CA&M Perjects

Continuous Auditing

July 01, 2011

Jason Zhang
Continuous Auditing Specialist

Agenda

• Overview
• Key Testing Areas by Process
• Data Process
• Key Benefits / Opportunities
• Script Lists

Continuous Auditing Overview
Continuous Auditing Is A Process Of Extracting Data On A Frequent
Basis To Assess The Full Population Of Transactions Using Technology

Scope To Date* Results

•Vendor Master • Cash Recovered
•Duplicates Payment • Potential Incremental Benefits
•Travel Expenses Identified
•Payments • Improved Controllership &
•Invoice Processing Compliance
•Fixed Assets • Real-Time Remediation
•Unvouched • Fraud Deterrence
•Procurement
•Payroll
•General Ledger

Automated Scripts Developed To Identify Potential
Operational , Cost, & Fraud Issues

PLATFORM FOR GROWTH 3

Key Testing Areas By Process
Duplicate Payments Vendor Master Unvouched Invoice Processing

Duplicates - Same Data Validation Aging Summary
By Business & Aged Open Invoices
Vendor & Inv. #
Vendor Changes Plant Debit Balances
Duplicates - Same
Unfavorable  Aging Summary
Inv. #, Diff Vendor Even Payment
Payment Terms by Business & Amounts
Duplicates - Same Vendor
Employees Added
Vendor, Amount, Manual Check
To Vendor Master  Aging > 90 Days
Date Requests
Non-ACH Payment  Debit Balances Payments to
Method
Employees
Duplicate Vendors
OFAC & Suspicious
Countries


Key Testing Areas By Process
T&E Fixed Assets/GL Payroll P2P
Out Of Pocket Useful Lives Payment Terms
Payments Beyond
Excessive Mileage Timeliness of CIP Termination Date Invoice Prior To
Transfer PO Date
Even Amounts Multiple Changes
CIP Aging by Plant Merit Increase/ Split Purchase
Significant
& Segment Bonus Orders
Transactions
 Negative CIP Duplicate Non-Preferred
Split Transactions
Employees Vendors
 Asset Classification
Same Bank PO Price
Duplicate JE's
Account And Diff Differences
Inactive GL Account Clock Numbers
Employees &
Vendors With
Same Address
/Bank Account


Data Process
Other

ACL Script
To Import Data

ACL Scripts
Exceptions For Testing
posted in Web
Sharepoint Application
Email
Notification
of exceptions

Using Technology To Drive A More Effective
Audit Process


Key Benefits / Opportunities
Key Benefits Realized Other Potential Benefits Other Opportunities

 Duplicate Payment Recoveries  Debit Vendor Balances  Inactive Vendors & Vendors
With Unusual Payment Terms
 Reduction in Aged Unvouched  Unvouched Debit Balances
 Excessive Mileage
 Duplicate T&E Expense  Outstanding Aged invoices
Submission Recoveries  Split P-Card Transactions
 AMEX Refunds Not Being  Payments Prior To Due Dates
Cashed
 Unusual Payment Runs
 Employees Paid Beyond
 Monitoring Useful Lives
Termination Date Recoveries
 Aged CIP / Negative CIP
 Elimination of Duplicate
Vendors & Reduction in Non-
ACH Vendors
 Monitoring OFAC Vendors

Key Is To Drive Exception Reporting & Analysis Into Functions


Summary by Area
Frequency System

Quarterly
Monthly

Concur
Weekly

Yearly
Daily

SAP

ADP
Ref Test

1 Vendor Master √ √ √ √
2 Duplicates Payment √ √
3 Travel Expenses √ √ √
4 Payments √ √
5 Invoice Processing √ √
6 Fixed Assets √ √
7 Unvouched √ √
8 Procurement √ √
9 Payroll √ √
10 General Ledger √ √
11 System Access √ √

Key exception tests identified and automated to run on a frequent basis


Vendor Master

Ref Indicator Exception Test

Test quality of the information contained on key fields. Tests include:
- PO BOX as only address
- Usage of characters in the Tax fields
1 Quality of Fields
- Blank Tax Ids on ZVEN type vendors (Non-Affiliate Company)
- Invalid Social Security numbers (based on certain rules)
- Invalid format on tax ID
2 Vendor Access Summary by User ID and name to monitor vendor additions by an unauthorized employee
3 Field Changes Shows the "prior" and "new" on key fields such as name, address, p_terms and tax ID
4 Duplicate Vendors Duplicate Vendors using name, address, tax ID and Bank Account
5 Non-ACH as payment method Identifies vendors added where the payment method is not electronic (ACH, Orbian, etc)
6 Unfavorable Payment Terms Indentifies payment terms that are not in compliance with Company
7 Suspicious Country Vendors where the country has been ban by the government
8 OFAC Vendors in the OFAC List
9 Inactive Vendors Identify vendors that have not have vendor activity in the past 18 months
10 New Vendors List all new vendors with all key fields in the master
11 B&D Data Unusual vendors using data from B&D including legal name, legal address, etc
12 Conflict of Interest Match name, address, numeric address and Tax ID between Vendor and Employee Master
Files


