In The Black

Brian Sims, OCA

Over the last few decades the internal audit world has progressively begun to embrace the notion of using computer aided auditing tools and techniques (CAATTs) as a means to gain efficiencies, greater coverage and ultimately greater assurances over specific transaction classes or areas of operation. Mostly, these are ad hoc tests which rely heavily on the audit software (i.e., ACL, IDEA, MS Access, etc.) and an auditor with an adequate knowledge of the audit software. However, there are some audit shops which have developed their CAATTs into a fully integrated and automated continuous auditing (CA) system. So what’s the difference? Both have the same goals in mind but only one has actually made the vision a reality. This post begins a series focusing on how to structure your audit department, interdepartmental relationships, systems and scripts to build an effective continuous auditing (CA) model. We will examine some of the “how to’s”, “what if’s” and “absolute do not’s” that inevitably happen along the way.

Most people I have encountered want to dive right in and start using the software to audit. However, it is my opinion that taking this approach will only get you as far as ad hoc testing. My best suggestion is to spend the time up front discussing and developing documentation and development standards. These standards should include things like:

- A clearly stated intent of the CA system
- How to properly document the objectives and assertions covered for a test
- How a test fits into the overall CA scheme
- Program or Script process flow documentation
- How and where the files will be saved
- Testing review and approval channels for new audit procedures
- Approvals and documentation around audit procedure retirement
- Dummy checks
- Audit team CA roles and responsibilities definitions

Other considerations include: contingency planning and error handling, data access and availability, version control and audit exception handling and resolution. (Most of this can be borrowed from programming industry best practices and the System Development Life Cycle.) Going through this exercise sounds boring and time consuming (and it is) but it will help avoid countless headaches and backtracking later. Once these are fully documented, however, do not just put this on a shelf and forget about it. These standards should be revisited regularly to examine what is working, what isn’t working and why. Then, fine tune as needed.

From here, I would suggest performing an S.K.E.A. (Skills, Knowledge, Experience, and Ambition) inventory of the Audit Staff. This inventory should tell you who your audit procedure developers probably will be, who needs training, and who is willing to train as a backup in case another auditor leaves. Changes of personnel in the audit department will impact operations less if all of this is in place.

This is by no means an exhaustive list and audit departments will inevitably come across situations not addressed here, but the keys to being successful are keeping your head in the game, having well trained staff that does the same and, when needed, contacting an experienced and knowledgeable professional for added support.

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Cara Bradley, CPA

As we put 2011 to bed and begin a new year, it is a good time to review the agreements your Employee Benefit Plan has in place with its service providers … if this has not taken place already. In fact Plan Sponsors, you have until April 1, 2012 to do so, according to the Department of Labor. Fees for employee benefit plans have hit the spotlight in recent years, as more Plan Sponsors shift expenses to the Plan. We have already seen the fees disclosed in more detail on the 5500. Now the Department of Labor is requiring the agreements with service providers to be written to allow Plan Sponsors to understand what services are provided and what these services cost, so they can determine compensation is reasonably paid. The key is that the agreements be in writing and that specific items be disclosed. It is important to note that if the April 1, 2012 deadline is missed, a prohibited transaction would occur and cannot be corrected retroactively.

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Chuck Yaple, CPA

Savvy school business officials have already cut school budgets to the bone. But these financial times are requiring more radical strategies for cost containment. Click here to hear Null-Lairson’s Chuck Yaple discuss radical cost-cutting plans and share his insights on today’s programs via ASBO Radio.

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Chuck Bucek, CPA, CVA

January is not only the month for ringing in the new year, but also the month that employers, banks, brokerage companies and other income providers are required to issue to you information forms reporting the amount of income paid to you during the previous year. Here is a suggestion! In order to minimize your time, purchase a folder (an accordion style folder works very well for this purpose) to help accumulate, organize and keep track of your tax records.

Each time that you receive one of these aforementioned forms, place it in the folder. You should have a separate section or pocket for each of these different types of income: wages, interest income, dividend income, proceeds from sales of mutual funds and stock shares, proceeds from sale of real estate, retirement distributions, business income, income from flow-through types of investment entities, social security income and other miscellaneous income.

Tax deductible expenses can also be organized by section. Include cancelled checks and receipts for the following items: retirement plan contributions, education expenses, business expenses, medical expenses, ad valorem taxes, mortgage and investment interest expenses, charitable contributions, and miscellaneous deductions such as investment management fees, tax preparation fees, safe deposit box rental fees and business and professional dues, subscriptions and licenses. It is very helpful to then summarize these expenses by category.

Other relevant sections in the folder include family specifics (births, deaths, marriages, change of address), payments of Federal and State estimated income taxes and documentation from purchases and sales of real estate, major improvements to a home and new business investments to name a few.

When you are ready to have your income tax return prepared, just give the folder to your tax return preparer. Organized and complete tax information allows the tax professional to focus on analyzing and strategizing to assist you in minimizing your income tax liability. Once the return has been prepared, put your copy in the folder with all of your documentation for safekeeping. If you are requested to provide a copy of that year’s tax return in the future, you won’t have to spend a lot of time trying to locate it.

Another tip! While you are at the store, why not purchase a 2nd folder to begin using for collecting and organizing tax data and documents for the year of 2012? This way, you can accumulate this information as you progress throughout the year, instead of having to back-track and locate a full year’s worth of information all at year end. This will definitely aid in lowering your stress level relating to your income tax filing requirements.

2011 Tax Return Due Date

Individual Federal income tax returns for the 2011 tax year are due Tuesday April 17, 2012 because of April 15th falling on a Sunday and because of April 16th being a Washington DC holiday. The extended due date of the 2011 individual income tax return will be October 15, 2012.

The above information is intended to be general in nature. Please let us know if you have questions regarding income tax return or quarterly income tax filing requirements or any other tax matters.

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Here are some useful QuickBooks tips for the New Year:

Processing Payroll

If you process your payroll through QuickBooks make sure to click on the payroll updates that appear regularly. It is especially important at the beginning of each new year, because that is usually when new Federal laws become effective.  The wage limit for Social Security deductions has increased at the start of 2012 and needs to be reflected in your payroll.

Creating a Budget in QuickBooks

At the beginning of each year creating a budget for your business is beneficial.  You can do this in QuickBooks:

1. From the “Company” menu, choose “Set up Budgets”.  Choose the fiscal year you are setting up in the “Budget for Fiscal Year” field by using the up and down arrows.

2. Choose the account you are setting up the budget for in the “Account Field”, by using the drop down list.

3. Enter the budget amount for the first month, and then fill in the remaining months.  Use the “Fill Down” button to speed up the amounts.  If you want to increase each month by a specific amount or percentage, click “Fill Down” then enter that percentage or amount and click OK.

4. Click “Save” when you are done filling in the budget amounts for the months in this particular account.

5. Go to the next account you are budgeting and repeat.  When you are finished entering the information for all the accounts you are budgeting, Click “OK”.

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