Presentation on the impact of technology on fraud detection and professional standards

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THE IMPACT OF TECHNOLOGY
ON STANDARDS AND
DETECTING, PREVENTING AND
INVESTIGATING FRAUD
JIM KAPLAN CIA CFE
PRESIDENT AND FOUNDER
AUDITNET®
A Changing Landscape for Professionals
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Agenda
 Introduction
 Technology Then and Now
 Standard Changes and Technology
 Evolution of Professional Networking
 Latest Technology Tools for Fraud Auditors
 Trends and the Future of Audit Technology for
Detecting and Investigating Fraud
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Then and Now
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Auditors and Technology
 Early Adopters
 Innovators (into the new
from Latin
 Interested in new
methods & techniques
 Risk takers
 Forward thinking
 Gen X & Y
 Laggards
 Wait and see
 Cautious
 Hangs back
 Last group to try or
adopt a new product
 Dislike change
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Standards Evolution
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 1954 to the mid-1960s, the auditing profession was still auditing
around the computer – Why?
 1968, the American Institute of Certified Public Accountants (AICPA)
had the Big Eight (now the Big Four) accounting firms participate in
the development of EDP auditing.
 December 1974 SAP 3 The Effects of EDP on the Auditor's Study
and Evaluation of Internal Control
 1977 Electronic Data Processing Auditors Association (EDPAA)
published Control Objectives
 July 1984 SAS 48 The Effects of Computer Processing on the Audit
of Financial Statements
 June 2001 SAS 94, The Effect of Information Technology on the
Auditor’s Consideration of Internal Control in a Financial Statement
Audit.
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Standards and Regulatory Evolution
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 SEC, Final Rule: Management’s Reports on Internal Control Over
Financial Reporting and Certification of Disclosure in Exchange Act
Periodic Reports
 PCAOB Auditing Standard No. 2, An Audit of Internal Control Over
Financial Reporting Performed In Conjunction With an Audit of
Financial Statements
 SAS 99, Consideration of Fraud in a Financial Statement Audit
 SAS 99 Exhibit, Management Antifraud Programs and Controls
 Committee of Sponsoring Organizations of the Treadway
Commission, Internal Control—Integrated Framework
 United States Sentencing Commission, Guidelines Manual
 2009 Internal Auditing and Fraud and GTAG 13: Fraud Prevention
and Detection in an Automated World
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Computers, Auditors and CAATTs
 The Evolution of CAATTs 80’s
 Around
 Through
 With
 EDP/IT Auditors
 Mainframe
 Audit Software 90’s
 Data extraction and analysis
 IT and non IT Auditors
 Windows
 The Millenium
 Software for all phases (planning, fieldwork, GRC)
 Cloud computing
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Impact of Technology
 Computers and networks provide most of the
information needed for auditing
 Computer crime is increasing as fraudsters see
value in information as well as financial assets
 Auditors and fraud examiners must use the
computer as an auditing tool
 Auditors and fraud examiners must also use the
computer for audit administration
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Impact of Technology
 What I did in my youth is hundreds of times
easier today. Technology breeds crime
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Impact of New Technology on the
Profession
 Professional Standards for
Certified Fraud Examiners
 IIA Professional Standards Fraud
and Technology
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Certifications for Fraud Auditors
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Initials Description Organization
CITP Certified Information Technology Professional (CITP AICPA
CFE Certified Fraud Examiner ACFE
CFF Certified in Financial Forensics AICPA
CAMS Certified Anti-Money Laundering Specialist ACALS
CFFA Certified Forensic Financial Analyst (NACVA)
CIFI Certified Insurance Fraud Investigator IASIU
CBCO Certified Bank Compliance Officer BAI
CISA Certified Information Systems Auditor ISACA
CIA Certified Internal Auditors CIA
CPA Certified Public Accountant AICPA
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New Technologies and their Impact
 Mobile computing
 The Cloud or Internet based services
 SaaS (application based)
 PaaS (end to end SDLC)
 IaaS (servers, storage, network)
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Social Media
 Social Media Defined
 The good the bad
and the ugly
 What is the primary
risk?
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Technology as an Enabler
There is a wide array of specialized tools to
support and enhance the entire spectrum of
internal audit processes … for the most part
(auditors) are not taking advantage of them
Not surprisingly, survey participants predict that
technology will affect internal audit roles and
responsibilities more than any other business
trend.
PwC 2010 Study on the State of the internal audit profession
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Audit Software
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Categories of Audit Software Technology
Automated
Issues
Tracking
Electronic
Work Papers
Risk
Assessment
Continuous
Controls
Monitoring
Anti Fraud
Software
GRC
Audit
Management
Software
Audit
Resource
Scheduling
Data
Analytics
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Data Analysis for Auditors and CFE’s
Although internal auditors have been doing data analysis for
more than 25 years, it has only recently started to become
standard practice.
By our nature, most accountants and auditors are inclined to
stick with what has worked in the past, rather than reach
outside our comfort zone for an alternative that could help
us accomplish more.
Do you reach outside your comfort zone?