Duplicate Payment

1 Duplicate payments - same vendor Same vendor, invoice number, invoice date, different amount
2 Duplicate payments - two vendors Same invoice paid to two different vendors
3 Duplicate payments (clerical errors) Duplicate by vendor, amount and invoice date
4 Duplicate payments - two systems Same invoice, vendor, date and amount but two different systems

KPI H2-07 H1-08 H2-08 H1-09 H2-09 H1-10 H2-10 H1-11 Total
Amount 455,636 247,313 406,534 116,746 191,147 209,853 275,777 49,027 1,952,034
Count 106 102 101 63 67 45 49 20 553

500,000 120

450,000
100
400,000

350,000
80
300,000
Amount
250,000 60
Count
200,000
40
150,000

100,000
20
50,000

- -
H2-07 H1-08 H2-08 H1-09 H2-09 H1-10 H2-10 H1-11


Travel Expenses


* Individual cash transactions greater than $100.
Out of Pocket
* YTD out of pocket summary by person and frequency
1
* Individual mileage charges greater than $100
Excessive Mileage
2 * Mileage summary by employee showing total amount and total number of charges
* Identifies transactions where the word "gift" was written in the description
Gift Cards
3 * Summary of gift related expenses by employee YTD
4 AP Transactions * Transactions with multiples of $100
5 Significant Transactions Extracts the largest 10 transactions of the 10 key expense types such as hotel, airfare, meals, misc, etc.
6 Split Transactions Indentifies employees double charging the credit card in order to circumvent the spending limits.
7 Employee with miles Summarizes the accumulated mileage
8 Gifts Gift by employee

Duplicate Payments Duplicate T&E Charges. Matches cash vs. credit card transactions by employee, amount
9
10 Suspicious MCC Suspicious MCCs
* Individual cash transactions greater than $100.
Out of Pocket
11 * YTD out of pocket summary by person and frequency

Business above avg spending Plants witth expenses averaging twice as much as the company avg spending
12
High risk employees using a scoring system and a weighted risk model using expenses above avg, OOP, late
Suspicious Employees
13 submissions, high mileage charges and higher-than-avg misc
14 Suspicious Vendor Activity Vendors witth expenses averaging twice as much as the company avg spending


Invoice Processing & Payments


1 Aged open invoices Trade invoices older than one year
2 Debit balances Vendor balance with negatives.
3 Even payment amounts Payment of multiples of $100 and greater than $500
4 Unusual trends Trends by month and identify unusual volume changes (amount and frequency)
5 Benford Analysis Benford Analysis by Business showing unusual patterns using the first two digits of the invoice amount
6 Excessive billing Analyze billing frequency and identify unusual vendors


1 Manual Checks Checks with document type ""KZ"
Match payments made to employees using the vendor master and employee master and match fields as
Payments to Employees
2 address, numeric address, name, tax id.
3 Unusual payment runs Payment runs during the weekend
4 Prior to due dates Payments prior to due date


Fixed Assets


1 Useful Life Useful life test comparing the useful life used in SAP vs. the useful life per policy
Support of the determination of "Compliance" or "Not Compliance" on each addition, supporting the comparison of
2 Useful Lives (Support) each addition in the month
3 Unusual Useful Life Unconventional useful life (not the exact normal useful life) by business
4 Leasehold Improvements Extract of all addition of the months for Leashold Improvements
5 Old CIP CIP greater than 6 months and 70% budget consumption by business
6 Old CIP Details Details of above analytic
7 CIP Aging CIP by plant and SWK segment
8 Negative CIP CIP with negative balances by business
9 Asset classification Match words with wrong asset class by business
10 Idle Assets Idle assets older that 90 days (aging report) with NBV
Lack of activity that shows that asset
11 is stagnant CIP without activity in more than 2 months
12 Significant FA transactions Significant additions, transfers, dispositions
13 Asset avail for transfer Catalog of asset avail for transfer
14 Asset master information Field quality based on certain rules to test the content such as missing fields (cycle, plant, location)


