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Thinking Like an Auditor

  • 75% of Your Audits aren’t Based on Data. Does the Audit Committee Know?

    July 11, 2019 | By Ken Petersen, MBA, PMP

    75% of your audits aren’t based on data. Don’t believe me? Great! I’d like for you to go back through your audits from the last year and count how many you performed and how many contained an analysis of data. We have a customer that did just that several years ago and found only 25% of their audits contained analytics. If you think your percentage is higher because you have an audit analytics tool you’re using, they had a tool they were using too.

    Are you counting sampling? Should you count sampling? Ask yourself this question, “If I told the Audit Committee the findings of this audit are based on data because we pulled a random sample of 30 records out of 3,000 (1%), 30,000 (.1%)… would they agree the findings are ‘based on data’?” In most cases, you wouldn’t say your findings are based on data because you performed sampling.

    “But many of our audits aren’t conducive to analyzing data.” This is something I hear commonly, and I understand that some audits probably don’t lend themselves to data analysis. However, for those audits you put in this category, I would encourage you to dig a little deeper on these audits. If you put them in that category because access to data is a problem, or evaluating the data is difficult, you’re cheating.

    I recently worked with an Internal Controls team and found many of their tests didn’t call for any data analysis, but rather they looked for other evidence that procedures had been followed. I pointed out that data doesn’t lie, forget, tell us what we want to hear, or tell us just what happens 99% of the time; assuming it’s complete and hasn’t been tampered with. Rather than, or perhaps in addition to, performing those other tasks to see if procedures are being followed, look at the data and see if the procedures have been followed. Just because you don’t currently analyze data on these audits doesn’t necessarily mean they aren’t conducive to data analysis.

    Find your analytics coverage percentage, or what I also call your breadth of coverage. If you would like it to be higher, the best way to accomplish this is to have more of your auditors performing analytics. At the 20-minute mark, I briefly show ways to accomplish this in a webinar titled, “What do Photography and Audit Analytics have in Common?” There are things auditors can do with the Excel skills they already have such as sorting, filtering, and summing up totals to perform basic analytics. Additional training and tools designed to be used by all auditors will increase your depth of coverage. Measuring and improving the depth of coverage is a topic for another time.

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