Implementation and use of the IDEA for Gathering Evidence

1. Implementation and use of the IDEA for Gathering Evidence Ingrida Kalnina-Junga Sector head/IS auditor Audit and methodology Department Phone: +371-67017664 ingrida.kalnina-junga@lrvk.gov.lv State Audit Office of Latvia Skanstes street 50, Riga, LV - 1013 Phone: +371 67017500 Fax: +371 67017673 E-mail: lrvk@lrvk.gov.lv Home page: http://www.lrvk.gov.lv 20.09.2012. Seminar on Application of Software Tools in Audit

2. Objectives To share experience: 1.Why decision was taken to implement IDEA? 2. How to promote using the IDEA in auditing: • Manuals • Training • Methodology development: • Pre-conditions for successful use of IDEA; • Data obtaining; • Analysis and sampling; • Evidence collection.

3. Why IDEA? • Auditees` processes were highly automated. • IS were developed separately in each institution and the same data were recorded and stored in multiple systems. 172 – state information systems. • Luck of data exchange between institutions. Trial version testing to compare IDEA and ACL options: • During testing also experience of the NAO of UK and experience of the Ministry of Agriculture • IDEA was found as user friendly more than other tools

4. IDEA implementation

5. IDEA training

6. Improvements of methodology • understanding of the data exchange processes • understanding of the data sources internal as well as external • understanding of the master data • preparation of a data request • requirements for data receiving in a safe manner • requirements for secure data capture in SAI

7. Preconditions for the use of the IDEA: Defined internal processes, legislation and infrastructure to ensure secure data processing, including that: • data is requested and received in a documented manner, with the approval from the audited entity; • the data is complete and matches with the data in the system; • access to records is restricted only for the particular audit group; • data is stored and processed on the server with restricted access; • analysis of the data is documented and checksum verification is provided; • differences are discussed in the audited entity in order to reduce audit risk.

8. Problems: Solutions: Communication at several management levels: line manager, IT manager, HR manager, ITadministrator Communication problems with the audited entity, unwillingness to cooperate Defining entities and structuralunits Change of staff or incompetent staff Use of work process descriptions and user guides Identification of information systems Problems to identify data fields due to the lack of standard reports. Time consuming data preparation process as well as extra costs to the entity. Use of IS print screens, IS specifications, user guides. Decreasing the amount of data to be requested . Defining the required scope of information and its preparation

9. The IDEA process* *Source: www.caseware.com/downloads/pdf/IDEA/IDEAEnhancements.pdf

10. Audit planning actions for the use of IDEA: • Understanding of the auditee's IT environment, information systems and the data flow (data fields, data type, the amount of information) • Examination of possibility to obtain data from the audited entity in a structured way - the data must be structured (. DBF,. Txt,. Csv,. Xls or. Xlsx); • Understanding of the structure of the data to be processed; • Clearly identified issues to be analyzed and why - what issues, problems looking for; • Understanding options to compare data between different bodies and different systems

11. IDEA in finance audits for data analysis • payroll tests; • calculation on depreciation of fixed assets; • comparison of institutions real estate list with the State Land service data; • comparison of analytical records with accounting information. For example, services provided by the institution in comparison with the payments received.

12. IDEA for sampling • Tasks performed at the planning stage: • to set the amount of information available in the accounting system; • to understandposibility to receive information in a structured electronic format; • set inherent risk; • to inform the audited unit of the planned request for data, create sampling and extrapolation of the result; • before requesting the necessary information to determine the exact amount of data.

13. Example for sampling The sample is made up of taxpayers, who were on 01.01.2011. tax debtors and whose overpayment exceeded of EUR 70. To create a sample was requested the following information as of 01.01.2011: - the name of the taxpayer; - taxpayer`s identification number; - amount of tax debt; - overpayment of tax. Conclusion after detailed testing was provided based on sample records: According to law Tax Administration should transfer tax payer’s overpaid taxies to cover tax debts. SAO recognized that overpaid taxes at least EUR 89 038 271 hasn’t been transferred to budget to cover tax debts. As a result, Tax Administration calculated unreasonable penalty’s for late payments approx. EUR 168 770 for the particular period (extrapolated value).

14. Example: Unemployment benefits Identified risk - the law assumes that a person can simultaneously receive both unemployment benefits as well as sick pay. Checks carried out – comparisondata of unemployment benefit and sickness benefit Results: identified 1212 persons receiving unemployment benefits and sickness benefits for the same time period. Calculated amount of sickness benefits paid to these persons during the period of disbursement of unemployment benefits(~ EUR 1 294 340)

15. Example for granting the status of an unemployed person Identified risk- unemployment status is granted to those who are employed, who have been granted a retirement pension or who are studying. Checks carried out: Compared with the State Employment Agency Information System data on the status of unemployed persons assigned to the information system for data relating to payments of insurance premiums and employment periods, as well as the unemployment benefit. The result:7835 persons identified who were not entitled to unemployment status.These persons will participate in active employment measures used in the state budget of EUR 331 670.In addition, institution to this person has paid unemployment benefits for EUR 617 535.

16. IDEA benefits (+) processing huge volume of transactions (+) 100% inspection - better coverage and assurance obtained (+) focusing to areas where risks were noted (+) sampling for tests and result extrapolation (-) identification and obtaining of data as well as data preparation for analyses is time consuming process (-) results of data analyses greatly depend on data quality and established control procedures of data entry and verification (-) difficulties to receive data if auditees outsource IS maintenance.

17. Thank you for your attention! The State Audit Office of the Republic of Latvia Phone: +371 7017500 Fax: +371 7017673 E-mail: lrvk@lrvk.gov.lv