Top 25 Analytic Test for Every Organization: Test 1 – Suspicious Journal Entries

2013-02-01

By Dan Zitting
Earlier this month, AUDITMAN Dan Zitting shared some insight on the Rules and Tools for effective auditing in Top 25 Analytics Tests Your Organization Should Use, today he shares Test #1 – Suspicious Journal Entries.

When auditing, where else would we start than right in the guts of things, the general ledger. If I can’t find something interesting in the GL to talk about with management, I consider myself a failure as an auditor. So here is one suggested way to get quick and dirty with the journal entries and find at least that next topic of discussion:

RISK: Posted entries may not be authorized or valid.

TEST: Identify any journal entries containing descriptions that could indicate an invalid or suspicious entry.

TEST STEPS:

1. Obtain a dump of all the journal entries from within the audit period you want to review.

       – Get it from someone in IT responsible for your ERP or core financial system.
       – Get it in a delimited text file format, quicker to import into your analysis tool.
       – Include all the key fields, but in particular things like description, date, amount, employee ID, account, etc.
       – *Hulk smash* if IT gives you any trouble – getting the data for this test should actually be quite easy to do.

2. Import the JE data into ACL Analytics using the import wizard.
3. Filter on the description field for “hot button” words that might indicate a fraudulent, brain-dead, or otherwise suspicious entry.

       – Examples: “per [X person]“, “to correct”, “error”, “adjust”, etc.
       – Get creative and think about those words that might be specific to your organization.

4. Consider further refining the results by identifying suspicious descriptions based on the accounts being posted to:

       – Example: “land” or “building” showing up in the description field for a short-term asset account.

5. For the exceptions identified, review with management.

EXPECTED RESULTS: You should definitely find some fun entries in any reasonably sized organization. Listen carefully in the discussion. You will certainly identify either errors, fraud, or (at least) the next thing you should have a look at!

Find out more: ACL Blog