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

 

Spreadsheet Risks in Banks

 

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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How DevOps oils the Value Chain

DevOps ? a clipped compound of development and operations – is a way of working whereby software developers are in a team with project beneficiaries. A client centred approach extends the project plan to include the life cycle of the product or service, for which the software is developed.

We can then no longer speak of a software project for say Joe?s Accounting App. The software has no intrinsic value of its own. It follows that the software engineers are building an accounting app product. This is a small, crucially important distinction, because they are no longer in a silo with different business interests.

To take the analogy further, the developers are no longer contractors possibly trying to stretch out the process. They are members of Joe?s accounting company, and they are just as keen to get to market fast as Joe is to start earning income. DevOps uses this synergy to achieve the overarching business goal.

A Brief Introduction to OpsDev

You can skip this section if you already read this article. If not then you need to know that DevOps is a culture, not a working method. The three ?members? are the software developers, the beneficiaries, and a quality control mechanism. The developers break their task into smaller chunks instead of releasing the code to quality control as a single batch. As a result, the review process happens contiguously along these simplified lines.

Code QC Test ? ? ?
? Code QC Test ? ?
? ? Code QC Test ?
? ? ? Code QC Test
Colour Key Developers Quality Control Beneficiary

This is a marked improvement over the previously cumbersome method below.

Write the Code ? Test the Code ? Use the Code
? Evaluate, Schedule for Next Review ?

Working quickly and releasing smaller amounts of code means the OpsDev team learns quickly from mistakes, and should come to product release ahead of any competitor using the older, more linear method. The shared method of working releases huge resources in terms of user experience and in-line QC practices. Instead of being in a silo working on its own, development finds it has a richer brief and more support from being ?on the same side of the organisation?.

The Key Role that Application Program Interfaces Play

Application Program Interfaces, or API?s for short, are building blocks for software applications. Using proprietary software-bridges speeds this process up. A good example would be the PayPal applications that we find on so many websites today. API?s are not just for commercial sites, and they can reduce costs and improve efficiency considerably.

The following diagram courtesy of TIBCO illustrates how second-party applications integrate with PayPal architecture via an API fa?ade.

Working quickly and releasing smaller amounts of code means the OpsDev team learns quickly from mistakes, and should come to product release ahead of any competitor using the older, more linear method. The shared method of working releases huge resources in terms of user experience and in-line QC practices. Instead of being in a silo working on its own, development finds it has a richer brief and more support from being ?on the same side of the organisation?.

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The DevOps Revolution Continues ?

We close with some important insights from an interview with Jim Stoneham. He was general manager of the Yahoo Communities business unit, at the time Flickr became a part. ?Flickr was a codebase,? Jim recalls, ?that evolved to operate at high scale over 7 years – and continuing to scale while adding and refining features was no small challenge. During this transition, it was a huge advantage that there was such an integrated dev and ops team?

The ?maturity model? as engineers refer to DevOps status currently, enables developers to learn faster, and deploy upgrades ahead of their competitors. This means the client reaches and exceeds break-even sooner. DevOps lubricates the value chain so companies add value to a product faster. One reason it worked so well with Flickr, was the immense trust between Dev and Ops, and that is a lesson we should learn.

?We transformed from a team of employees to a team of owners. When you move at that speed, and are looking at the numbers and the results daily, your investment level radically changes. This just can’t happen in teams that release quarterly, and it’s difficult even with monthly cycles.? (Jim Stoneham)

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ISO Certification and Training

Overview

ISO, or the International Organisation for Standardisation, is a global standard-setting body, made up of a network of various standards organisations from among its 162 member-nations. ISO is a vital force in the manufacturing industry, promoting industrial and commercial global standards for specifications and requirements in materials, products, procedures, information, and quality management.

ISO Certification

For a company, an ISO Certification:

? Is an assurance that the organisation, has met the required management of processes and documentation.

? Provides standards on how businesses and organisations manage information and processes;

? Does not impose any regulations;

? Is not like a license that allows a business or company to operate.

Rather, an ISO Certification merely certifies that a management system, a manufacturing process, or an offered service has all the elements for quality assurance and the capability to compete in the international market.

That said however, an ISO Certification is still vital to most businesses because it brings them up to par with global standards. For instance, in many industries, contracting companies are required ISO 9001 certification, and some government contracts, such as in the oil industry or medical technologies, depend largely on ISO 9001 compliance. Most ISO Standards are specific to different industries, processes, and products, but ISO 9001 is a management system standard that can be applied to any company.

ISO 9001

ISO 9001 is unarguably, one of the most established Quality Management Systems program in the world today that can be a useful tool for any organisation. ISO 9001 Standards is currently the recognised standard not only for quality management systems, but management systems in general, ensuring quality in all aspects ? products, services, and documentation.

Any company, regardless of size or sector, aiming to improve its operations and management, would do well with an ISO 9001 Certification, especially if the organisation is prepared to implement the standards throughout the entire organisation and not just in particular departments or divisions.

Find out more about our Quality Assurance services in the following pages:

Total Quality Management

Failure Mode and Effects Analysis

Six Sigma

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Saving Energy Step 1 ? Implementing a Management System

There has been much hype down the years regarding whether management is art or science. Thankfully, where people are concerned the pendulum has swung away from standard times in sweatshops in the west. However, when it comes to measuring physical things like harvest per square meter and the amount of energy consumed there is no substitute for scientific measurement, and this implies a system.

Managing energy cost and consumption down is like any other strategy. American engineer / statistician / management consultant W. Edwards Demming may have passed on in 1993. However he was as right as ever when he said:

  1. When people and organizations focus primarily on quality, this tends to increase and costs fall over time.
  1. However, when people and organizations focus primarily on costs, costs tend to rise and quality declines over time.

Demming believed that 90% of organizational problems arise from systems we put in place ourselves. This can be because we are so accustomed to them that we fail to notice when they are no longer relevant. The currently prevailing laissez faire towards energy is a case in point. What is managed improves and what is not, deteriorates. We know this. Let us take a look at how to apply this principle to energy management.

First, you need to get the subject out the closet and talk about it. How often do you do this is your boardroom, and how does energy rank against other priorities? Good governance is about taking up a position and following through on it. Here is a handy checklist you may like to use.

  • Do we use a consistent language when we talk about energy? Is it electricity, or carbon emitted (or are we merely fretting over cost).
  • How well engaged are we as a company? Looking up and down and across the organization are there points where responsibility stops.
  • How well have we defined accountability? Do we agree on key performance areas and how to report on them.
  • Are we measuring energy use at each point of the business? When did we last challenge the assumption that ?we’re doing okay?.
  • Have we articulated our belief that quality is endless improvement, or are we simply chasing targets because someone says we should.

A management system is a program of policies, processes and methods to ensure achievement of goals. The next blog focuses on tools and techniques that support this effort.

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