Increasing audit efficiency
Process Mining in effective controls monitoring
Author: Katharina Laumann, Content Manager and Editor at PAF
The information hidden in existing data in enterprise systems can serve as audit evidence when performing control testing or other audit procedures. Process Mining supports auditors, especially in internal control testing, by finding and visualizing this information.
The Importance of Control Monitoring
There are countless cases each year in which companies lose millions due to control deficiencies, fraud, and misconduct. The most serious cases make the news, but less serious cases also occur frequently.
All these incidents have in common that they are the result of a weak internal control system. They underscore the importance of internal control for the success of a company.
The aim of internal control is to increase operating efficiency, to ensure compliance with current laws and regulations, and to improve the reliability of financial reporting.
Effective internal controls provide assurance that an organization is operating in accordance with corporate policies, industry standards, and legal requirements.
The objective of control monitoring in auditing is to determine whether internal controls are sufficient to detect or prevent risks of significant misstatement or misbehavior.
Internal auditors play a key role in any organization’s internal control system. They are responsible for verifying that internal controls are both in place and being properly implemented and monitored.
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Controls Monitoring with Process Mining
Process Mining enables auditors to assess the effectiveness of internal control systems quickly and based on data. The technology replaces many manual audit procedures, such as recreating transaction flows or sample testing controls. Instead of these time-consuming manual approaches, Process Mining provides auditors with a detailed walkthrough of all the transaction cycles, thereby increasing audit efficiency and effectiveness.
Typical areas where Process Mining assists auditors are completeness of records, accuracy of records, compliance with rules, and occurrence of anomalies.
Example P2P Process
Looking at a P2P process, that is standard in most organizations can illustrate exactly how Process Mining supports auditors.
Completeness of Records
- Are there purchases that were received but not recorded as purchases?
Accuracy of Records
- Are there purchase amounts that were not properly recorded? Are there missing or incorrect invoices? Mismatches between invoice and payment? Account imbalances? Double payments due to incorrect documentation?
Compliance with Rules
- Do people comply to the segregation of duty? Are there unauthorized purchases or purchases that were not authorized correctly (for example by skipping required approval levels)?
Occurrence of anomalies
- Are there conformance or compliance violations that occur regularly at the same step? Are there anomalies with regards to a specific order volume, plant, vendor etc?
All these questions and their answers indicate if internal controls are effective, where there are areas of improvement or even real gaps. Auditors also directly obtain the visuals that they need to communicate their findings, backed up by factual data. This heavily increases audit efficiency as it helps auditors and companies to reliably identify the most urgent areas for risk management, improvement, and redesign. At the same time, it enables the identification of the most effective methods and strategies.