audit operations.

Pauline went on to explain the fundamentals of CCM with various live audit case studies and best practices using CCM.

Introduction :

Continuous Control Monitoring (CCM) is an evolved, mature, and sophisticated model of electronic auditing using CAATs. CCM allows the user to elevate his performance from mechanical, manual data extraction and interrogation to automated, high-end, intelligent, beneficial extraction and analysis. CCM users reap the benefits of true efficient and effective auditing and analysis.

Benefits of CCM are :

·         Less travel as CAATs can be deployed centrally on central data reservoirs.

·         Low staff and allied audit resource requirement.

·         Low IT hardware resource utilisation like network and bandwidth, as tasks can be scheduled after office hours, on holidays and weekends.

·         High user satisfaction as automated tasks fired in non-peak hours give quicker results than queries fired in peak business hours even through established CAATs.

Stages in Implemenatation of CCM

·         Performing the task within the CAAT — Duplicate payments against the same vendor invoice for instance.

·         Looking up the history within the CAAT.

·         Identifying the Macro/Script for the Task — Script for the Duplicate Task is -

Set task = db.DupKeyDetection

task.IncludeAllFields

task.AddKey “INVOICE”, “A”

dbName = “C:\Program Files\CAATS V 7.1 Dongle Licence\Samples\Payments.IMD”

task.OutputDuplicates = TRUE

dbName = Client.UniqueFileName(“DuplicateInvoice”)

task.PerformTask dbName, “”

set db = Client.OpenDatabase (dbName)

·         Editing the Script – ONE — To ensure that users who automate the tasks subsequently can follow their own naming conventions for the output files. TWO — Users can choose their own input files on which the script is to run through a File Explorer Selection.

·         Saving the Script as an Executable File.

·         Scheduling the CAAT to run on the above Executable File through Windows Task Scheduler in the Control Panel of your computer. NOTE — Scheduling can only be configured through an Administrator login on your workstation.

·         Task runs automatically at the designated time and date.

·         View the results.

·         Act on the results.

Real case studies for application of CAATs in CCM :

Banks :

Know Your Customer (KYC) requirement of Reserve Bank of India — De-Dup :

·         Cash deposits in excess of Rs.50,000 without a PAN card reference.

·         Multiple accounts, of the same type for the same customer in the same branch.

·         Different customer IDs having the same account opening masters like residence telephone number, residential address, office address, mobile number, office telephone number and more.

·         Accounts opened with names similar to names on the Reserve Bank’s List of Prohibited Black- Listed Parties.

The methods for the above-mentioned sample objectives can be programmed to run automatically for accounts operated during the day, at the close of business hours.

Services :

Revenue Assurance :

·         Whether fixed line and mobile line telecom billing is being done in line with the scheme level master rates.

·         Whether consistent discounts/concessions are being passed on to the final consumer for the same sale scheme across retail malls.

The methods for the above-mentioned sample objectives can be programmed to run automatically prior to the generation of the bill on a monthly basis or on as-and-when basis.

Manufacturing :

Pre-audit of Vendor Payments :

·         Whether ordered items are being paid for.

·         Whether received items are being paid for.

·         Whether received items are more than ordered items.

·         Whether payments are being made at the correct order rate.

·         Whether payments are being made to the authorised supplier, and more.

The methods for the above-mentioned sample objectives can be batch-programmed to run automatically prior to the payment processing. Each day’s payment list can be processed at the day end on the preceding working day.

IT/ITES Sector :

Payroll Review and Head-Count Analysis :

·         Reconciliation of the payroll employee count (employee-wise) for the last payroll cycle with the current payroll cycle after adjusting new ‘recruits’ and ‘leavers’.

·         Payroll re-calculation for multiple locations of the same business unit.

The methods for the above-mentioned sample objectives can be programmed to run automatically prior to the final payroll processing and once the first run payroll report is generated through the payroll accounting system.

State power utility :

Power Bill Review :

Recalculation of the power bill for all the billing centres across the State prior to release of the bill to the final customer.

The methods for the above-mentioned sample objective can be programmed to run automatically prior to the final power bill distribution. The power bill has various components like meter rent, energy charges, additional fuel purchase surcharge, electricity duty, Government surcharge and more. Each of these components can be verified through manual interrogation within CAATs for one sample billing centre by applying the Power Tariff Masters. Thereafter the manual methods can be conveyed to CAATs Scripts and CAATs Scripts can be scheduled to run automatically for all the other billing centres across the State.

General insurance :

Indicators of Red Flags :

·         Identification of close-proximity claims (claims admitted within 15 days of risk commencement) across branch offices.

·         Repetitive claims against the same insured asset without commensurate premium enhancement on the policy across branch offices.

The methods for the above-mentioned sample objective can be programmed to run automatically at the end of each working day or other reasonable period as decided by the Audit Management.

Conclusion :

While specific audit reports gave regular feedback to the process owners about process flow control gaps, the performance of proactive real-time control testing using CAATs were greatly met using the CAATs which went beyond the set standard traditional norms.

The participating members lauded the presentation and expressed keen interest in learning more on CCM and putting it into effective use in their respective organisations.

Courtesy : Article by Deepjee Singhal , Manish Pipalia - Chartered Accountants

 

 

 

 

 

 

 

 

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