How Internal Auditors can win The War against Spreadsheet Fraud

To prevent another round of million dollar scandals due to fraudulent manipulations on spreadsheets, regulatory bodies have launched major offensives against these well-loved User Developed Applications (UDAs). Naturally, internal auditors are front and center in carrying out these offensives.

While regulations like the Sarbanes-Oxley Act, Dodd-Frank Act, and Solvency II can only be effective if end users are able to carry out the activities and practices required of them, auditors need to ascertain that they have. Sad to say, when it comes to spreadsheets, that is easier said than done.

Because spreadsheets are loosely distributed by nature, internal auditors always find it hard to: locate them, identify ownership, and trace their relationships with other spreadsheets. Now, we’re still talking about naturally occurring spreadsheets. How much more with files that have been deliberately tampered?

Spreadsheets can be altered in a variety of ways, especially if the purpose is to conceal fraudulent activities. Fraudsters can, for instance:

hide columns or rows,
perform conditional formatting, which changes the appearance of cells depending on certain values
replace cell entries with false values either through direct input or by linking to other spreadsheet sources
apply small, incremental changes in multiple cells or even spreadsheets to avoid detection
design macros and user defined functions to carry out fraudulent manipulations automatically

Recognising the seemingly insurmountable task ahead, the Institute of Internal Auditors released a guide designed specifically for the task of auditing user-developed applications, which of course includes spreadsheets.

But is this really the weapon internal auditors should be wielding in their quest to bring down spreadsheet fraud? Our answer is no. In fact, we believe no such weapon has to be wielded at all?because the only way to get rid of spreadsheet fraud is to eliminate spreadsheets once and for all.

Imagine how easy it would be for internal auditors to conduct their audits if data were kept in a centralised server instead of being scattered throughout the organisation in end-user hard drives.

And that’s not all. Because a server-based solution can be configured to have its own built-in controls, all your data will be under lock and key; unlike spreadsheet-based systems wherein storing a spreadsheet file inside a password-protected workstation does not guarantee equal security for all the other spreadsheets scattered throughout your company.

Learn more about Denizon’s server application solutions and discover a more efficient way for your internal auditors to carry out their jobs.

More Spreadsheet Blogs

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Top 10 Disadvantages of Spreadsheets

Disadvantages of Spreadsheets – obstacles to compliance in the Healthcare Industry

How Internal Auditors can win the War against Spreadsheet Fraud

Spreadsheet Reporting – No Room in your company in an age of Business Intelligence

Still looking for a Way to Consolidate Excel Spreadsheets?

Disadvantages of Spreadsheets

Spreadsheet woes – ill equipped for an Agile Business Environment

Spreadsheet Fraud

Spreadsheet Woes – Limited features for easy adoption of a control framework

Spreadsheet woes – Burden in SOX Compliance and other Regulations

Spreadsheet Risk Issues

Server Application Solutions – Don’t let Spreadsheets hold your Business back

Why Spreadsheets can send the pillars of Solvency II crashing down

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A Small External Enterprise Development Team is Cheaper than Your Own

Time is money in the application development business. We have to get to market sooner so someone else does not gazump us, and pip us at the post. We increase the likelihood of this with every delay. Moreover, the longer your in-house team takes to get you through the swamp, the higher the project cost to you.

Of course, in theory this should not be the case. Why bring in a team from outside, and pay more to support their corporate structure? Even going for a contract micro team ought not to make financial sense, because we have to fund their mark-up and their profit taking. Our common sense tells us that this is crazy. But, hold that thought for a minute. What would you say if a small external enterprise development team was actually cheaper? To achieve that, they would have to work faster too.

The costs of an Enterprise Internal Development Team

Even if you were able to keep your own team fully occupied ? which is unlikely in the long term ? having your own digital talent pool works out expensive when you factor in the total cost. Your difficulties begin with the hiring process, especially if you do not fully understand the project topic, and have to subcontract the hiring task.

If you decide to attempt this yourself, your learning curve could push out the project completion date. Whichever way you decide to go, you are up for paying advertising, orientation training, technical upskilling, travel expenses, and salaries all of which are going to rob your time. Moreover, a wrong recruitment decision would cost three times the new employee?s annual salary, and there is no sign of that changing.

