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Computer technology gives auditors a new set of techniques for examining the automated business environment. In fact, the detection of fraud is a perfect application for computer-assisted audit tools and techniques (CAATTs).
As early as 1982 CAATTs was a powerful audit tool for detecting financial errors. In recent years, analytical techniques have become not only more powerful but also more widely used by auditors. But it is only in the last 10 years that the use of computer-assisted tools and auditing techniques has become standard practice. Audit software permits auditors to obtain a quick overview of the business operations and drill down into the details of specific areas of interest. The audit program can also be extended to perform a 100% verification of certain transactions and a recalculation of important ratios and figures.
Audit software can highlight those individual transactions that contain characteristics often associated with fraudulent activity. With audit software, millions of files can be examined, previous years' data can be used to identify anomalies, and comparisons can be made between different locations. Also, computer-based data analysis tools can prove invaluable when addressing suspected fraud situations.
The techniques and types of data interrogations in modern audit software are almost unlimited. For example, audit software has many commands that support the auditor's requirement to review transactions for fraud such as the existence of duplicate transactions, missing transactions, and anomalies. Some examples of these commands include
comparing employee addresses with vendor addresses to identify employees that are also vendors;
searching for duplicate check numbers to find photocopies of company checks;
searching for vendors with post office boxes for addresses;
analyzing the sequence of all transactions to identify missing checks or invoices;
identifying vendors with more than one vendor code or more than one mailing address;
finding several vendors with the same mailing address; and
sorting payments by amount to identify transactions that fall just under financial control on contract limits.
Audit software can be used to interrogate a company's data files and identify data patterns associated with fraud. Patterns such as negative entries in inventory received fields, voided transactions followed by "No Sale," or a high percentage of returned items may indicate fraudulent activity. Auditors can use these data patterns to develop a "fraud profile" early...