Assessing Expense Management and Evaluating Value-for-Money
Background
Our client, an audit executive who is working as part of the audit department of a large government organization, was looking to execute an expense management audit. The scope of her work included all expenditures made with personal expense cards (business credit cards issued to employees). Her objectives were:
Provide recommendations to management for better expense management, considering the specific spending patterns of each division or group of divisions.
Give the audit team the ability to focus on value-added activities that went beyond verifying expense approvals and allowed them a higher-level understanding of spending patterns and behaviour.
The Challenge
The organization has a diverse set of activities -from building repairs to hiring professional services- driven by the organization’s different divisions. The expense patterns have a different profile for each division. For example, the expenses in the division that provides outdoor maintenance have strong seasonality, while expenses in the IT group do not. Typical payment amounts change, their variability and frequency also change among divisions. Therefore, auditors needed to be able to execute their assessment, considering the specific characteristics of each division.
Our Approach
We provided a two-step approach: we first determined the profiles of divisions, individual accounts, and vendors. Our approach allowed the audit team to get a high-level understanding of the spending behaviour by division and, in cases where they required in-depth analysis, individual accounts within divisions. As well, it allowed the audit team to identify the vendors that were being recurrently being utilized across the organization.
Based on the profiles, we grouped divisions that had similar spending patterns. For each group, we provided accounts with atypical behaviour. The atypical accounts were ordered by anomaly score, which ranks accounts from the most atypical to the most typical. Similarly, we grouped vendors that were charging the organization under similar patterns. For each vendor, we sampled transactions that stood out, given these profiles.
The Benefit
Our client was able to make valuable recommendations to management at different levels of complexity. At the highest level, she was able to articulate each division’s specific spending patterns and grouped different divisions using behavioural analysis. Based on this analysis, the audit team made several recommendations for controlling costs, where each recommendation was based on each division’s needs and observed behaviour. As well, the audit team was able to rapidly identify control failures that were identified using the anomaly score that we provided.
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