But that is not all, not all by far. If want your in-house team to keep their work files in the office, then you are going to have to buy them laptops, plus extra screens so they can keep track of what they are doing. Those laptops are going to need desks, and those employees, chairs to sit in. Plus, you are going to need expensive workspace with good security for your team?s base.

If we really wanted to lay it on, we would add software / cloud costs, telephony, internet access, and ongoing technical training to the growing pile. We did a quick scan on PayScale. The median salary of a computer programmer in Ireland is ?38,000 per year and that is just the beginning. If you need a program manager for your computer software, their salary will be almost double that at ?65,000 annually.

Advantages of R&D outsourcing

The case for a small externally sourced enterprise development team revolves around the opportunity cost ? or loss to put in bluntly ? of hiring your own specialist staff for projects. If you own a smaller business with up to 100 people, you are going to have to find work for idle digital fingers, after you roll out your in-house enterprise project. If you do not, you head down the road towards owning a dysfunctional team lacking a core, shared objective to drive them forward.

Compared to this potential extravagance, hiring a small external enterprise development team on an as-needed basis makes far more sense. Using a good service provider as a ?convenience store? drives enterprise development costs down through the floor, relative to having your own permanent team. Moreover, the major savings that arise are in your hands and free to deploy as opportunities arise. A successful business is quick and nimble, with cash flow on tap for R & D.

Job & Staff Scheduling with FieldElite Mobile Service Management Software

Field Service Management (FSM) software systems are designed to enable you to manage your mobile workforce from a central point- and do away with the paperwork involved with the process. They connect your technicians on the ground (via app on their phones), to the staff at the head office- who have an interactive dashboard accessed through their browsers. The office team will have access to all the jobs that are to be handled by the company, simplifying the management process and taking away the risks that come with manual data entry. Here, we will walk you through a quick process of scheduling a job for your personnel with FieldElite.

Say you are a HVAC contractor, licensed, bonded and insured. You’ve made quite a name for yourself in the industry, and have a wide range of clients- in both residential and commercial establishments. Consequently, you also have a large workforce to attend to the different situations- from installing to repair and maintenance. One of your clients- let’s call them ABC Computer Supplies, has an issue with their HVAC unit- perhaps a pipe is leaking. It needs to be fixed, and ABC have booked an appointment.? Your goal here is to get one of your personnel to handle the task as soon as possible, and this field service scheduling software comes in handy.

There are two approaches that you can take:

1. Job Scheduling

From your Dashboard, on the left-hand side you will see the menu option. Clicking on Jobs, will take you to all jobs carried out by your company.

The filters will allow you to view different categories of jobs:

Complaint– This means that there was an issue with on ground during the task delivery, and the client lodged a complaint.
On hold– Here, different aspects can cause a job to be paused- like when spare parts or equipment required for repair jobs have been ordered, and one needs to wait for them to be shipped in from a different location.
Pending– This is basically your in-tray, a list of jobs that are to be carried out.
In Progress– The technicians are on the ground, attending to the client’s needs, and you’re getting routine updates from them.
Incomplete– Though the job had been assigned to the required technician, it was not completed in the set amount of time, thus requiring an additional visit to the site. Given that the FSM solution increases the first-time fix rate, cases of ?incomplete tasks? are reduced.
Complete– The task is successfully done and the customer has appended their e-signature, and now it can be invoiced.
Cancelled Invoice– The head office determines that a particular invoice shouldn’t be paid, and thus cancels it.

Our focus here is the pending tasks, so use this filter. ABC’s HVAC job will be among these. Clicking on its Job ID will open up the details of the task, with such an Update Job window:

This section contains all the information of the job- both past and present, which you can update in real-time. Any changes will be recorded by the system and can be viewed on the “Audit” tab.

As you can see here, the HVAC repair job is both “pending” and “urgent”. No one really likes sitting in an office that feels like an oven. Being the headquarters, it’s likely handles lots of foot traffic, and the damaged HVAC unit will make the working conditions really difficult. It’s best not to keep the client waiting, right?

