Audit Management Anxiety & How to Eliminate It

None of my undergraduate or graduate coursework properly prepared me for the experience of my first formal audit. Sitting in the supply room of a fast food restaurant and logging the number of paper drink cups and straws, or ducking in and out of their walk-in freezer to avert frostbite, as I inventoried the hamburger patties is the sort of detail that academics gloss over.

It was 1986 and computerization was just catching on for mainstream accounting; let alone inventory control and audit. There were no handheld mobile devices for automatic data entry of the audit data. No cloud storage and statistical apps for analysis.  It was all strictly paper and pencil recording and number crunching. The manual recording of audit data was tedious; but it was the mathematical analysis of that data primarily via desktop calculators that was really error prone and exhausting.

Rapid analysis is paramount. This adage proved especially true of my second audit assignment. I was asked to conduct an internal audit of the cash management practices of 300 site locations each of which involved multiple branch bank accounts and a myriad of deposit schedules and subsequent transfers to the central corporate offices for investment. With years to go to the advent of the internet digital highway, and with only limited access to mainframe computers, making heads or tails of the cash migration from point-of-purchase collection to the ultimate destination of sound investment was dizzying.

The increased interest earned through a more timely deposit-to-investment timeline, a result of the audit finding, more than paid for my efforts.

Today some amount of hands-on effort is still required for verification and analysis in any audit process; however, SAP’s cloud based data storage and processing framework, accessible via mobile device interfaces, is redefining the audit function. Vast amounts of data may be rapidly captured, analyzed and presented in summary visual displays, which enable the immediate identification of accounting inconsistencies and anomalies, as well as summary report generation.

The lynchpin fault discovered in the 300 site cash management audit was that the excessive delay due to the hand analysis of the money that could be safely pulled from each location without an attendant operational shortage resulted in a “risk adverse” approach. Delay translated into perceived risk which translated into more delay. Too much cash margin was retained locally, resulting in investment shortfalls with the consequent loss of interest earned. The audit payoff was the discovery that on average over $3 million was being held cumulatively across the 300 sites each day, as a hedge against unexpected operational costs. By simply pulling this money and placing it in interest bearing investments, a significant return was realized. This is why rapid analysis is truly paramount in every financial management function.

What I needed at the time but didn’t have was SAP Audit Management functionality. Whether logging hamburger patties or tracking cash deposits from hundreds of individual sites; SAP Audit Management is the industry leader. SAP Audit Management documents, organizes, and collaborates. It reports on key business risks and ongoing audit activities in a timely fashion; employing next-generation analytics to provide advice and insight.

In the case of the 300 site audit activity I had to manually pull and compare the difference between the balances in both the receivable and disbursement accounts for a selected number of the larger sites each week spanning a year. This labor intensive audit technique required a month to complete. SAP Audit and Risk Management applications would have executed those searches automatically from a mobile device interface via drop-and-drag functionality. These automatic searches can be configured to capture data based on hard parameter limits, or conducted as “fuzzy” searches if hard parameter limits are unavailable.

My analysis involved statistically characterizing the difference between the cash being held daily at selected sites and their actual operational costs. I computed the mean difference daily for 365 days at the selected sites, as well as the corresponding standard deviation. Then I calculated the excess cash retained above a value equivalent to the mean plus three standard deviations as a percent of daily receipts.  This percent factor was employed to project a cumulative value across all 300 sites, which equaled $3 million dollars. The simplicity of my analytics reflected the fact that I had only received minimal exposure to statistical inference during my graduate studies. This is still the case today for many young auditors.

Fortunately, the SAP Governance, Risk, and Compliance Portfolio has integrated the functionality between SAP Audit, Risk, and Fraud Management providing a wide choice of analytical tools that can be chosen depending on the analyzed scenario. For more information see document “An Overview of SAP Solutions for Governance, Risk, and Compliance.

Anxious about the validity of my analytical approach, my only alternative was to execute the laborious calculations and then ascertain their value. SAP Risk Management offers the ability to employ very sophisticated statistical inference apps.

One can select a subset of these inference apps and access their appropriateness via SAP Risk Management Monte Carlo simulation capabilities.  This removes the guesswork regarding effective risk management strategies, which is an important contribution in a modern business environment where 78% of all companies feel uncertainty about their risk management efforts.

Then, as now, timely reporting of audit findings is crucial in reducing ongoing risks. Without an available report template that matched my analysis; it took me several days to draft and edit my audit findings. Summary tables, graphs and illustrations required an inordinate amount of time, not to mention hair pulling start-over moments. Oh, to have had then the user-configurable screens available in SAP Audit and Risk Management, which facilitate individual engagement reports and summary status! More importantly, developing audit finding reports that are succinct, comprehensible and management friendly requires far more than visually appealing graphics. An auditor cannot effectively summarize data and conclusions unless that auditor truly understands the origins of the data and the analytical linkages that tie the data to the conclusions. SAP Risk Management applications are structured to provide this clarity.

I can’t change the anxiety of my early audits but I can ensure that my future audit efforts run smoothly: The answer is the New SAP Audit and Risk Management powered by HANA.

The principal features of Audit Management includes:

• Full coverage of the audit roadmap – planning, preparation, execution, reporting, and follow-up.
• Integration with SAP Fraud Management, Risk Management and Process Control (SPx)
• Flexible and configurable screens and views for better management and reporting through a single source of the audits and a global monitor of the audit requests.
• SAP HANA in memory database for high speed processing and total search capability (SPx)
• SAP HANA based predictive analytics for planning, monitoring and deep analytical insights (SPx)
• Collaborative tools for social networking in the organization to maximize continuous engagement with management and stakeholders (SPx)
• Mobile capability (voice, photo, video, document) to instantly capture audit evidence
• Global monitoring of findings and follow-up
• Drag and drop working paper functionality
• Search capability through all types of work paper documents
• Intuitive and user friendly interface

The functionality highlighted in the list above provides for audit planning, preparation, execution, reporting, and follow-up. The devil is in the details of the auditor’s execution. Consequently, as I now take a closer look at this specific functionality, and compared it to the manual processes of my past audit experience; I realize that I can upload my audit working papers via drag-and-drop features, support my conclusions with relevant audit details, and enable global viewing across the entire audit team.

I was excited to learn that I can upload my working papers and record and index them employing many different information criteria. This would have allowed for further automated comparison across the 300 different sites based on description, type, risk ranking, criteria, cause, consequence, and recommendations.

Audit detail is not always quantitative; sometimes it’s visual. The ability to document utilizing mobile devices, uploading audio, video, and other files enables the audio-visual illustration of particular audit scenarios.

It’s clear that the audit tool I needed then was the tool of the future; SAP Audit Management powered by HANA!

I hope you enjoyed my time travel back to 1986 and that you will join me while I explore more over the coming posts. I’m headed “Back to the Future” with SAP Audit Management Powered by HANA for now.