26 wcas 10 th Car Lab Advisory Board
26 wcas 10 th Car. Lab Advisory Board Meeting after the storm Miklos A. Vasarhelyi KPMG Professor or AIS, Rutgers University Director Car. Lab January 16, 2013 1
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Some news • We started our certificate in Audit Analytics • The Digital Library is progressing diligently • Very active progress in text mining, conference, papers, incipient dissertations
Audit Data Standard • GL and O 2 C standards exposed • Comments received and standards revised • Experiment being performed at Rutgers • ASEC and ASB met • ASB agreed to reconsider obsolete standards and to consider new technologically wise standards • What should be reconsidered… proposed? ? ?
An evolving continuous audit framework Continuous Risk Monitoring and Assessment • Automation • Sensoring • ERP • E-Commerce Continuous Data Audit Continuous Control Monitoring Continuous Audit 6 6
KPMG Sigma Bank PPP Credit Card Insuran ce A/P HP Process Mining Itaú-Unibanco Supply Chain CDA P&G Inventor y AT&T Inventory Dashboard Duplicate Payments HCA Duratex CCM A/P FCPA Sales Commissio n Audit Automation P&G: Order to Cash Auditor Judgment Siemens- AAS Automation AICPA – ADS / APS Siemens Met. Life J+J CA Technologies PPP Insuranc e P&G IDT ItaúUni. Banco CRMA GL KPIs/KRIs Verizon FCPA Claims American Wires Water / Caseware Continuous Control Monitoring Talecris / ACL Audit Methodologies • Multidimensional Clustering • Process Mining • Continuity Equations • Predictive Auditing • Visualization • Analytic Playpen
Process risks Environmental risks Black Swans KRIs Variable selection algorithms (heuristics expert based) Risk minimization / audit return maximization algorithms Audit Procs. Rearrang ed 8
The Car. Lab Research Efforts o Siemens n Continuous control monitoring (CCM) n Audit automation o Continuity equations at HCA o Verizon n Construction budget 9 9
The Car. Lab Research Efforts o Itau Unibanco n Branch monitoring and analytics n Transitory Accounts n Product sales monitoring n Credit cards n Pagadoria n Predictive audit n Insurance n Continuous card monitoring n New product risk assessment 10
The Car. Lab Research Efforts o Insurance company n Forensics as CA -> the wires project n Claims o P&G n KPI project n Vendor / payments project n Order to cash project -> selective automation n P-Card n Logit prediction of audit results o Duratex n Pagadoria (payables) n Supply chain CM / CA 11
The Carlab Research Efforts (3) o KPMG projects n Technology adoption at CPA firms n Technology adoption at IA departments n The future of audit n Rapid Prototyping Environment for data research (RPE) n Dashboard / visualization / Advanced Analytics Representation (DVAA) n Maturity model n KRIs and audit plans n New methodology project 12
The Carlab Research Efforts (4) o Telecom and Real Estate Co (TRE) n Duplicate Payments detection n Customer reimbursements o CA International n FCPA n Customer discounts n Control structure maturity model o Major International consumer Goods Co n FCPA / semantic interpretation / payables 13
RARC and our teaching mission o The VPA effort n Automatic course recording experiment just started n A vision of free unencumbered educational stream for less developed nations o The video library o Clickers n Experimentation with response system uses in different contexts 14
Out of the box o Standards Formalization: issuing standards in autocode o The MACCY diversification n Audit Analytics n Forensic n IRM o Standards are over-estimated: they are just a layer o Active lobbying of FASB and PCAOB 15
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APPENDIX 17
Some analytic technologies used at the Car. Lab Technique Anomaly Detection: using cluster analysis Data IDT Decision rules: duplicate payments IDT payments by checks Association rules IDT new file (credit card info). Decision Trees: C 4. 5 Rule Induction: JRip P&G data Project check for outlying refunds association rules in order to determine some relationships with the fraudulent transactions Large Margin Classifiers: Support Vector Machines Ensemble Methods: Random Forests simpler ones such: the Nearest Neighbor and Naïve Bayes 18
Technique Data Project Anomaly Detection: using cluster analysis Decision rules: duplicate payments Association rules Decision Trees: IDT check for outlying refunds IDT payments by checks IDT new file (credit card info). P&G data association rules in order to determine some relationships with the fraudulent transactions C 4. 5 Rule Induction: JRip Large Margin Classifiers: Support Vector Machines Ensemble Methods: Random Forests simpler ones such: the Nearest Neighbor and Naïve Bayes 19
Technique Data Decision Trees: XBRL Bank call C 4. 5 reports Rule Induction: JRip Large Margin Classifiers: Support Vector Machines Ensemble Methods: Random Forests Project traditional P&G data statistical techniques such as logit and probit (both the standard binary version, and the ordered one). Logit model: P&G data logit model to relate audit scores and controls self assessment, as well as KPIs. This is still in its first stage (understanding the data and preliminary results) causality model ITAU's pagadoria to create a dashboard, and then relate some KPIs & KRIs to this dashboard. 20
Technique causality model Data ITAU's pagadoria Project to create a dashboard, and then relate some KPIs & KRIs to this dashboard. J 48 Itau sales transactions Decision tree technique to identify group of outcomes via branches (paths). I use it to identify the status of sales transaction Logistic regression Itau sales transactions Regression technique to predict the outcome of the event. Applied to categorical data in my work. Support vector machine Itau sales transactions Supervised machine learning technique use for classification. I use it to classify the outcome of sales transaction with specified characteristics clustering Itau sales transactions Unsupervised machine learning technique used to group similar data. Can used to identify groups and/or outliers. 21
Technique Data correlation test for overall pattern, prediction interval for abnormal amount check, frequency test for abnormal event, true/false test for validity test, Metlife shape of amount distribution through skewness and kurtosis for abnormality, graphical representation to check potentially risky areas Itau exploratory data analysis Itau insura nce Cluster Analysis - Itau Transit ory accoun t. Met. Life Group Life Claim Cluster Analysis - group life insurance claim Project Using cluster analysis for data exploratory to gain additional information on the transaction. - Using cluster analysis for anomaly detection in the 22
Technique Robust Regression (RR) Ratios / Classification Data Itau ppp Project Procter & Gamble In automating a series of audit procedures for accounts receivables, we are using simple analytics to build relationships between data. We use ratios as a benchmarking technique and classification to test aging and validate high risk customer and account hold overrides. to guide auditors in alert resolution decision trees P&G Rule-based validation Siemens PLM was used for detection of outliers We implemented a rule-based controls monitoring and validation platform in St. Louis 23
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