So, head on over to the Supervisor and Workers section (on the same “Details” tab), and select the personnel suited for the task.

Set the time that the task will take for your technician, and once satisfied with the details of the job, click on Update. Voila! You’re done.

Immediately this happens, the worker received a notification on their app, telling them that they have been assigned the job.

From the app, the technician will be able to view the specifics of the HVAC job, including notes and attachments that you can add directly from your own dashboard, such as schematics of the building and reports from other technicians who installed the air conditioning system for the facility. You also get to add products that will be required for the task- like the pipe and panel mounted socket shown here. As the system also includes an inventory of the products used, their quantity and costs, you will be able to keep an accurate record of the supplies as they as are used.

As such, the field workers will not have to keep coming back to the central office to get documents and reports of new tasks, or walk around with bulky files. When they are carrying out the job, they will also be able to keep the staff at the office updated about its progress, through the chat feature on the mobile app, taking photos and adding notes as required.

2. Staff Scheduling

With this approach, the perspective is basically: ?So I have a couple of jobs- which of my employees has time to handle them?? The FSM allows you to optimise your productivity- by ensuring that you get the most out of the staff work hours, and avoid cases of jobs going into overtime.

Follow these steps:

Select ?Scheduler? from the left-hand side of the window. You will have a view of the workers of your company and how their day is planned out, and a summary of the unassigned jobs.

Here, you can tell whose busy, and who can have a new task assigned to them at the click of a button- which is far more effective than keeping on jotting down points in your diary or going through files of documents.

If the job has yet to be added to the system- like for the cases of new clients, simply click on the ?Add Job? button and key in its details.

2. Scroll down, you will see a list of unassigned jobs.

3. Next, click on the edit button under ?Actions?. This will take you to the same ?Update Job? window described in the first approach, in order to assign the preferred worker to the role.

This real-time dispatching avoids cases of your desk getting cluttered with paper sheets, and prevents duplicate entries as each job has its own ID and task details- from the scheduling to the invoicing. In this case, your HVAC technician will have access to the information needed right at the palm of their hand, to ensure that the task at ABC?s head office goes seamlessly. The optimised schedule will enable the task to be carried out faster- restoring normalcy to your client’s facility.? In case the client’s location is on the route that one of your technicians takes while heading home, you can take advantage of this by giving them the task towards the end of their working day- thus clearing more of your backlog, sorting out your client, and easing your technician?s worries about getting home late.

As you can see, the field service scheduling software enables you to easily and efficiently handle your workflow, avoid the mess that is associated with manual documentation and cases of your employees getting conflicting schedules and overlaps- which would strain them and dampen their morale. Streamlining your workflow and standardising operations ultimately results in increased customer satisfaction.

How to Reduce Costs when Complying with SOX 404

Section 404 contains the most onerous and most costly requirements you’ll ever encounter in the Sarbanes-Oxley Act (SOX). In this article, we?ll take a closer look at the salient points of this contentious piece of legislation as it relates to IT. We?ll also explain why companies are encountering difficulties in complying with it.

Then as soon as we’ve tackled the main issues of this section and identify the pitfalls of compliance, we can then proceed with a discussion of what successful CIOs have done to eliminate those difficulties and consequently bring down their organisation’s IT compliance costs. From this post, you can glean insights that can help you plan a cost-effective way of achieving IT compliance with SOX.

SOX 404 in a nutshell

Section 404 of the Sarbanes-Oxley Act, entitled Management Assessment of Internal Controls, requires public companies covered by the Act to submit an annual report featuring an assessment of their company?s internal controls.

This ?internal control report? should state management’s responsibility in establishing/maintaining an adequate structure and a set of procedures for internal control over your company?s financial reporting processes. It should also contain an assessment of the effectiveness of those controls as of the end of your most recent fiscal year.

Because SOX also requires the public accounting firm that conducts your audit reports to attest to and report on your assessments, you can’t just make baseless claims regarding the effectiveness of your internal controls. As a matter of fact, you are mandated by both SEC and PCAOB to follow widely accepted control frameworks like COSO and COBIT. This framework will serve as a uniform guide for the internal controls you set up, the assessments you arrive at, and the attestation your external auditor reports on.