Unvouched


Aging summary by Business Summary by business and plant with aging buckets of Less than 30, 31-60, 61 -90, 91-120, 120-180 and greater than 180. This has one report for Trade and
1
and Plant another for Affiliates. It is an output file at the company level and one for each business for individual analysis.
Aging summary by business
2 Aging summary by business, HFM Num and vendor.
and vendor
3 Older than 90 days Unvouched older than 90 days and greater than $100. A field added for priority "A" through "D" based on the amount. These excludes offsetting accounts

4 Negative Balance Debit entry (negative) recorded on a PO line as "only" transaction and is older than 120 days
Top vendors with old
5 Top 5 vendors of each business with unvouched older than 90 days . This report could be used to trigger a request for vendor statements.
Unvouched
6 Offsetting entries Unvouched with offsetting entries. PO line with two offsetting entries with net amount <$100 or >-$100
7 Mismatch in PO lines Transaction posted to wrong PO lines
8 Expired Cost Center in PO PO with a Cost Center that has expired
Receipts with two different
9 Same PO. same PO line and same amount but different transaction type
transaction types


Procurement & Payroll


1 Retro POs PO date greater than invoice date
2 Preferred Vendors Summary of purchases by vendor and CoCo
3 Split POs PO date greater than invoice date
4 Payment Terms Unfavorable payment terms (global analysis)


1 Duplicate payments Two checks for same amount in the same period

2 Excessive overtime Overtime greater than 30 hours per week
Duplicate social security numbers, invalid SS or SSN in sequential
3 Social Securities
order
1,Duplicate employee name
4 Duplicate Employees
2.Similar name
1, Same bank account and diff clock numbers and diff last name
6 Suspicious Employees
2,Salaried employees without email account
8 Multiple WIN Awards 3 or more WIN Awards in prior 12 months
9 Multiple Merit Increases 2 or more salary increases in prior 12 months
10 Trend Analysis Comparison of key compensation items among


General Ledger


1 User ID Testing Summarizes JE's by "Creator"
2 Even Dollar JE's Identifies journal entries w ith even dollar transacactions over a specific threshold.
Identifies journal entries w here a restricted w ord (e.g. suspense) is found anyw here in the journal entry description field that may indicate an
3 Suspicious JE's invalid or suspicious entry.

4 JE Data Validity Identifies data elements that deviate from expected value and formats.
Determine accuracy and validity of journal entries created in the daily journal entry file to avoid duplicate entries. Using Same account/same
amount & same JE#/same amount
5 Duplicate JE's
6 Inactive GL Account General ledger account created and < 5 JE’s posted over the past year
Identifies journal entries greater than the minimum threshold amount, w here the journal entry w as posted to an account as a debit or credit
7 Unusual Account Posting contrary to w hat w as expected. These expectations are based on the GL account classification parameters.
8 Create JE vs. Create Account (SOD) Identify journal entries in the daily journal entry file that w ere created by the same individual that created the general ledger account.
9 New GL Accounts New accounts created by month for the past year
10 Close Calendar Postings by User Line count report by User ID, Bus. Unit, Day show ing grand total during month end close
11 Days Differences Identifies difference betw een date JE w as entered and w hen it w as posted - used for backdating analysis.
Identifies accounts from COA w here a restricted w ord (e.g. suspense) is found anyw here in the GL account description field that may indicate
12 Suspicious GL Account Descriptions an invalid or suspicious entry.

13 Close Calendar Unusual Dates Identifies journal entries that w ere entered (accounting document date) by individuals (not FI-Batch) outside of the close calendar w eek.
14 Create vs Approve JE's (SOD) Identifies journal entries in the daily journal entry file that w ere created and approved by the same employee.
15 One Time GL Account General ledger account created and closed w ithin the same month


System Access


1 SOD01_VM_INV Maintain a fictitious vendor and enter a Vendor invoice for automatic payment
2 SOD02_Payment_VM Maintain a fictitious vendor and create a payment to that vendor
3 SOD03_PO_INV Purchase unauthorized items and initiate payment by invoicing
4 SOD04_INV_GR Enter fictitious vendor invoices and accept the goods via goods receipt
5 SOD05_PO_Payment Enter a fictitious purchase order and enter the covering payment
6 SOD06_RBINV_PO Enter unauthorized purchase order and release a previously blocked Invoice to offset the purchase order
7 SOD07_RBINV_GR Receive goods against a purchase order and release a previously blocked Invoice to offset the receipt
Risk of the same person entering a Purchasing Agreement for materials and then adjusting the IM
8 SOD08_PA_ECCD inventory for those materials.
9 SOD09_Check_VM Maintain a fictitious vendor and create a payment to that vendor
10 SOD10_INV_Check Enter fictitious vendor invoices and then render payment to the vendor
11 SOD11_PO_GR Enter a fictitious purchase order and enter the covering payment


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