Fraud has always kept financial executives on the lookout, but the realities of a super-swift digital age rife with hackers and cyber theft have raised the stakes like never before. According to KPMG’s report, “Using analytics successfully to detect fraud,” fraud accounted for $6.3 billion in losses in 2016, with the typical organization losing 5% of its revenues annually to fraud.
Given the heightened sense of urgency, how can forensic auditors bring pinpoint precision to bear? To be sure, certain smart fundamentals will always remain; top auditors know that getting to the bottom of a case requires attention to solid numbers instead of soft hunches. In that way, forensic auditing has much in common with detective work: Following the facts that surround the crime scene will reveal the story—and perhaps catch the perpetrator.
But thanks to burgeoning technology, today’s auditors have traded in the proverbial Sherlock Holmes magnifying glass for the equivalent of an electron microscope—and 2018-19 promises to yield accelerated change. Here are three trends that will impact forensic auditing.
1) Artificial Intelligence (AI) Will Come To The Fore
“We are at an inflection point in the way humans relate to technology,” says Steve Hill, Global Head, Innovation & Investments, KPMG in the U.S. “This will be as impactful to labor as mechanical enablement was to workers in the Industrial Revolution. We may see history record this exciting window of change as the Cognitive Revolution.”
The technological muscle of AI is great news for auditors because parsing out key details in an investigation no longer has to be done by hand, several sets of hands, or even hundreds. The proverbial paper trail has gone electronic—but this now means auditors may have to sift through thousands upon thousands of emails to find the small handful of messages that matter.
Yet with artificial intelligence, an auditor can ask a computer to pull up emails and documents where certain words or patterns appear for closer inspection. This not only cuts investigation times down but also yields a more efficient process for clients and promotes audit quality.
2) Client Demand For Current Digital Technologies Will Grow
Forensic auditing tech in a digital future is analogous to Moore’s Law, named for Intel co-founder Gordon Moore. Just as he contended that integrated circuit power would double every two years, new accounting technologies are developing much more quickly today than ever before.
More light is shed on this in the Forbes Insights/KPMG report, “Digital Transformation: How Advanced Technologies Are Impacting Financial Reporting and Auditing.” More than one in four executives surveyed (27%) listed “real-time insights into areas of heightened risk and in internal controls” as one of the most important benefits of advanced technologies in financial reporting. To that end, the continuing advancement of audit data analytics will play a major role. As opposed to working with a sampling of transactions, data analytics can examine 100% of transactions at a speed and pace unimaginable two decades ago.
3) Preparation Will Matter More Than Ever
While many businesses more clearly understand the need to be ready for a cybersecurity breach, an internal threat or fraud demands an equal level of preparation. It is vital that organizations approach the challenges they face in a disciplined way by understanding the protection choices they have and deploying the right solutions in an orderly manner. Mission-critical items range from vetting lawyers and forensic accountants to make sure they have no conflicts of interest, to setting up contracts for fair pricing in an efficient, non-stressful situation before fraud strikes.
Why is it so important to care for these details in advance? In the event of a breaking case of fraud, businesses can move on an action plan and not lose any time in those first few hours, when evidence can be compromised. Bad actors in an overwhelming majority of cases will rush to destroy evidence—wiping down hard drives and shredding documents. Advance planning can mean the difference between confiscating a laptop right away, or losing valuable time and evidence while thorny details are worked out.
Meanwhile, forensic auditors will want to bolster their own preparation by doubling down on education. Just a generation ago, much of the auditor’s work was done with phones and fax machines. Today, between 24/7 connectivity, mobile technology, big data, and massive increases in speed, “slow-down time” is a must. Auditors need to step outside the workday flow and devote time to learning about the latest industry developments through conferences, courses, and online research. Advances in auditing that once took decades to unfold have been compressed into months—and sometimes, weeks.
Putting It All Together: The Evolution Will Be Realized
The Forbes Insights/KPMG report “Audit 2025” notes that “audit is changing at an unprecedented pace as technology continues to evolve and clients increasingly expect more.” Forensic accounting likewise is ripe for evolution as it continues to harness incredible revolutions in high tech. And for auditors, evolution is the right word.
The kind of steady leadership forensic auditors provides can’t be replaced by any algorithm, and even the most capable artificial intelligence needs skilled human hands to guide it in 2018 and beyond.
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