Today, I continue my exploration of data analysis with Joe Oringel, co-founder and Managing Director of Visual Risk IQ, a consulting firm that helps audit and compliance people see and understand their data. Today, we look at how to set up a data analysis program and how to use it to help monitor for a compliance program.
I asked Oringel how he helps clients think through a project that involves data analytics. As a lawyer, I was intimidated by the issues of not only how to get the data but how to use it going forward. Oringel then laid out their firm’s five-step process and said that for any Visual Risk IQ analytics project, the steps are: (1) Brainstorming, (2) Acquire and Map Data, (3) Write Queries, (4) Analyze and Report, and (5) Refine and Sustain.
Step 1 – Brainstorming
It all begins with Step 1, brainstorming. Any data analysis project in a compliance setting, or any business context, begins by picking the business questions to answer with data. So in an initial meeting, Visual Risk IQ’s team might ask one or more of the following opening questions: What do we expect to find if we do a detailed review of this data? What policies should have been followed? What would a mistake or even fraud look like? The data to be reviewed could be expense reports, accounts payable invoices, or sales contracts. The key to successful brainstorming is to identify the questions you want to ask and answer, and then identify the digital data sources that can best answer these questions. This process should be iterative, with questions being refined based on the available sources of digital data. This brainstorming process that Oringel and his team uses is central to their work with helping clients to develop queries specific to their organization.
Step 2 – Acquire and Map the Data
Acquiring and mapping data can be a technical step, but most modern software can create files that can be easily read by basic data analysis software, such as Microsoft Excel, as well as more advanced tools. Mapping data is simply identifying, naming, and categorizing the data fields (e.g. text, dates, numbers) so that the software tool can best interpret the data for analysis. Many data sources are internal (e.g. sales or expense transactions) but increasingly external sources from vendors and business partners are used too. Even the US Government is an occasional data source for analytics, as various Federal Departments publish watch lists of debarred individuals and companies.
Once the data is loaded into the analysis tool, control totals should be compared to source systems for completeness and accuracy. Oringel recommends comparing record counts, grand totals, and even selected balances for a sample of records to make sure that nothing was lost in translation into the data analysis tool. Once data is confirmed to be complete and accurately loaded and mapped into the analysis tool, then the real fun can begin.
Step 3 – Writing the Queries
Oringel identified Step 3 as writing the queries. Though it can be valuable to double-check the accuracy of reports that are provided from existing internal and external systems, Oringel recommends using data analysis to answer questions that are not readily reported from internal systems. Often comparing data across multiple data files can yield the most interesting results.
While writing queries surely sounds technical, it can be quite simple. Sorting data from oldest to newest or biggest to smallest is often only a few clicks of the mouse. Once sorted by several different columns, business insights can be quick. Writing queries is simply writing the business questions you laid out in the brainstorming session, and using software in a way that makes it easy to understand the answers.
A simple example would be “Show me any purchasing transaction that didn’t have the proper pre-approval.” This answer can be identified by comparing the dates between purchase orders and invoices, and then looking for any vendor invoice date that is prior to the purchase order date. Other query techniques are similarly simple, yet effective.
Step 4 – Analyze and Report Results
Oringel said that Step 4 is to analyze and report the results. I have wondered how a compliance practitioner would be able to not only view but then use such information. He said that Visual Risk IQ’s tagline comes from this notion. “See. Analyze. Act.” has been a part of their firm since 2006. By summarizing results in a way that measure something important, an action step becomes apparent. In the example above, if a vendor’s invoice date pre-dated its purchase order then the action step is to understand if the date it was received may be later than the date on the document itself. Perhaps the vendor has backdated that invoice in hopes of earlier payment, instead of our purchase order having been created after the fact to cover up the lack of required pre-approval.
Oringel recommends summarizing the results of data analysis into visual form, for example by showing color, size, and location in a graph, so that the compliance practioner can understand what has happened, quickly see the data and conclude whether the picture supports a decision of whether the transaction was or was not compliant.
Step 5 – Refine and Sustain
That brings us to Step 5, which Oringel identified as refine and sustain. Part of this step is about about fixing the root cause of any problem identified through data analysis. I certainly believe one of the key functions for any compliance practitioner, and one of the first things you should do, is to make sure any violations of your policies and procedures do not move to an illegal conduct stage.
Yet there are other remedial steps that Oringel believes are critical at this stage. He said that when a condition or transaction is identified as being a potential issue, documenting the next action step and ensuring its proper completion is important. If an employee incorrectly submitted a personal or duplicate expense (e.g. they claimed $20 for a lunch yet they were listed as having attended a lunch paid by someone else on the same day) and they were reimbursed for a personal expense on a travel expense trip report, then the organization should ask for reimbursement of that expense and ensure thorough follow-up.
Consistent action when these circumstances arise is important. Seeking and obtaining reimbursement for improper expenses should not be based on whether the employee is an officer or a manager or an individual contributor, or even the amount of the error.
I turn briefly to the COSO Framework, which was updated in 2013 and became much more prescriptive with respect to the elements of an effective internal control program. There are five objectives under the COSO Framework and the fifth and final objective is monitoring activities. Monitoring activities are those that management should perform to ensure that the control environment, risk assessment, control activities, information and communication layers have been affected.
The only way that I know to make sure that the principles of effective internal controls have been followed are to do some monitoring. Oringel turned to one of his favorite subjects for an analogy, how his children are performing in school. He believes that he and his wife have set a robust “tone-at-the-top” around the importance of attendance, homework and strong academic performance and that they provide some direction for the children about what is important in terms of their results at school. There are some control activities that he can utilize in terms of reviewing their schedule, homework, how much time they spend studying versus playing video games, but the best technique to make sure they are getting the outcomes that they want for them academically is to do some monitoring and an evaluation of their performance.
A way to do that is to monitor their academic performance through the application, in his hometown called “PowerSchool.” It allows the parents and the students, together or separately, to log on and to answer the questions, “Was the homework assignment turned in?”; “What was the grade on the homework assignment?”; “Was the most recent grade better or worse than last time?”; Oringel said, “We use PowerSchool as a data-driven monitoring tool to make sure that our kids are performing in school the way that we want them to.”
Tomorrow we begin to consider some case studies from projects Oringel and Visual Risk IQ have engaged in and how they demonstrate the use of data analysis in an anti-corruption compliance program.
Joe Oringel can be reached at firstname.lastname@example.org.
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© Thomas R. Fox, 2016