Transforming Technologies: ACE Conference London 2015

Transforming Technologies:

ACE Conference London 2015

Michael P. Cangemi CPA, retired CISA, CGMA retired

Former CFO, CEO & Director; Audit Com Chair Senior Fellow Rutgers University CA&R Lab Senior Advisor/Investor Tech companies

My Focus on Technology and Analytics

Public Accounting - head of IT Audit

Industry CAE, CIO, CFO CEO and director CFO then CEO Etienne Aigner (UK-LSE) CEO of Financial Executives Intl. (FEI)

Profession: IIA, ISACA (Editor-in-Chief) Senior Fellow Rutgers CA Lab

Outline: Transforming Technologies

1. Tech Trends –

 Mobile, Social Media, Big Data, Cloud,

Internet of things, shift in ERP applications

2. Expansion of analytics and continuous

monitoring in the Era of Big-Data

3. Internal Audit use of Tech

1. New Era of E-GRC

“We can only see a short distance ahead, but we can see plenty there that needs to

be done.”

Alan Turing

Technology Trends

Just in my lifetime – mainframe

computers, networks, PCs, internet All aware more recent Tech Trends:

 Mobile

 Social Media connections

 Big Data

 Cloud

Impact all business applications

 Mobile: 24/7 connections; result

more data

 Social Media connections: result

more data

 Big Data: structured and massive

new unstructured data

 Cloud: new approach SaaS

Structured & Unstructured data

 Everyone has lots of structured data

 Then add the internet and social media

 Wow – there is a whole lot of unstructured data

 Hence Buzz word – BIG Data and

Headlines – C suite what are you doing with your BIG DATA?

 Projects and main systems with Business

Intelligence, monitoring & Analytics

Internet of Things

Next generation of monitoring and more

data – BIG DATA Squared

 Sensors monitor appliances – send

continuous information via the cloud

 Cars monitor surroundings and issues

warnings – soon it will automatically brake;

 And report to my insurance company!!

Evolution of Cloud

 New era of technology delivery:

 Low cost, less Cap Expenditures  By-pass the data center: Shift from

centralized IT to decentralized

 New security and control issues

 Leads to new best of breed software

offerings: with more user control

Did he say end of ERP ??

Gartner is advisor to FEI’s Committee on Finance & Technology

First mentioned shift from ERP in 2013 Here is what Gartner has to say:

© 2014 Gartner, Inc. and/or its affiliates. All rights reserved.

What Clients Have Told Us

We want our Global Applications equally on the public cloud, private cloud and on-premise The Cloud is dominating our thinking I want to ring-fence my MegaSuite The Business is now allowed to select applications Everything is going to cloud…isn’t it? I will keep core complex applications on-premise I am planning for a hybrid

environment “As the world is more connected

and the nexus of forces are reshaping the business ecosystem, IT ERP leadership focused on internal process control

and optimization cannot cope with the current business situation.”

© 2014 Gartner, Inc. and/or its affiliates. All rights reserved.

The Axioms of the Postmodern Applications Environment

Expect significant disruption to the roadmap for your current products

12

The MegaSuite is dead, killed by cloud specialist vendors.

No vendor can build a MegaSuite to keep up with cloud specialists.

Domain suites are emerging in the cloud.

© 2014 Gartner, Inc. and/or its affiliates. All rights reserved. 6% 5% 5% 6% 6% 3% 6% 8% 14% 23% 5% 6% 5% 4% 7% 6% 7% 10% 12% 15% 3% 3% 6% 8% 4% 10% 6% 13% 7% 9%

Big Data / Data science Cloud business Product cost analytics E-commerce Business process

management Enhanced business reporting

Governance , Risk and Compliance

IT Security Business analytics Enterprise business

applications

Ranked 1st Ranked 2nd Ranked 3rd

13%

Q05. Which three technology enabled capabilities are the most important areas of investment to your organization today in order of importance?

n=210

SUM

Most Important Technology Investment Today

47% 33% 31% 19% 19% 18% 18% 16% 14%

Back to Big Data:

Evolution of BI, Analytics and CM

Evolving Big Data and Data Analytics

 Business Intelligence (BI)

 Financial Analytics

 Continuous Monitoring

 Data Mining

 Business Process improvement – tracking  Marketing and

Monitoring is everywhere

Federal Express created New Standard

 Lost cell Phone – letter To the Editor  Toll collections

Continuous Monitoring- 25 years

 My focus time to expand monitoring

OVERVIEW OF CONTINUOUS MONITORING Medical **********; Internet of things ********

