Why Automation Means Fewer Control Violations Involving Audits

Posted by: Raza Shahid | May 17, 2016

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In today’s complex and regulated environment for financial institutions, there has never been more pressure on finance leaders to ensure integrity in internal auditing and controls. Boards of directors want assurance that official financial statements are squeaky clean, with every piece of data in tables and in footnotes double-checked. There’s zero tolerance for funny business, such as a business unit booking revenue in one-quarter while pushing related costs to the next.

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In the digital age, manual/random audits no longer cut it. Companies with millions of transactions to audit need a more reliable way to gauge who and what needs to be investigated — before accidental errors or intentional malfeasance blow up to damage the company’s reputation and hurt investors. The pioneers are looking for solutions in technology-enabled auditing tools and processes.

APQC examined the number of internal control violations per year per 1,000 employees at 70 companies. The best performers had 3.51 violations or fewer, while the worst performers were dealing with 34.23 violations or more. (See graph below.)

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The conclusion is that  more automation means fewer control violations. All things being equal, it’s much easier to make an unintentional error or change an accounting entry when data are processed and audited manually. It’s also a whole lot more likely that a system screening 100% of transactions will find suspicious activity that a random audit might miss.

Automated transaction-processing systems, and direct links between systems, can cut down on the manual line-item journal entries that allow room for errors and bad intentions. If your company is seeing a lot of corrections, adjustments, and manual non-recurring journal entries, chances are your internal controls aren’t actually keeping things under control.

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