Delivering Speed, Accuracy, Compliance - Brief Article

Internal Auditor, Feb, 2000 by Brad Kirk

Data analysis software facilitates review and testing procedures in a financial services organization.

PROVIDING AUDIT SERVICES to a large investment organization presents many challenges, especially in terms of data management. Investors Group provides personal financial services--as well as mortgage and insurance options--to more than one million clients and manages approximately $40 billion in assets through a network of close to 3,700 representatives in more than 100 financial planning centers across Canada. The large number of daily transactions involved in this type of operation, coupled with complex regulatory requirements, demand the use of powerful and efficient audit methodologies to keep pace with the constant influx of new information.

The internal audit team at Investors Group recognizes that conventional audit techniques--ticking and bobbing--cannot provide an adequate level of service in our industry. In fact, performing such tasks may be considered a waste of resources and time. We focus instead on ensuring that our audit practices continually evolve, helping us to meet the growing needs of the organization.

In our quest for maximum efficiency, we decided to add computer-based data analysis solutions to our audit program. We have used ACL software for almost nine years to streamline and enhance our procedures. For our purposes, there are no limitations to ACL's processing and analysis capabilities. With the help of this tool, we have been able to elevate our level of customer service and have made particular strides in the areas of valuation and accuracy, and regulatory compliance.

VALUATION AND ACCURACY

Prior to implementing data analysis software, evaluating our corporation's system typically required audit staff to perform tedious and mundane procedures. While these types of tests are critical in completing some of the audits we perform, we needed to concentrate our resources on the review of exceptions rather than on manual calculations. ACL has enabled the department to move in that direction in certain key areas.

FUND PRICING At fiscal year-end, we evaluate the pricing of our mutual funds. Each fund portfolio consists of several securities and may contain more than 100 issuers from various global markets. The prices of these securities on the corporation's investment system must be verified with an external source. Prior to automation of this process, the internal auditors manually reviewed the security prices in newspapers such as The New York Times and The Globe and Mail.

We also had to factor in the exchange rate and recalculate the value of every security held with each mutual fund offered by the corporation. Depending on the mix of the securities, we spent eight to so hours reviewing each fund. This tedious process represented significant waste and inefficiency in the internal audit department. Implementation of ACL has enabled us to review any fund and balance within one hour in most cases.

Using the "relations" function within ACL to compare the price between the corporation's investment system and the external data based on the CUSIP number--an industry standard number used to identify securities--we can quickly compare the security prices contained within the data files obtained from each source and identify differences. Reporting is then performed for each mutual fund to allow our staff to investigate and resolve any exceptions. We now focus our time on reviewing potential pricing differences rather than manually recalculating the value of the individual securities within the mutual fund. However, we're obviously aware that these procedures are only as good as the data received from each source utilized. "Bad" data can result in the need to use manual valuation procedures in rare instances.

DIVIDENDS AND INTEREST Our audit group periodically tests the dividends and interest received from securities held by each individual mutual fund. Before automating this process, we obtained the physical reports and used a calculator to manually perform our monetary unit sampling using the random start and interval that was provided to us by our external auditors. We repeated the process for every fund, spending approximately an hour on each one. Now, after obtaining a listing, we use ACL to read the online reports and perform monetary unit sampling. This process normally requires only about one minute per mutual fund to complete. In fact, downloading the data may actually take longer than calculating it.

TRANSACTIONS A procedure we've implemented to review client transactions on new mutual funds offered by the corporation would never have been possible without data analysis software. After a fund has been launched, we review the transactions during a specified rime period to ensure timely processing. Our database could contain thousands of transactions on any given day, so this task requires substantial processing capability and speed. We use mainframe CAATs to extract information from our corporate unit-holder systems and then import the data into ACL. We subsequently use the software to ensure the correct date is applied to the mutual fund, helping to prevent errors that could significantly impact the value of the fund. This method has enabled us to review transactions within our specified criteria and quickly perform audit procedures to validate our business processes.