Written by Kimberly Taylor,

A little over five years ago, I was a brand new internal auditor to local government. In evaluating some of my recent workpapers and reviewing my previous workpapers, I was amazed at how much I had learned in the past few years. Those things such as ticking and tying, networking, and recalculating your work that are now second nature to me in auditing. I once considered them a waste of time early in my auditing career. It did not take long to realize the extra time spent on tidying up your workpapers or building relationships paid off big in the long run…especially when you had to answer questions about your work or seek input from other auditors. The most valuable techniques in auditing are also the most basic techniques. Once they become a matter of habit, integrated into workpapers or your relationships, your proficiency as an auditor greatly increases.

Ticking and Tying

A simple question like, “Where did that number come from?” can result in unnecessary hours of searching workpapers without the valuable step of ticking and tying your work. Ticking and tying has also proven to me to be the best way to find mistakes in complicated calculations or finding when numbers are inadvertently transposed. In my first few years as an auditor, it would sometimes take hours for me to find the answer to the question, “Where did that number came from?” If I had taken the time to tick and tie my work, I could have answered the question in fifteen minutes or less. Numerous review comments would come back to me to tie numbers from my conclusion back through the working papers. I would then find mistakes where numbers were transposed or on the wrong line. At any point in time during the audit, any conclusion, graph or calculation should easily be able to be traced from the conclusion through the calculation process to the source documentation.

I recently had the experience of analyzing about four years of financial statements from a company outside our government. It was a contract where the County got a certain percent of revenue as compared to the vendor’s revenue. The conclusion in the comparison was that the vendor had underpaid the County. Throughout that process, there was a separate workpaper for each year that was analyzed and calculated then placed into a summary workpaper that contained all four years. A meeting with the vendor was inevitable to discuss the differences between our calculated payment and payment received. By this point in my career, I had learned the lesson of ticking and tying. Every number on each year’s workpaper was traced to the original financial statement from the vendor, and the summary workpaper was traced to the yearly workpaper with calculations. The question, “Where did that number come from?” came up several times in our face-to-face meeting. Within minutes, I was able to show the vendor his original financial statement with the number traced and also the workpaper with the yearly calculation. Had I not been able to answer that simple question, negotiations to recoup the underpayment would not have been nearly as efficient.

Recalculating Your Work

Dictionary.com defines recalculate as “to calculate again, especially in order to eliminate errors or to incorporate additional factors or data.” It is amazing sometimes how you can run three different tapes on the same set of numbers and get three different totals. Whether it be footing or cross-footing, recalculating your work is an invaluable auditing tool. There are different ways of footing and cross-footing. The biggest lesson I have learned in relation to recalculating your work is that you can’t rely on your spreadsheet formulas being accurate until you have done some recalculations to verify they are accurate. There is always the manual way of running a tape on a calculator to check your work. This technique works well on a small set of numbers when checking your formula in a spreadsheet. Many times, a formula in a spreadsheet may inadvertently leave out a cell that makes your entire calculation incorrect. The disadvantage to a tape in today’s environment is that many use electronic workpapers and this tape is not electronic. Many times I will have a long set of numbers someone has given me that I need to recalculate. My preferred method over running a tape is to data enter these numbers into a spreadsheet and utilize the sum function. That way, if I type in the wrong number on the list of numbers, I can simply correct where the problem is and not have to re-run another tape or back out the mistyped number and add in the correct number.

We all know that ‘Formula A’ below comes up with quite a different answer than ‘Formula B’ below. If the answer you were looking for was ‘Formula B,’ a simple manual recalculation on the calculator would catch that your formula was not formatted correctly.

Formula A: A1 + B2 * C1

Formula B: (A1 + B2) * C1

All recalculations can be done electronically as long as you are sure you are recalculating and not just copying and pasting from one place to another. In other words, copying Column A into Column B with formulas and all other formatting is nothing more than a copy and paste. An actual recalculation would require copying the range of data cells from Column A and pasting as Text into Column B, then manually creating a formula for the recalculation as needed. This way, the whole new data set is being calculated again.

Relevant and Reliable Audit Tests

A relevant audit test is an audit test that directly relates to the matter at hand. A reliable audit test is one where you can depend on the audit test to confirm the audit step in your audit program. Every audit test should be both relevant and reliable.

For example, your audit step is to verify the amount of cash reported on the financial statement. A relevant audit test would be to verify the amount of cash on hand by receiving a confirmation from the bank as to cash in the bank on the same day. Depending on whether the company is cash basis or accrual basis, you may also need to perform some calculations adding or subtracting debits and credits from that number. A non-relevant audit test would be to trace the deposits in the general ledger to the deposits on the bank statement. The latter test would be relevant to assure the accuracy of the amount reported for cash receipts, but in no way would help you verify the amount of cash in the bank on a certain date.

A reliable audit test would be one in which you know you could rely on the source. Notice in the previous example, the source of the amount of cash in the bank was the bank and not the client. Another example would be that you are trying to verify the completeness and accuracy of cash receipts reported on the financial statement. Tracing cash receipts from the general ledger to the bank statement would verify accuracy of the cash receipts, but in no way would we be able to rely on that audit step to verify completeness of the cash receipts amount reported. A reverse sample tracing deposits in the bank to the cash receipts reported in the general ledger would also need to be performed to verify completeness. On many audit steps, in order to rely upon the results, samples need to be performed in both directions to ensure completeness and accuracy. An even more reliable audit test for verifying cash receipts would be to recalculate them based on the amount of deposits in the bank for the time period in question.

