System and method of continuous assurance for internal control

• US 20060080281A1
• Filed: 10/14/2005
• Published: 04/13/2006
• Est. Priority Date: 10/12/2004
• Status: Active Grant

• Current Assignee: Natural Decision Systems Incorporated
• Original Assignee: Natural Decision Systems Incorporated
• Inventors: Bongiorno, Benedetto, Bongiorno, Patti
• Granted Patent: US 7,720,751 B2
• Time in Patent Office: Days
• US Class Current: 1/1
• CPC Class Codes: G06Q 10/10 Office automation; Time management
• CPC Class Codes: G06Q 20/10 specially adapted for electronic funds transfer [EFT] systems; specially adapted for home banking systems
• CPC Class Codes: G06Q 40/00 Finance; Insurance; Tax strategies; Processing of corporate or income taxes
• CPC Class Codes: G06Q 40/03 Credit; Loans; Processing thereof
• CPC Class Codes: G06Q 40/04 Trading; Exchange, e.g. stocks, commodities, derivatives or currency exchange

Abstract

A computer system for conducting continuous assurance for internal control of financial transactions is disclosed. The computer system comprises a processor, a bus coupled to the processor, a memory coupled to the bus, a mass storage system coupled to the bus, and continuous assurance software resident in the memory. The continuous assurance software, when executed, performing the steps of accessing client database, downloading total population, performing analysis, evaluating analysis results, comparing total population to financial statements, determining risk ratings for each predetermined financial group, determining a materiality of anomalies, and displaying results.

Claims

1. A continuous assurance for internal control method comprising the steps of:

accessing client database;

downloading total population from client database;

performing statistical analysis;

evaluating analysis results;

comparing total population to financial disclosures, wherein the financial disclosures are grouped by a predetermined selection;

determining a risk rating for each predetermined group; and

determining a materiality of anomalies, wherein the materiality of anomalies is related to the effectiveness of the internal control of the accounting system.

2. The method of claim 1 wherein the step of accessing client database includes accessing client database intermittently.

3. The method of claim 1 wherein the step of accessing client database interval includes accessing client database continuously.

4. The method of claim 1 wherein the step of accessing client database includes accessing client database at a predetermined interval.

5. The method of claim 4 wherein the step of accessing client database at a predetermined interval includes accessing client database daily.

6. The method of claim 4 wherein the step of accessing client database at a predetermined interval includes accessing client database hourly.

7. The method of claim 1 wherein the step of performing analysis comprises the following steps:

identifying financial transaction data;

applying statistical techniques to the financial transaction data; and

determining anomalies based upon statistical techniques.

8. The method of claim 7 wherein the step of identifying financial transaction data includes identifying cash disbursements.

9. The method of claim 7 wherein the step of identifying financial transaction data includes identifying payables.

10. The method of claim 7 wherein the step of identifying financial transaction data includes identifying journal entries.

11. The method of claim 7 wherein the step of identifying financial transaction data includes identifying sales.

12. The method of claim 7 wherein the step of identifying financial transaction data includes identifying costs incurred.

13. The method of claim 7 wherein the step of identifying financial transaction data includes identifying cash disbursements.

14. The method of claim 7 wherein the step of applying statistical techniques includes applying basic statistical methods.

15. The method of claim 14 wherein the step of applying basic statistical methods includes applying standard deviation.

16. The method of claim 14 wherein the step of applying basic statistical methods includes applying a hypergeometric distribution.

17. The method of claim 7 wherein the step of applying statistical techniques includes applying advanced statistical methods.

18. The method of claim 7 wherein the step of determining anomalies includes determining trends.

19. The method of claim 1 further comprising the step of:

displaying results.

20. A computer system for conducting continuous assurance for internal control of financial transaction data, the computer system comprising:

a processor;

a bus coupled to the processor;

a memory coupled to the bus;

a mass storage system coupled to the bus;

continuous assurance software resident in the memory, the continuous assurance software, when executed, performing the steps of;

accessing client database;

downloading total population of data;

performing analysis;

evaluating analysis results;

comparing total population of data to financial disclosures, wherein the financial disclosures are grouped by a predetermined selection;

determining a risk rating for each predetermined group;

determining a materiality;

determining anomalies; and

displaying results.

21. The computer system of claim 20 further comprising a communication device coupled to the bus, wherein the communication device communicates with an external computer system.

