university of connecticut april 17, 2008. 2 copyright © 2006 deloitte development llc. all rights...

University University of of

ConnecticutConnecticut

April 17, April 17, 20082008

2Copyright © 2006 Deloitte Development LLC. All rights reserved.

Items to discuss…

• Introduction

• Deloitte Overview

• Data Mining and Accounting


Introduction & Introduction & ObjectiveObjective


Introduction

•Mark Malcolm

Manager of the Deloitte Data Quality and Integrity Practice

1998 UCONN MIS Grad

Previous Work Experience •Arthur Andersen•Accenture


Objective of Today

•To demonstrate the key role that is played by Data Interrogation Specialists in an ever changing Accounting & Regulatory environment

•Further demonstrate how the skills (SAS) being taught in this Data Mining course are used every day within that environment


Accounting and Regulatory Context

•Sarbanes Oxley•World Comm•Financial Statement

•Fraud•Arthur Andersen•Audit

•Enron•Controls•SAS99•Materiality•Selections


Data Quality & Integrity (DQI)

A team of technical specialists which provides audit support with the use of programming, data analysis & retrieval and skeptical review

–Statistical and data analysis skills, including the use of specialized software packages such as SAS, ACL and Monarch

–The application of statistical and data analysis methodologies to support the execution of audit activities using standardized tools.

–Design and application of mathematical rules and models, and other quantitative methods to complex data sets in order to compute or identify trends and patterns


Journal Entry Testing at a Candle Company

The Profiling Approach at a regional bank

Mining Data from a Report Format using Monarch

Recently Executed Examples


Statement of Auditing Standard (SAS) no. 99, Consideration of Fraud in a Financial Statement Audit, states “the auditor should design procedures to test the appropriateness of journal entries recorded in the general ledger and other adjustments.”

What Is Journal Entry Testing


• The process:– Obtain the JE Detail population– Using SAS examine the data for data quality:• Reconciliation (Test of Completeness)

• Balanced Journal Entries

• Existence of key data elements

– Run the data through JEDAR (Journal Entry Data Analysis Routines)

– SEE READ AND PREP AND JEDAR DELIVERABLE



• Overview of population statistics

• Summary of dollar stratification against MP

• Summary of top line amounts

• Trending

• User Authorizations

• Data Quality Indicators

• Chart of Accounts maintenance

• Duplicate line amount to the same account

• Regular clearing of suspense accounts (optional)

• Search for related-party transactions (optional)



• Journal entry approval (optional)

• Entries to unrelated accounts

• Entries with blank or little description

• Entries with key words of audit interest in descriptions

• Entries with round dollar amount

• Entries with recurring ending digits

• Entries posted to seldom used accounts

• Entries posted to potentially unusual accounts



• Accounts with significant differences from average posting activity (optional)

• Unusual postings in the income statement

• Trends in account balances involving management estimates

• Entries with long lapse of days between effective date and posted date

• Entries with line amount significantly different from the average at the account level (optional)

• Benford Analysis (optional).



• This AAPMS audit approach is highly effective at providing a focused selection of loans (AAPMS 15.55)

• The number of loans selected for review is reduced, saving audit time

• An enhanced understanding of the balance is obtained and the entire loan balance is covered

• Loans exhibiting items of audit interest are more likely to be selected (i.e. those most likely to be incorrect)

• Audit teams can rely on Computer Assisted Auditing Techniques and file interrogation procedures to identify transactions of audit interest

The Profiling Approach


• Negative Current Balances• Loans with related parties • Loans on the watch list• Loans over the bank’s loan policy lending limit - $2,500,000• Stratification of Interest Rates- Interest stratification of the items in

the population of items as meaningful intervals. • Loans with addresses the same as a bank branch address (list of

all bank branch addresses provided with de-coding)• Accounts with addresses outside of CT/MA• Loans on non-accrual status as well amount by status code• All remaining accounts• Calculation of Weighted Average Interest Rate• Calculation of Accrued Interest

The Profiling Approach (Scope)


• The process:– Obtain the Loan and Deposit populations– Using SAS parse data by the Areas of Audit

interest• Reconciliation (Test of Completeness)

• Existence of key data elements

– SEE PROGRAMS AND RESULTS

The Profiling Approach


Mining Data with Monarch


Mining Data with Monarch cont.


• Data Unearned Premium Testing

• Fraud Detection

• Conversion Validation Testing

OTHER RECENT DELIVERABLS


Data Mining is a critical component to the success of Financial Statement Audits

Developing Skills in tools such as SAS , ACL, Monarch and MS Access will position you well for opportunities in this field

What to Take Away Today

QQuestionsuestions


About Deloitte

Deloitte refers to one or more of Deloitte Touche Tohmatsu, a Swiss Verein, its member firms, and their respective subsidiaries and affiliates. Deloitte Touche Tohmatsu is an organization of member firms around the world devoted to excellence in providing professional services and advice, focused on client service through a global strategy executed locally in nearly 140 countries. With access to the deep intellectual capital of approximately 150,000 people worldwide, Deloitte delivers services in four professional areas — audit, tax, consulting, and financial advisory services — and serves more than 80 percent of the world’s largest companies, as well as large national enterprises, public institutions, locally important clients, and successful, fast-growing global companies. Services are not provided by the Deloitte Touche Tohmatsu Verein, and, for regulatory and other reasons, certain member firms do not provide services in all four professional areas.

As a Swiss Verein (association), neither Deloitte Touche Tohmatsu nor any of its member firms has any liability for each other’s acts or omissions. Each of the member firms is a separate and independent legal entity operating under the names “Deloitte,” “Deloitte & Touche,” “Deloitte Touche Tohmatsu,” or other related names.

In the United States, Deloitte & Touche USA LLP is the U.S. member firm of Deloitte Touche Tohmatsu and services are provided by the subsidiaries of Deloitte & Touche USA LLP (Deloitte & Touche LLP, Deloitte Consulting LLP, Deloitte Financial Advisory Services LLP, Deloitte Tax LLP, and their subsidiaries), and not by Deloitte & Touche USA LLP. The subsidiaries of the U.S. member firm are among the nation’s leading professional services firms, providing audit, tax, consulting, and financial advisory services through nearly 40,000 people in more than 90 cities. Known as employers of choice for innovative human resources programs, they are dedicated to helping their clients and their people excel. For more information, please visit the U.S. member firm’s Web site at www.deloitte.com

Copyright © 2007 Deloitte Development LLC. All rights reserved.

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