Dear IT Section Member:

CAATTs or Computer Assisted Auditing Tools and Techniques are software-based data analytic tools that leverage the processing power of computers, allowing organizations, auditors, forensic accountants and law enforcement agencies to troll large volumes of data for anomalies, outliers and miscalculations. One category of CAATTs tool which is generating a lot of interest in the post-9/11 era is continuous audit and continuous monitoring tools. These sophisticated analytical tools “monitor” accounting and other information systems, scanning thousands of financial transactions for unusual entries and flagging them for review, alerting businesses, auditors, forensic professionals, regulatory bodies and law enforcement agencies to the possibility of fraud or misstatement as it occurs.

One market where continuous audit or monitoring applications are seeing widespread adoption is the financial services industry. Under the Bank Secrecy Act of 1970 and the USA Patriot Act of 2001, financial institutions have a responsibility to expose suspected fraud and money laundering activities, and report them to the IRS and the Treasury Department’s Financial Crimes Enforcement Network. To comply with these requirements, all major banks – and many smaller ones – employ some kind of transaction monitoring software. These applications are programmed to flag suspicious or unusual transactions, including large cash deposits, multiple transactions initiated over a short period of time, transactions made to infrequently used accounts, and transactions that do not conform to a bank customer’s typical banking behaviors.

Transaction monitoring software, itself a high functioning CAATTs tool, was at the heart of New York Governor Eliot Spitzer’s resignation and the discovery of his involvement in a prostitution ring. Spitzer is reported to have made three $5000 wire transfer payments that his bank’s monitoring system flagged because some of the business entities he used resembled “shell companies” like those launderers routinely set-up, and because the three relatively small payments resembled “structuring” a common money-laundering strategy in which larger sums are broken into smaller ones that attract less attention. The investigation into these relatively unassuming transactions uncovered more than $80,000 worth of payments made to The Ambassador Club. Spitzer’s transactions likely received increased scrutiny because he is what banks refer to as a PEP, or Politically Exposed Person, a category of customer deemed a greater risk because of their high profile.

Although impressive in their complexity and effectiveness, monitoring systems like the one employed by Spitzer’s bank, are relatively new. They will only see increased deployment over time, and are likely to have significant impacts on the profession; from increasing the efficiency and effectiveness of internal audit efforts, to some day facilitating continuous assurance and enabling real time, on-demand financial reporting. While the future possibilities are profound, CAATTs, including continuous audit applications, have never been more relevant, especially given the current audit landscape; the calls for more effective audits and the risk-based standards issued by the AICPA and PCAOB.

To help Section members understand the significance of CAATTs tools and the potential impact they can have on an audit or forensic accounting practice, the IT Section has added the following materials to the IT Center Website:

Infocast: Computer Assisted Auditing Tools and Techniques (CAATTs)
An archived web seminar in which Mark Mayberry, CPA.CITP, CISA provides a overview of CAATTs, and demonstrates how auditors can leverage them for increased focus on risk, improved audit management and planning, and increased audit efficiency and effectiveness.

Top Technology Initiatives Podcast 
In Episode 5, Mark Mayberry, CPA.CITP, CISA, and Rich Lanza, CPA.CITP, CFE, provide an introduction to CAATTs, and discuss ways in which auditors and forensic accountants can use CAATTs to achieve a more thorough review of client data – and help hedge losses and reduce risks related to fraud and misstatement.

Frequently Asked Questions: Computer Assisted Auditing Tools and Techniques
An FAQ document intended to address common practitioner questions related to CAATTs.

Article: CAATTs Ideal for Efficient Audits

A January/February InfoTech Update article in which Mark Mayberry, CPA.CITP, CISA discusses the meaning of CAATTs and how they can enable a more efficient audit.

There is also a follow-up CAATTs web seminar in the works, during which Mark Mayberry and Rich Lanza will employ desktop sharing functionality to demonstrate actual investigative analytical techniques on-screen. Watch your email for more details.

As always, we are extremely interested in learning what kinds of tools and resources would best support your practice, and which topics you are most interested in learning more about. Feel free to email any suggestions to the AICPA’s IT Community Team.

Sincerely,

David Cieslak, CPA.CITP, GSEC                

Chair, IT Executive Committee