Practical Uses of Continuous Monitoring

1
Practical Uses of Continuous Monitoring.and How
To Drive It Forward

• Presented By
• Richard B. Lanza, CPA-CITP, CFE, PMP
• President, Cash Recovery Partners, LLC
• rich_at_auditsoftware.net
• 973-601-3701

2
Agenda

• What are we seeing
• What is holding back CM/CA
• What can drive it forward

3
The Current View
4
Who are the Users?

• Process owners (A/P, A/R, etc.)
• Recovery audit functions/firms
• Trend-setting internal audit departments
• Big 4 accounting firms

5
What Are the Applications?

• Purchase-to-Pay
• TE
• Procurement Card
• Payroll
• Order to Cash
• Inventory
• General Ledger

Recovery / Fraud
Process Managers
Auditors
6
How Do They See the Light?

• Major prior cash outflow / fraud
• Have a past taste of data analysis success
• Fear of audit failure

7
Whats Holding It Back
8
Key Inhibitors

• External auditors are making large sums of cash
  keeping audits as manual as possibleand they
  still hold the pen to compliance
• Internal auditors are building mini-empires and
  dont want to relinquish this control to virtual
  auditors
• Litigators give no incentive to 100 auditing as
  the more auditors seethe more lawyers have to
  base their lawsuit
• IT Departments rather build it in house vs. buy
  itand then they rarely do

9
Key Inhibitors

• People are too busy to sharpen their saw
• It is a commitment to report and manage
  exceptions (Ad hoc reporting is simply dating)
• The lack of imagination...too few people play
  with data
• Unlike XBRL that benefits the SEC/PCAOB, there is
  no perceived value to them in it....yet!
• Limited lobbying is seen to these groups on the
  value of automated control testing
• Therefore, there is no whip (regulation)
  requiring it

10
Key Inhibitors

• SEC Chairman William H. Donaldson said, As I
  mentioned when the Commission first announced
  this (XBRL) initiative, this initiative is part
  of the Commission's broader effort to improve the
  quality of information available to investors and
  the marketplace. By working to enhance the
  Commission's filing and disclosure process
  through the use of new data formats, including
  tagged data, the Commission can improve how
  content is organized and analyzed - improvements
  that will benefit everyone who utilizes the SEC's
  public disclosure process.
• ..a similar statement is needed for CA/CM

11
Key Inhibitors

• Lack of a business case to do it
  continuously.once a year still works for most
• No perceived middle-market solution.focus is
  mainly on the Big 4 and Fortune 1,000
• Control testing and management has not to date
  been a consistent process (with some exceptions
  in payroll, accounts payable, and order to cash)

12
What Can Drive It Forward
13
Key Drivers

• Working on ERP Failure
• ERP systems / IT Departments do such a bad job at
  control, that users are looking elsewhere for
  control solutions
• Too few people play with data....which is an
  opportunity to implement black-boxes
• Process owners senior management see the value
  of co-sourcing a virtual auditor
• Reduced testing costs / Less auditor time
• Proactive detection practically as good as
  prevention
• Faster re-action times to potential issues
• Keep skeletons safe within their closets

14
Key Drivers

• 100 auditing is more acceptable today
• Audit procedures are based on sampling standards
  written over 20 years ago
• The best fraud to defend is the one you find
• More actual users supporting the cause
• Audit staff market is drying up
• More resource options are needed
• Auditors need not fear delegating effort to the
  virtual auditor.it will identify even more work
  for their empire

15
Key Drivers

• Recovery firms are moving to proactive reporting
  models
• More competitors/analysts are entering the
  market..it must be a serious business
• Speed more recovered cash, detected fraud, and
  less downstream problems
• It is trendy and cool

16
Build a Bridge to CA/CM

• Gain an appreciation for the datado a pilot
• Turn on system audit logs
• Focus on key risk area data analysis
• Run reports on a one-time basis
• Find a major event/fraud
• Build a case for a fully-functional,
  out-of-the-box system

17
Conclusion

• Auditors are starting to see the need for virtual
  auditorsas they drown in work
• Management are in the best position to drive
  increased usage
• To reduce auditors
• To keep their skeletons safe
• Regulatory powers need to support the audit
  profession in 100 auditing
• Supporting it for their own use
• Removing the litigation case fear