Connections09 Manuel Coello

Copyright © 2009 ACL Services Ltd.

Audit Transformation

Manuel CoelloContinuous Monitoring Stanley Works

Copyright © 2009 ACL Services Ltd. 2ACL Global User Conference 2009

The story: How an Internal Audit Department was able to achieve +$1.5M in benefits with zero capital and the use of ACL

• $1.1M cash recovered through the Continuous Monitoring Program and special projects

• Transformed Internal Audit practices through the use of CAATTs

• Served as catalyst for driving “change”in the Company


Brief background

§ Stanley Works – Founded in 1843 and based in New Britain, CT– Manufactures Tools and Security Solutions– Grew revenue from $2.2B in 2003 to $4.5B in 2008 – 16,000 employees worldwide


ACL was used to deliver unprecedented audit value

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CONTINUOS MONITORING

INTERNAL AUDITSSPECIAL PROJECTS

Payments

Payroll

Travel Expenses

Introduce CAATTs

Performed off-field work

Vendor Litigation

Government compliance


Spent time crafting a master plan


Continuous Monitoring – Vendor Payments

1. By two different systems

2. By two different businesses

3. To two different vendors

The “Two” tests:

Same invoice paid:

1. Same invoice number and vendor number but different date2. Same amount, vendor and date

but different invoice number3. Same vendor and date and

similar amount

The “Typo” tests:

Per 2002 benchmark study by IOMA:

1.6% of vendor payments are erroneous

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Challenges:Ø 9 different systems/

large volume of dataØ Info in different tablesØ Unsure of what to test

ACL Solution:Ø Import large files Ø Duplicate functionalityØ Join/Relate TablesØ Repetition through

scripts


Aggressively focused on remediation


Continuous Monitoring – Payroll

ACL Solution:Ø Merged 52 payroll files into one ACL fileØ Filtered false positivesØ Cross-tab/summary/analysis

1. Payment beyond termination dates

2. Multiple changes in rate

3. Excessive overtime

4. Multiple or unusual bonuses

5. EE with both merit increases and

lump sum merit increases

Unusual Transaction Tests:1. Duplicate EE/similar names

2. Salaried EE without email

3. EEs with same bank account but different last name

4. EE and vendor with same address, bank account or Tax ID/SSN

5. Hourly EE with “regular” as only earnings

Suspicious Employees Tests:


Internal Audit - CAATTs 2008 Report to the Nation on Occupational Fraud & Abuse:Typical U.S. organization loses 7% of its annual revenues to fraudulent activity

1. Suspicious invoice sequence2. Benford Law3. Payment for even multiples4. Segregation of duties 5. FCPA

Fraud/Risky Areas1. Collectability analysis2. AR/Inventory write-offs3. Excess and obsolete4. Journal Entries 5. Data Analysis (Subledgers)

Analysis

1. Invoices falling below approval limit

2. FA useful lives3. Customer credit limits4. Sales price overrides 5. Completeness of Master Files

Compliance1. Vendor/Customer terms2. Purchase of unneeded material 3. Purchase price history4. Aged open PO / shop orders5. P-cards and T&E

Operational

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Summary

§ Looking back– Results were achieved that seemed impossible– Internal Audit has created value above and beyond the typical control

recommendations– The paradigm is changing that auditors are here to hurt us

§ Looking forward– Taking the project to the next level by acquiring upgraded technology and

reengineering the audit processes– Bringing the Continuous Monitoring program to Europe– Training department staff in ACL “all-team-effort”

Connections09 Manuel Coello

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