Is technology that targets fraud the future of audit?
In this session, there were some great discussions around:
- How quickly audit firms have shifted their ways of working
- What went wrong in the high-profile Wirecard and Luckin Coffee frauds
- How data analytics and technology can reduce fraud
- What auditors need to know and how they can prepare for the unexpected
If you missed the live session, you can watch the full video on demand below:
How quickly audit firms have shifted their ways of working
A recent Account Today survey found that just over half of audit firms in the US have some or most staff working remotely. Auditing remotely is not a new concept; however, just as companies
had to adjust to employees working fully remotely, auditors too needed to quickly adapt their audit procedures and communications to fulfil their obligations while working completely remote, all pretty much overnight.
The survey also showed that firms had some challenges to overcome but were fairly equipped to continue to serve their clients remotely. Many audit firms were already exploring the possibilities of remote working, as many industries are, but the pandemic accelerated the move towards digital service delivery.
Globally across Inflo and Confirmation we have seen firms adapt quickly to the changes COVID-19 has presented.
There are four common challenges we are hearing from firms globally:
- Digital service delivery
For some, the move to digital has been challenging while others have been agile enough to adapt, but the unprecedented scale and speed of the situation has been without a doubt difficult. Productivity and project management is very different when teams are not physically together. Audit processes have adapted, as clients are working remotely, and firms have worked hard to ensure quality of work is not impacted. There has also been a concern for wellbeing of staff. Firms have been busier than ever guiding and supporting clients through challenging times with the mental health and well-being of staff being high on the agenda for firms, helping staff adapting to this ‘new normal’ we all find ourselves in.
This is a topic we discussed in more detail on a recent webinar, you can watch the ICAEW webinar on demand now – Accelerating Digital Transformation in Compliance & Advisory Services.
How a pandemic could potentially increase the likeliness of fraud
Looking at how we are going to audit remotely and work remotely, we must think what in this new environment can be manipulated so that we miss a fraud?
We have seen this story in several cycles, many emerging during a downturn. The large frauds have been going on for several years. When they economy is good, and cash is accessible – either through equity or debt financing, it is easier to continue to perpetrate financial fraud. When you have a downturn in the economy and those cash capabilities tighten up – that’s when frauds begin to unravel – fraud relies on continued access to capital.
When you have a tightening of the economy such as 2000-2001, 2009 -2011 and today, that is when frauds come to light due to reduced capital. There will likely be an increase in frauds that come to light over the next 18-24 months as founder of Confirmation, Brian Fox discussed in this CNN article.
Both Mark and Brian spoke in detail about two high-profile frauds in particular:
Wirecard: The German payments company, Wirecard revealed auditors could not trace €1.9bn supposedly held in escrow accounts at two Asian banks. Wirecard claimed that the cash probably does “not exist”. Regulators, including the German banking regulator were slow to act and in fact primarily focused their enquiries into the whistle-blowers and short sellers of Wirecard stock, rather than Wirecard themselves.
Luckin Coffee: Expanded to take on Starbucks in China and attracted big-name investors like Blackrock and Singapore’s sovereign-wealth fund. On April 2, the Nasdaq-listed Chinese chain announced an ongoing internal probe amid allegations that its chief operating officer and other employees may have fabricated over 2bn yuan ($280m) in sales.
Mark and Brian also looked at the availability of information, how the frauds were perpetrated and what role technology plays in identifying fraud.
What auditors need to know and how they can prepare for the unexpected
Auditors have a significant part to play in fraud detection and firms need to get serious about their responsibility in finding fraud, especially in current remote working conditions.
This sentiment was reflected by our audience, with 62% of them agreeing that auditors should have a greater responsibility in detecting fraud.
Firms should be looking at their technology – fraudsters are some of the earliest adopters of technology, looking to stay one step ahead of authorities and auditors. Firms need to look at tools that can be used to strengthen controls.
How important is the quality of data?
In the world of data analytics, the focus is on the reporting and dashboards created from the data. To get to that point the data needs to be clean and accurate.
Traditional data collection methods with clients are susceptible to fraud. In Inflo, data can be extracted from accounting system or a backup of the system – no room for tampering or alteration of data – no need to spend time checking for accuracy or completeness.
In a second poll at this event, we asked the same audience – how extensively are you using data analytics in your audit? Over 50% stated it is being used on risk assessment journals and other testing. 12 or 24 months ago This figure may have looked very different 12 or even 24 months ago demonstrating that firms are adopting technologies which can only be considered a positive trend.
Better technology at your fingertips
Both Inflo and Confirmation were created to level the playing field and bring technology to not only the Big 4 but firms of all sizes.
Inflo is a cloud-based digital audit solution that provides financial data analytics and AI technology allowing auditors and accountants to deliver more valuable and efficient service to their clients.
Confirmation is a secure, online platform that allows auditors to control the audit confirmation process from start to finish. It allows banks to respond quickly and accurately to those audit requests.
If you would like more information about any of the topics in this article or would like to discuss how you can get started today for free, please fill out and submit the form below.