I learned: CA-CM is a Process

CM is a process & foundation technology

 Process - it can be manual; or

 Technology –using software tools

Like Excel – once you have a tool – you will expand the usage

Visualization is another new dimension – Tableau and GRC vendors like

FEI FERF CM Research

Financial Executives

International

2011 ERF Research

The Benefits of CM

FERF Research Project - 2011

The Benefits of Continuous Monitoring

C-Level focus - IBM, UTC, Intel, JC Penney, Microsoft, Wells Fargo, HP

Authors

 Michael P Cangemi CPA, CGMA

 Sridhar Ramamoorti PhD., CPA

 Bill Sinnett, MBA

Key FINDING: Leading companies recognize the importance of CM

Research Observations

 CM is a relatively new emerging

technology process (page 9)

 Business is become more dynamic

 Digitized information growing (BIG DATA)

 Already very large investment in IT

 CM derives further value from that

FERF research: Benefits of CM ---Findings

 CM often starts with Payment Systems

 A/P or Claims Payments – due to cash

recoveries and ROI

 CM software products available with:

 Improved capabilities and low cost  Experience with implementation

CM Software & Secret Sauce!!

CM software company expertise

 build analytics “secret sauce”

Implementation experience

 PtoP; T&E; JEs; GP – margin

optimization; Pricing – revenue recognition; FCPA

 Assurance Focus: CaseWare- IDEA,

CM Software Intelligence

 Collaborative Reasoning Engines

 Including and beyond basis data exceptions

 Artificial intelligence (IBM Watson)  Benford’s law

 Weighted scoring  Inference

 Pattern and relationship recognition  Statistical methods

Evolution CM and Cloud

FERF Research – issues with CM

 Large capital cost

 Getting on the company system –

Gartner – BI & Analytics

Gartner added analytics to their BI

segment in 2013 – calling it Operational Intelligence – we call it CM

Gartner emerging phases of analytics:

Descriptive analytics Diagnostic analytics Predictive analytics

Predictive Analytics - example

Predictive Analytics – from a CIO weather analytics gave 36 minutes

warning of a tornado using continuously monitored data from 5 miles above earth VS: sometimes 5 minutes

Business needs – leads to IT Trends

How to clean up BIG Data?

Controls and accuracy - needed for

BIG DATA integrity (GIGO)

Conversion of unstructured data

How to better manage the

business with BIG DATA?

IT Trends – Big Data

 First clean up data with CM-Continuous

Analysis and CCM-T

 Improve efficiency & effectiveness with BPI- Continuous Business Process Improvement  Better manage of business with BA Buisness

Tech Case:CIO Analytics team

Unlocking Business Value through Analytics

 Billings for claims for use of a trademark:

CM controls gains increased revenue improve profits

 Channel resellers – reverse engineer

successful sales to increase sales – with predicative analytics

Institute of Internal Auditors

Sharing results of a recent project:

2015 Worldwide survey of 17,000+ internal auditors

Staying a Step Ahead

Internal Audit’s Use of Technology

 Technology continues to evolve and

expand in financial, operations, and business systems.

 Adding productivity and creating disruptions

to and new business models.

 IA/GRC responded by expanding IT

Key Findings: technology in the IA process



_{use of monitoring and data}

analytics increased by 14% from

2006 to 2015.



_{Yet only 4 out of 10 chief audit}

executives (CAEs) worldwide feel

their departments' use of

 Electronic Workpapers scored the highest usage.

 Most likely due to the use of generalized software

tools

 Great expansion of the use of data mining, data analytics and CA.

 _{Yet globally, usage of most technology tools is}

reported “none” or “minimal.”

Among CAEs Worldwide:

 20% say their internal audit departments

primarily rely on manual techniques

 40% report at least some use of technology

 40% indicate appropriate or extensive use of

technology across the entire audit process.

What should you do?

1. Identify near-term opportunities to

automate processes to enhance efficiency and effectiveness

2. Select and implement independent

monitoring

3. Recommend use of appropriate

A Closer Look at Data Mining and

Data Analytics

 Expansion of data:

 From structured business applications.  From explosion of social media and other

unstructured data.

 Leads to expansion of data mining, CM

and the use of data analytics

 In audit: IA is turning to more CA

software applications and starting to focus on real time audit

COSO CM is core requirement

 Operations

-opportunity to build in controls and other verifications; expand coverage; find errors early: recover $$$

 Expanded use of automation !!

IA Opportunity -- CM

 Opportunity for IA to recommend even

more CM to improve IC systems to

Management ,1st line of defense, and compliance departments, 2nd line of defense (Cangemi EDPACS 2010 )

 Then build independent CA application

on top – strengthening the 3rd line of defense.

Summary -Ten-Year Trends

 The use of technology by internal

auditors has increased over the past decade.

 Use of data mining and continuous audit

increased significantly.

 Technology in the audit process

continues to grow,

Challenges to expanding the use of Tech by IA

 IA foundation skills are in accounting and

auditing – need more tech focus

 Capital to invest

 Other priorities – time restrictions.

