USE OF IT TOOLS IN AUDITING

1. THE NIK REPUBLIC OF POLAND USE OF IT TOOLS IN AUDITING Wiesław Karliński economic adviser Department of Budget & Finance Wieslaw_Karlinski@nik.gov.pl

2. AREAS OF USING IT IN AUDITING • AS SUBJECT OF AUDIT • AS TOOLS AIDING THE AUDITING’S ORGANIZATION AND MANAGEMENT • AS TOOLS AIDING AUDITING PROCESS • AS TOOLS AIDING PREPARATION OF AUDITING’S REPORTS

3. IT TECHNIQUES APPLICATIONS IN AUDITING PROCESS 1.AUDIT STUDY & STATISTICAL SAMPLING STUDYING FAIRNESS OF FINANCIAL AND ACCOUNTING RECORDS & CORRECTNESS OF BUDGET REPORTING 2.ANALYTICAL STUDY OF DATABASES • STUDYING OF SELECTED INCOMES IN STATE BUDGET • STUDYING OF TAX SYSTEM

4. STATE BUDGET AUDIT – CONDITIONS (1) • The number of audited institutions (budget entities) ~ 400. • About 80-90% entities have applied computer accounting systems which were unfortunately prepared by many different providers. • So they do not guarantee full accessibility to data in the electronic form and using typically CAATs tools. • The standards of accountancy in budget entities are not sufficiently specified.

5. STATE BUDGET AUDIT – CONDITIONS (2) • The differences in size of audited budget entities bring difficulties in forming indiscriminated assumptions . • Auditors do not posses enough experience and knowledge in statistical sampling and databases’ transformation. • The amount of time for a single audit study is very limited.

6. FAIRNESS OF ACCOUNTING RECORDS :STUDY METHODOLOGICAL ASSUMPTIONS (in 2002) 1. SELECTION OF EVIDENCE SAMPLE RANDOM SELECTION, IRRESPECTIVE OF ACCOUNTING ENTRIES FORMAT (AUTOMATED OR MANUAL) 2. PERFORMING AUDIT STUDY AND DOCUMENTING FINDINGS BASED ON SPECIFIC AUDIT FORM DESIGN 3. EXTRAPOLATION OF FINDINGS BASED ON STATISTICAL METHODS

7. IT TOOL – „AUDITOR’S TOOL KIT (ASSISTANT)” 1 2 3

8. “AUDITOR’S TOOLKIT” - UNIVERSAL FUNCTIONS • 1. SAMPLE SIZE CALCULATION: • ATTRIBUTE SAMPLING • VARIABLE SAMPLING • PPS SAMPLING (Poisson’s Distribution) • 2. SAMPLING: • RANDOM-NUMBER GENERATOR • SIMPLE RANDOM SELECTION (Excel Input File) • PPS SELECTION (Excel Input File) • 3. EXTRAPOLATION: • PROPORTION ESTIMATION (Hypergeometric Distribution) • MEAN-PER-UNIT ESTIMATION (Normal Distribution) • MONETARY UNIT SAMPLING (Poisson’s Distribution)

9. „AUDITOR’S TOOL KIT” - SPECIAL FUNCTIONS: REALIZATION OF STUDY step by step random sample 1. IDENTIFICATON OF POPULATION 2. SAMPLE SIZE & SELECTION intentional selection 3. SAMPLE VERIFICATION sample of expenditure 4. STUDY (QUESTIONNAIRE) 5. ADDITIONAL DATA 6. FINDINGS & REPORTS 8. SUPPLEMENTARY SELECTION 7. EXTRAPOLATION OF FINDINGS FINAL ASSESSMENT assessment? precision?

10. STUDYING AUDIT EVIDENCE:EXPECTED PROBLEMS (in 2002) • AVAILABILITY OF POPULATION TO BE STUDIED IN CHECKLIST FORMAT • CONSISTENT RULES AND TECHNIQUES FOR IDENTIFYING ACCOUNTING EVIDENCE • VARIED SIZES OF POPULATIONS STUDIED • LACK OF KNOWLEDGE OF POTENTIAL IRREGULARITIES’ SCALE

11. STUDYING AUDIT EVIDENCE: SOLUTIONS • MANY (9) IDENTIFYING ACCOUNTING EVIDENCE METHODS (including electronic data form) • ATTRIBUTE SAMPLING WITH SEQUENTIAL ANALYSIS • IDENTICAL RELATIVE MATERIALITY FOR EVERY ENTITY

12. Example Forms (1): Audit Questionnaire

13. Example Forms(2): Estimation & Assessment findings in strata parameters of extrapolation estimation & assessment & error of estimation supplementary selection estimation weighted by value

14. Example Forms (3): Collective Analysis of Findings Detailed Statistics opinion for budget chapter FAS opinion opinion FAS opinion FAS FAS opinion ~ 400

15. STUDY IMPLEMENTATION & SCOPE AUDIT RUN BY 8 DEPARTMENTS & 16 SCC REGIONAL OFFICES AUDITEES IN 2003 : OVER 370 ENTITIES INCLUDING 106 LOCAL GOVERNMENT ENTITIES IN 2004 : 356ENTITIES INCLUDING 121 LOCAL GOVERNMENT ENTITIES

16. AUDIT RESULTS in 2004(215 STATE BUDGET ENTITIES) MOST FREQUENT TYPES OF IRREGULARITIES INCORRECT ACCOUNTING MONTH INCORRECT ENTRYTO ACCOUNTS INCORRECT CURRENT CONTROLS OR EVIDENCE REFERRALS INCORRECT AMENDMENTS TO EVIDENCE LACK OF CONSISTENT EVIDENCE IDENTIFICATION

17. IT TECHNIQUES – APPLICATIONS (2) 2. STUDY OF DATABASES SPECIFIC CASE : LOAN PENALTY TICKETS IN VOIVODS’ BUDGETS

18. COLLECTING INCOMES FROM PENALTY TICKETS - GENERAL SCHEME TAX OFFICE ORGAN AUTHORIZEDTO PENALIZE VOIVOD > 2mln /year TO penalty ticket Record Payment Execution Title Database Execution Penalization   Payment 7 days DATABASE AUDITED WITH ANALYTICAL METHODS ?? (max=1 month) ?? (max=2 months)

19. COLLECTING INCOMES FROM PENALTY TICKETS - ORGANIZATION OF STUDY ACL (Audit Command Language) VOIVOD’S ASSESSMENT DB-1 Excel Voivodship databases * Exportation Analysis Findings Comparative Analysis DB-16 Excel VOIVOD’S ASSESSMENT *) total: 16 voivodships, 23 databases, 5 mln tickets

20. TICKETS’ STUDY - EXEMPLARY FINDINGS (1) ?? >180 days

21. TICKETS’ STUDY - EXEMPLARY FINDINGS

22. PLANS & PROBLEMS • WIDER ACCESIBILITY TO DATA IN ELECTRONIC FORMAT (outside the NIK influence) • FURTHER REFINEMENT OF THE METHODOLOGY (sampling & analytical methods) • IMPROVEMENT OF APPLIED TOOLS • ADDITIONAL STAFF TRAINING

23. THENIK REPUBLIC OF POLAND THANK YOU FOR YOUR KIND ATTENTION