Process audit transformation through digitization

Posted by Prof. Dr. Nick Gehrke on Oct 25, 2016 5:00:00 PM

Part II of the series "Digitization of auditing SAP purchase processes"

The digitization of auditing does not mean employing new software tools as part of the already existing audit approach, but it also impacts the auditing process itself. The audit function as wll as the audit approach of internal audit as well as the external auditors will have to change! This is precisely the obstacle which currently slows or prevents audit digitalization.

In this blog post I would like to introduce how auditing of the purchase to payables processes will undergo changes in the framework of digitalisation.

  1. Digitization of auditing SAP purchase processes
  2. How process auditing is transformed through digitization
  3. Automated auditing of SAP master data
  4. Auditing of purchase orders and goods received
  5. Invoice auditing in SAP
  6. Just pay it twice: auditing payments in SAP
  7. The search for exotic processes
  8. Segregation of Duties in the SAP purchase process
  9. SAP data structure for the purchase to payables process
  10. The end of digitization - professional judgement in procurement

 

Classic process auditing

During a classic process auditing the auditor has to survey the purchase process. This often happens by means of interviews related to the evaluation of existing process documentation. Subsequently, one can further reflect on risks during the purchase process and the internal control system and can test the internal control system extensively. 

This traditional approach is very time consuming and often the purchase process is only understood the way it should unfold in theory. Actual deviations in the process are not always identified.

 

Data-based process auditing

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Modern auditing of purchase processes is supported empirically by actually existing data in the SAP system. Through intelligent algorithms the purchasing processes can be reconstructed from SAP data. Subsequently, weaknesses in the processes can be identified by means of data indicators which can be allocated to the different process steps.

  • First, the actual processes are determined algorithmically.
  • Then, through data analyses, process weaknesses are identified which point to shortcomings in the internal control system. This happens by means of so called indicators which, in each case, represent one auditing question.

In the past years, I have studied such a digital approach within the Virtual Accounting Worlds project which had been sponsored by the German Federal Ministry of Education and Research (BMBF).

 

Financial Process Mining

Before we get at the different indicators, first a few remarks on the audit approach that I have studied many years and which is implemented meanwhile.

Before the various data analyses are conducted, all processes that led to a single entry in the financial statements need to be reconstructed. Amongst these are also all processes related to purchase. This procedure is performed by means of the Financial Process Mining algorithm. The Financial Process Mining algorithm finds all processes in your SAP system by segmenting related receipts successively until the process has finished.

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Give it a try: Financial Process Mining

Receipts are considered as related when a receipt has balanced the open item of another receipt. This way goods receipt are often balanced through the incoming invoice and the incoming invoice through the associated outgoing payment.

The Financial Process Mining algorithm, in such a case, jumps from the goods receipt to the associated invoice and then to the associated payment. These three receipts are then in a so-called sequence. All sequences are then reconstructed for the indicator analysis.

You may find the original function of the Financial Process Mining algorithm in my essay "Basic Principles of Financial Process Mining - A Journey through Financial Data in Accounting Information Systems".

After all the receipts of the accounting system were found in the sequences, orders and order requests as well as all change documents are added to the sequences.

 

Dragnet investigation

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Give it a try: SAP Dragnet

After all sequences were reconstructed by the Financial Process Mining algorithm the so-called dragnet investigation is performed.

Dragnet investigation means that every SAP document is tested whether it has “triggered” an indicator or not. If an indicator is relevant to a document, the indicator is attached to that document.

The sequences connect all tested documents. Therefore, it can be determined by means of the dragnet investigation whether a sequence “suffers” from several indicators. This way significant combinations of applicable indicators emerge within your SAP processes.

 

Purchase indicators

Altogether I have designed and implemented 45 indicators for the purchase process. You can download the details about all purchase indicators here.

Download pdf

 

Topics: indicator, dragnet, SAP, Audit, Process Mining

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