22. The computer system of claim 21 wherein the step of accessing client database includes accessing client database via a direct connection to an external computer system.

23. The computer system of claim 20 wherein the step of accessing client database includes accessing client database as read only.

24. The computer system of claim 20 wherein the step of accessing client database includes accessing client database located within the computer system.

25. The computer system of claim 20 wherein the step of downloading total population of data includes downloading total population for a predetermined period of time.

26. The computer system of claim 22 wherein the step of downloading total population of data for a predetermined period of time includes downloading total population of financial data for an accounting period.

27. The computer system of claim 20 wherein the step of downloading total population of financial data includes downloading total population of data real time.

28. The computer system of claim 20 wherein the step of downloading total population of financial data includes downloading financial transaction records.

29. The computer system of claim 28 wherein the step of downloading financial transaction records includes downloading all financial transaction records.

30. The computer system of claim 20 wherein the step of performing analysis includes performing simulations.

31. The computer system of claim 20 wherein the step of performing analysis includes performing tests.

32. The computer system of claim 20 wherein the step of performing analysis includes performing statistical analysis.

33. The computer system of claim 32 wherein the step of performing statistical analysis includes determining anomalies in the total population of financial data.

34. The computer system of claim 32 wherein the step of performing statistical analysis includes performing blind statistical analysis.

35. The computer system of claim 20 wherein the step of evaluating analysis results includes determining statistical anomalies in the total population.

36. The computer system of claim 35, further comprising the step of comparing number of anomalies to a predetermined materiality level based upon materiality.

37. The computer system of claim 35, further comprising the step of comparing number of anomalies to a predetermined risk level to measure risk.

38. The computer system of claim 37 wherein the risk includes inherent risk.

39. The computer system of claim 37 wherein the risk includes control risk.

40. The computer system of claim 35 wherein the step of determining statistical anomalies includes determining number of transactions that lie outside of a standard bell curve distribution.

41. The computer system of claim 35, further comprising the step of determining substantiation size based upon the number of anomalies and a predetermined materiality threshold.

42. The computer system of claim 41 wherein the step of determining substantiation size includes computations based on distribution probabilities.

43. The computer system of claim 41, further comprising the step of selecting records for substantiation.

44. The computer system of claim 43 wherein the selecting records for substantiation includes randomly selecting records for substantiation.

45. The computer system of claim 43 wherein the step of selecting records for substantiation includes selecting records for manual evaluation of the original records.

46. The computer system of claim 43 wherein the step of selecting records for substantiation includes selecting records for manual evaluation of the accuracy of the database records.

47. The computer system of claim 43 wherein the step of selecting records for substantiation includes selecting records for electronic evaluation of the database records.

48. The computer system of claim 43, further comprising the step of independently computing and simulating the performance of the selected records, wherein the selected records includes current contractual terms.

49. The computer system of claim 48, further comprising the step of determining the validity of the value by evaluating the computed and simulated performance.

50. The computer system of claim 48 wherein the financial results of the notes receivable are computed and simulated.

51. The computer system of claim 48 wherein the financial results of the real estate contracts are computed and simulated.

52. The computer system of claim 48 wherein the financial results of the mortgage debts are computed and simulated.

53. The computer system of claim 48 wherein the financial results of the real estate intangibles are computed and simulated.

54. The computer system of claim 20 wherein the step of displaying results includes displaying the statistical analysis of the total population.

55. The computer system of claim 54 wherein the step of displaying the statistical analysis of the total population includes displaying the statistical analysis of the total population by financial categories.

56. The computer system of claim 20 wherein the step of displaying results includes displaying the records for evaluation.

57. The computer system of claim 20 wherein the step of displaying results includes displaying the risk rating for each predetermined group.

58. The computer system of claim 20 wherein the step of displaying results includes displaying financial performance.

59. The computer system of claim 58 wherein the step of displaying financial performance includes displaying financial performance by financial categories.

60. The computer system of claim 58 wherein the step of displaying financial performance includes displaying a financial statement performance.

61. The computer system of claim 20 wherein the materiality of anomalies is related to the effectiveness of the internal control.

62. The computer system of claim 20 wherein the materiality of anomalies is related to the determination of risk.

63. The computer system of claim 20 wherein the materiality of anomalies is related to the accuracy of the accounting system.