RISKS ANALYSIS AND AUDIT SOFTWARE TOOLS (DATA MINING)
Martine Meunier
Head of the Interregional Tax Audit Directorate General Directorate of Public Finances
(France)
Contents: Abstact. 1. The legal framework. 2. The tools and administrative organization. Conclusion / Perspectives
Abstract
Almost all companies’ accounts are held today using accounting software. The term ‘computerized accounting control’ covers two totally separate procedures, implemented currently in France under the framework of accounting audits.
The first offers the possibility for companies to communicate their accounting files, and the reading of these data takes place using a specific tool locally designed.
This tool offers a real advantage in terms of organization flexibility and completeness of controls, and is intended to be used by all auditors because it does not require very sharp computer skills.
The French legislative framework for the control of the computerized accounting has been renewed in the end of 2012.
From 2014, it becomes mandatory by law for all companies holding a computerized accounting, to submit accounting documents in digital format defined by the Decree. This highly anticipated measure will allow the general use of this tool, which is now only used in 40% of the controls performed in the DIRCOFI Auditors.
The second procedure refers to the companies’ obligation to perform the data processing upon request by control services or allow the authority to perform these processes.
Topic 1.2
The administration often uses the ACL audit tool, particularly for the controls of medium and large enterprises under the DIRCOFI and DVNI Jurisdiction.
The use of ACL is not easy, requires regular practice and may be only achieved by a limited number of specialists who support their other colleagues. In this regard, a comparative study reveals that several countries have made the choice to train specialists in computerized accountings to support the General Auditors. The ACL procedure is used in France in 3% of the external controls. It significantly slower the field operations, increasing by 90% the average time in DIRCOFI.
However, for these cases, the ACL tool is characterized by a better financial performance, and the median net income provided by these cases is exceeding by more than 45% at the median of the total net revenues found in DIRCOFI.
DIRCOFI: direction of fiscal control
DVNI: direction of national and international audits
Accounting is currently usually held through accounting software, for this reason the auditors perform controls using new tools in the existing legal framework.
In France, a specific legislation is applicable to the computerized accounting control.
1. The legal framework
The current legislative framework offers companies the option, but not the obligation, to submit their accounting through an electronic copy of the accounting files.
This option becomes mandatory from January 1, 2014.
Computerized data refers only to accounting entries, and not to the supporting documentation.
The taxpayer can copy the files on a CD-ROM or enable the auditor to make a copy on an external device. This delivery is registered on a document submitted by the auditor and signed by the taxpayer.
This measure must allow and facilitate the accounting control by the auditor and verify the consistency between the returns and the accounting files, reducing the auditor’s time in the company.
The operations performed by the auditor on copied files are limited to procedures such as sorting, rankings and simple calculations. In this regard, they cannot process all types of data.
Legislation allows control services to process data, allowing the taxpayer to choose between three types of treatment:
Data processing performed by the administration at the enterprise, on material available by the taxpayer:
In this case, the taxpayer must take all appropriate measures to preserve the data and the safety of the equipment used.
Information, data, processes and documentation must be available to the administration in order to allow the investigations under normal conditions.
Data processing performed by the taxpayer for all or part of the requested data to control:
If the company chooses this option, the officers responsible for the audit must indicate in writing what elements they want to control (specification) and the period requested for its
implementation, which must be compatible with the constraints inherent to the business operation, on a document also signed by the company’s representative.
The results of the control request must be delivered in digital format according to specific criteria. The administration acknowledges receipt of the results submitted by the taxpayer, and reserve the right to approve their compliance with the request.•
Data processing performed by the administration, out of the business premises, after submission of the computer files by the taxpayer:
The taxpayer provides the auditor, with computerized copies of all documents, data and processes needed to perform the audit. They include a description of the management information (name of areas, heading...) and technical information (type, structure, position, length of the zones, fonts ...).
If a tax adjustment arises from the performed controls, the auditor informs the taxpayer about the nature and results of the data processing which gave rise to the adjustment at the latest when sending the settlement proposal.
2. The tools and administrative organization
This computerized accounting approach is different in France according to the types of companies and their control level.
There are three control levels according to the geographical location and the sales volume (turnover).
At the national level, the DVNI controls the large international companies with the support of BVCI (specialized computer control units) with auditors specialized in computerized accounting assistance.
At the regional level, specialized auditors are trained in the use of the ACL tool.
At the local level, auditors often use excel software for data processing.
Interventions by computer experts can be performed from one structure to the other.
The general auditor can read the general accounting with a tool enabling simple filters for balancing accounts.
This tool is an accounting reading software, which has been designed to meet the needs of auditors with no specialized knowledge in information technology.
xIt facilitates the accounting operation and the reconstruction of the processes chain between the data entry and the tax documents issuance, allows structuring investigations and facilitates the tracking of ledger entries and reversals.
For example, pre-filled or customizable queries are used to detect reverse entries, interruption in number sequences, etc.
More complex treatments with Excel or ACL tools may be performed by the auditor alone or with the assistance of a specialized colleague.
Finally, for large companies, the audit is always specialized and performed with the help of the BVCI or ACL experts.
Computerized control objectives
The computerized control has several objectives:
• efficiency:
It saves time for the auditor to perform specific accounting balancing (audit process).
• comprehensive
Without a tool, it is impossible to review all the data of important business volumes (ex: provisions, purchases invoices...).
• The increased quality of adjustments is sustainable at litigation and criminal levels.
Common investigations issues
• Revenues dissimulation:
All activities with significant cash flow are verified to detect inconsistencies in the cash flow data system.
• Diversion of goods:
Stocks existences are verified for medium size companies with a computerized inventory management.
• VAT rates:
It applies to all activities with multiple VAT rates.
• Transfer pricing:
The margins by customer and product are analyzed for all activities and separate results accounts by activity are restored.
• Provision on inventory:
All activities with a provision for a minimum of 1 million euros are verified through a statistical analysis.
The computerized control is also used for programming purposes, for example by recovering the client file of a wholesaler to identify customers paying in cash.
Implementation difficulties
The procedure to perform the data processing (see above) is complex, and the technical complexity is increased due the fact that the French legislation does not provide a standard audit file.
The stage of data formatting is heavy and requires strong computer skills. This is a significant barrier to the development of computerized controls.
Finally, the importance of the so-called permissive accounting software used in France should be noted. They have a module allowing the user to modify the accounting data while preserving as much as possible their coherence. Today, this feature for modifying accounting data is often external to the ‘official’ accounting software, which increases the difficulty for control.
This type of fraud requires heavy resources to enable their detection and provide evidence to identify their author. The use of heavy procedures (field search) is necessary.
Conclusion / Perspectives
The notion of ‘computerized accounting control’ at the DIRCOFI frequently refers to the simple reading of the digital accounting through a local tool, sometimes complemented with a few simple operations of sorting or calculating, and not to the implementation of complex data processing, which involve not only accounting elements, but also management files, which constitute the real computerized accounting control.