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New Tools New Approach
Technology advances require a change in the approach for
detecting and investigating fraud
Fraud risk analysis is now a required part of an auditors
responsibilities
Proactive approach to detecting fraud
Identifying risks early using audit software to detect
anomalies is no longer optional
Data analytic KSA’s now a basic facet of an auditor’s toolbox
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Obstacles to Implementation
 Failure to plan for use
 Lack of an FRA methodology
 Skill set gap -
 Department size
 Cost implication
 Complexity of the software
 Resistance in training auditors
 Failure of software to meet audit departments needs
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Heard on the Street
Technology Initiatives considered having the most
impact (2012 AICPA Top Technology Issues)
1.Information security
2.Remote access
3.Control and use of mobile devices
4.Business process improvement with technology
5.Data retention policies and structure
6.Privacy policies and compliance
7.Staff and management training
8.Spreadsheet management
9.Overall data proliferation and control
10.Portals (vendor and client/customer)
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New Tools for Fraud Examiners
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New Tools
 Sept, 2008….
 Any device, Any time, Any
where was born
 Users not interested in
security, they want to trust,
not to be trusted
 Any unprotected device
connected to both the
Internet & and company
LAN poses a security risk
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Impact of Technology on Detecting
Fraud
 Proactive Fraud Detection
 Computer-aided fraud detection skills
 Data Extraction
 Scripting
 Analyzing Data
 Automation
 Data is the key to detecting fraud with technology
 Benford’s Law analysis using technology
 Continuous monitoring software suites
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Impact of Technology on Detecting
Fraud
 Digital Information Explosion (DIE) has created
greater opportunities for fraud examiners and
auditors.
 Asset recovery
 Anomalies in data through 100% analysis
 Examining digital information on mobile devices
 Using social media to profile fraudsters
 Social Network Analysis (SNA)
 Using data analytics to detect property and casualty
claims fraud
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Audit Apps for iPhones/iPads
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Imagine the Possibilities
 Access your computer from remote locations
 Collaborate using tools from the road
 Access audit programs, work papers and more
from your mobile device
 Join Anti-Fraud Webinars and Webcasts for
training
 Conduct or participate in virtual meetings with
staff, clients etc.
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Trends and their Impact
 Mobile devices and wireless computing
 Smart devices and malware
 Cloud sourcing and computing – security, governance
and compliance
 Social media platform for communications
 Continuous risk and control assessment
 Reporting to the Board using SOTA technology
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Skill Set for Future Auditors
 Multi-disciplinary less accountants more
business oriented
 Critical thinking skills
 Strong communication skills
 Audit Technology oriented
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The Impact of Technology Observations
Not surprisingly, survey participants predict that
technology will affect internal audit roles and
responsibilities more than any other business
trend.
High-performing internal audit functions maximize
the use of technology to enhance the efficiency,
effectiveness, and quality of operations.
PwC 2012 Study on the State of the internal audit profession
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AuditNet® Survey - 2012 State of Technology
Use by Auditors
Profile of Over 1,500 Responses
• 45% 5 or less auditors
• Technology tools used – mostly data analytics and
EWP
• Technology tools least used – monitoring (continuous
audit and fraud), GRC, risk compliance
• Only 17% feel that their auditors are technology
proficient
• Technology training primarily OJT
• 35% maintain an inventory of audit technology
tools
• More than half (54%) rated their department at the
informal use level (ad hoc or none at all) for audit
technology
• Less than 4% rated their department at the highest
maturity level
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AuditNet® 10 Point Action Plan for Integrating
Technology in Audit
1. Conduct an inventory of audit technology tools
2. Provide training for all staff in use of audit
technology
3. Measure staff technology KSA
4. Build a business case for audit technology
5. Work with IT and Senior Management on cost
6. Hire auditors with technology skills
7. Find a technology champion and influencer
8. Establish an audit technology assessment
benchmark and update annually
9. Require the use of technology for all audit and
administrative tasks
10. Develop a succession plan so that audit software
does not become shelfware
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Strategic Fraud Detection Approach
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Source: Strategic Fraud Detection: A Technology-Based Model
Conan C. Albrecht W. Steve Albrecht

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Future Predictions
 Standards will mandate use of technology tools for
audit
 New generation of auditors must have the KSA to
utilize technology
 If auditors and audit departments do not adapt to
new technology they risk outsourcing
 Social networking will evolve to professional
networking
 Tools will become more intuitive
 Knowledge hubs for audit tool, techniques and
resources will consolidate and merge
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Audit Programs and Guides
 Auditor’s Guide to Cloud Computing - Security
Considerations.xls
 Cloud Matrix_Benefits & Risks.xls
 AuditNet® Guide to Social Networking
 AuditNet® Guide to Wireless Security
 Business Continuity Planning – A Diagnostic Tool
 Forensic Document Examination
 Data Analytics Enabled Audit Programs for Key Business
Processes
 AuditNet® is working to provide tools and resources to
keep pace with new technology!
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Fraud Examiner Technology Resources
 ACFE Seminars, Books and Training
 Introduction to Digital Forensics
 Using Data Analytics to Detect Fraud
 Investigating on the Internet
 FraudResourceNet.com online training
 Audit Software – ACL, IDEA, Excel, ActiveData,
TopCAATs
 AuditNet® is working to provide tools and resources to
keep pace with new technology!
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Conclusion
 I hope that I have provided you
with some useful information
that will stimulate your thought
processes!
 Any questions?
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Contact Information
If you haven’t been to AuditNet recently please
visit and see our new design and interface
Jim Kaplan CIA, CFE editor@auditnet.org
http://www.auditnet.org
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