Networking

The importance of networking cannot be overstated. Networking with your peers builds invaluable relationships with individuals that can provide advice later down the road, and greatly increases response rates for requests for information whether internal or external.

In relation to external benchmarking, it is human nature to provide information to someone you have met or built a working relationship with. When I request information for benchmarking purposes, the response rate is generally much quicker with individuals that I have met. In addition, if you have a relationship with an internal audit peer, (he or she is more apt to follow up with management when benchmarking results are not received.

In addition to benchmarking, our peers are great sounding boards for auditing advice. I recently had the experience of auditing an area I have never audited before. This was a new area for our office as well. I had the opportunity to attend a local meeting and ask several of my peers how they performed this particular audit step. I received great advice that saved me hours of research on the correct way to perform this audit step.

It is also invaluable to network with other departments within your organization. Taking the time to get to know the individuals you are auditing and building a professional relationship with them assists with the whole audit process. The same is true with benchmarking. When an auditee has a professional relationship with you, they are much more likely to quickly provide the data you need than if you are just another phone call requesting information from them. If the relationship is more professional than adversarial, the auditee will be more apt to cooperate and provide you the information you need. You may find that if you take that extra few minutes to have a conversation during the auditing process, the auditee may provide you with more information than what you were initially requesting.

Other relationship examples include networking with individuals in users group. My specific example is the Virginia ACL Users Group. At the time this was a brand new group in Virginia and, about 18 months ago, I knew very little about using ACL. The program was not intuitive to me, and I had a lot of trouble getting my mind thinking the way this program operated. By going to the local meetings, I met individuals who, compared to me, were experts in utilizing the program. We exchanged business cards, and I received lots of “how to” advice on how to think through audit steps. In addition, when participating in meetings, individuals who knew how to use the program were more than willing to offer suggestions on ways to complete audit steps using ACL. If it had not been for this networking experience, my abilities using this program would not have progressed nearly as quickly due to the expense of the training associated with this program.

I have seen many examples of networking working well within ALGA. Some of the examples of networking with the most impact that I have seen are associated with the closure or non-closure of audit shops. ALGA has a great advocacy group, and when an audit shop cries out for help, they step right up to intercede and provide advice. I have also had the privilege of seeing or knowing about conversations among auditors of how to handle the many political struggles associated with internal auditing. It is invaluable for audit shops to learn who their local peers are, build relationships with them, share audit programs and provide moral and political support when necessary.

In summary, networking is more than just going out and having a social cup of coffee. It is an invaluable support system among the internal audit shops across the country. Being a more task-oriented person, it takes a lot of effort for me to participate in the small talk. However, the payoff in building my audit skills has been much higher than the cost associated with the five minutes I’m focusing on an individual instead of “punching that number.”

Attitude

Our attitudes are communicated through words, internal thoughts processes and body language. Our attitude can be positive or negative. We can have an open attitude or a closed attitude. All this information is communicated to the auditee in many ways. As auditors, we have a professional responsibility to report our findings. However, our attitude many times conveys how those findings are reported.

First, our internal attitude. Our internal attitude affects how we view a situation. A situation like taking care of a pet for a family member. You can communicate that you get to go see “puppy” tonight. Or, you can communicate that you have to go let the dog out. The task is identical, but the presentation is completely different.

My disclaimer is that this information will not necessarily apply to a fraud investigation. If you get up each morning expecting to have a political battle, then you will be prepared for battle with your auditee. However, if you expect to positively build a relationship to help your co-worker overcome the challenges in government, your communication will come across to the auditee in a much different way. What is our mindset associated with a political battle? We tend to be more on the offensive or defensive, and we will win the war when our data is provided to us and we write up our audit finding. However, an attitude of building a relationship to overcome the challenges in government will present a much different approach. Both situations are the same, but the difference is in the way you view the situation. First, you show respect for the auditee and appreciate their position. Then, you request the data and present the finding in a way that builds relationships instead of tearing them down. While the finding will be identical, the auditee is more likely to implement the recommendation that was obtained through a more teamwork approach than a political battle approach. And, it will make your next audit in that area a little easier.

Our body language can also communicate our attitude. I have a really bad habit when I’m cold of crossing my arms. The extreme temperature differences in our buildings causes me to not know what to wear each day depending on which department I’m visiting. One department may be 60 degrees while another may be 80 degrees. When I find myself crossing my arms due to being cold, I find the communication quickly changes when I relax and ignore the fact that I am cold. So, while intended or not, our body language communicates an attitude to the auditee which can be open or closed. The auditee also knows if you are really interested in what they have to say or if you are just going through the motions. This is also affected by the attitude with which we approach our work.

As auditors, we must be aware of the attitude we are communicating during the audit process. As a new auditor, I thought everyone was suppose to be cooperative. I quickly learned there are many levels of cooperation, as there is with any occupation. However, in auditing, cooperation very much affects our daily work and ability to obtain data or finish audits in a timely manner. An open, positive attitude communicated to the auditee will go a long way to accomplishing the results we’d like to see as auditors.

Conclusion

In conclusion, the technical skills associated with auditing are varied and complex. However, many of the most important skills on a daily basis are also the most basic. These basic skills include ticking and tying, recalculating your work, relevant and reliable audit tests, networking and having a positive attitude. Learning to use the basic skills on a consistent basis will go a long way to consistently improving our daily performance on the job and improving our ability as auditors.

{mos_sb_discuss:7}

Users' Comments

Average user rating