 Need for creativity skills and vision.

 Need to take risks - IT implementations

do not always work out

Build a World Class Audit Business

My CAE years: high level summary of MAF

 Good People

 Following well thought out procedures

 Focused on significant issues and positive deliverables

 Focused on use tech for E & E

CA Evolution to E-GRC

Continuous Auditing (CA) 85% of large audit functions have tools, but very limited usage

 Many CAE’s looking at further automation  Start or expand the pace today

 With technology available today

New Trend: Emergence of Enterprise GRC

 SAP GRC; Oracle GRC

 Good concept – but just a concept; and I

reported on the future of ERP vs best of breed! Start today!

Next Gen –contextual analytics

Video and Contextual Analytics

 Video – very large files; difficult to

analyze

 Very large installed based with limited

ROI

 Retail and Banking has installed video

Gartner new era EGRC MQ

 We are beginning a new phase

 CM in Business Intelligence & Analytics

segment as continuous analytics

 CA tools listed in Transactions Controls

Monitoring

 Over time overtime CA tools migrate to Enterprise wide E-GRC

The old audit model will evolve

 Technology and real time data will force

a change

 Confirmation.com  SEC Robo-COP

 Real time multi company audit –Coney

 Bitcoin – Blockchain ledger

Digital Money and Auditing

 Bitcoin operates on the Blockchain

ledgers

 Peer to Peer transactions with real time

verification – still not tested in the main stream of business

Next era: Cloud Insights On Demand



Analytics solutions focused on needs

of Business Managers



Customer Control



Pricing based on Number of Records

and Frequency



Discounts related to Volume,

Frequency, and Number of Insights

Insights Delivered

4 Receive Your

Insights

Assessment Report

Next Phases of CM

 Expanded use of BI

 Expanded CM of social media data

 Expanded CM of video

 Expanded use of contextual analysis

Trend--- Video CM

 TV Drama – A Person of Interest – Monitors

Data and surveillance cameras

 Emerging CM video – retail/Banking

 Operations: anticipate need for cashiers;

lines in banks

 Controls – CM ATMs; Retail looking for

MY Case Study – Retail POS

 75 stores across the country

 Inventory shrink – ½ of 1%

 Asked for Loss Prevention - $500k+ / yr

 Retail software company, adds CM of

POS data

 Low cost: by store by month –

CM is everywhere - Sports

First use case– Baseball bestseller

 Moneyball – Oakland Athletics

New Frontiers: B ball -March Madness

Coaches Gobble UP Analytics USA Today

 Synergy Sports Technology – interactive

video box scores – all 30 NBA teams

 Click on a number and see video of the play  Portland Trailblazers – Analytics Manager

CM is everywhere -medical

IBM Watson – transformation of healthcare

 Phases of technology:

 Tabulating

 Programmable - you tell the computer what to do , has

limitations

 _{Cognitive - system is taught not programmed; then it learns}

and improves

 Watson scales and accelerates human expertise. Basically Watson reads everything fast, which a human could not do in a reasonable time frame.

IBM Watson – J&J Healthcare

 Watson reading electronic medical

records (EMR), looks at X-rays at a more detail level than a human, come up with different options and medical treatments

 plan to capture and integrate CM of

Transforming Technologies:

 Tech Trends – Summary

 Mobile, Social Media, Big Data, Cloud,

Internet of things, shift in ERP applications

 Expansion of analytics and continuous

monitoring in the Era of Big-Data

 Future – contextual and video analytics –

 Technology and real time data will force a change

 Automated monitoring of gov’t reports  Real time multi company audit

 Begin your expanded CA/CM processes

today!

“We can only see a short distance ahead, but we can see plenty there that needs to

be done.”

Alan Turing

Winston Churchill

Americans Will Always Do The Right

Thing, After Exhausting All the alternatives

Questions

Cangemi Company LLC

 Senior Advisor & Board Member

 Consulting –Financial, Technology

Strategic & Governance, Internal Audit

 Media -speaking; seminars; web

 Book -Managing the Audit Function;

available at Amazon, Wiley

 [email protected]

 www.canco.us

Buisness Career

 Ernst & Young – CPA ( 1970-80)

 Mobil mentor suggested “management”

 Phelps Dodge – (1980 -88) CAE Internal

Audit; Financial VP; CIO

 Cangemi Co LLC–ISACA Journal (87-07) & Books – MAF - Wiley

 BDO – (1989-92 IT Audit & IA Services

 Etienne Aigner, Inc(92 -2004)CFO - CEO

 CEO (07-8) Financial Exec Intl – Assoc.

Management, IT, Financial Governance 68 Cangemi Company, LLC