Why compliance of Section 404 is costly

Regardless which of the widely acceptable control frameworks you end up using, you will always be asked to document and test your controls. These activities can consume a considerable amount of man-hours and bring about additional expenses. Even the mere act of studying the control framework and figuring out how to align your current practices with it can be very tricky and can consume precious time; time that can be used for more productive endeavours.

Of course, there are exceptions. An organisation with highly centralised operations can experience relative ease and low costs while implementing SOX 404. But if your organisation follows a largely decentralised operation model, e.g. if you still make extensive use of spreadsheets in all your offices, then you’ll surely encounter many obstacles.

According to one survey conducted by FEI (Financial Executives International), an organisation that carried out a series of SOX-compliance-related surveys since the first year of SOX adoption, respondents with centralised operations enjoyed lower costs of compliance compared to those with decentralised operations. For example, in 2007, those with decentralised operations spent 30.1 % more for compliance than those with centralised operations.

The main reason for this disparity lies in the disorganised and complicated nature of spreadsheet systems.

Read why spreadsheets post a burden when complying with SOX and other regulations.

Unfortunately, a large number of companies still rely heavily on spreadsheets. Even those with expensive BI (Business Intelligence) systems still use spreadsheets as an ad-hoc tool for data processing and reporting.

Because compliance with Section 404 involves a significant amount of fixed costs, smaller companies tend to feel the impact more. This has been highlighted in the ?Final Report of the Advisory Committee on Smaller Public Companies? published on April 23, 2006. In that report, which can be downloaded from the official website of the US Securities and Exchange Commission, it was shown that:

Companies with over $5 Billion revenues spent only about 0.06% of revenues on Section 404 implementation
Companies with revenues between $1B – $4.9B spent about 0.16%
Companies with revenues between $500M – $999M spent about 0.27%
Companies with revenues between $100M – $499M spent about 0.53%
Companies with revenues less than $100M spent a whopping 2.55% on Section 404

Therefore, not only can you discern a relationship between the size of a company and the amount that the company ends up spending for SOX 404 relative to its revenues, but you can also clearly see that the unfavourable impact of Section 404 spending is considerably more pronounced in the smallest companies. Hence, the smaller the company is, the more crucial it is for that company to find ways that can bring down the costs of Section 404 implementation.

How to alleviate costs of section 404

If you recall the FEI survey mentioned earlier, it was shown that organisations with decentralised operations usually ended up spending more for SOX 404 implementation than those that had a more centralized model. Then in the ?Final Report of the Advisory Committee on Smaller Public Companies?, it was also shown that public companies with the smallest revenues suffered a similar fate.

Can we draw a line connecting those two? Does it simply mean that large spending on SOX affects two sets of companies, i.e., those that have decentralised operations and those that are small? Or can there be an even deeper implication? Might it not be possible that these two sets are actually one and the same?

From our experience, small companies are less inclined to spend on server based solutions compared to the big ones. As a result, it is within this group of small companies where you can find a proliferation of spreadsheet systems. In other words, small companies are more likely to follow a decentralised model. Spreadsheets were not designed to implement strict control features, so if you want to apply a control framework on a spreadsheet-based system, it won’t be easy.

For example, how are you going to conduct testing on every single spreadsheet cell that plays a role in financial reporting when the spreadsheets involved in the financial reporting process are distributed across different workstations in different offices in an organisation with a countrywide operation?

It’s really not a trivial problem.

Based on the FEI survey however, the big companies have already found a solution – employing a server-based system.

Typical server based systems, which of course espouse a centralised model, already come with built-in controls. If you need to modify or add more controls, then you can do so with relative ease because practically everything you need to do can be carried out in just one place.

For instance, if you need to implement high availability or perform backups, you can easily apply redundancy in a cost-effective way – e.g. through virtualisation – if you already have a server-based system. Aside from cost-savings in SOX 404 implementation, server-based systems also offer a host of other benefits. Click that link to learn more.

Not sure how to get started on a cost-effective IT compliance initiative for SOX? You might want to read our post How To Get Started With Your IT Compliance Efforts for SOX.?