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Tuesday, August 21, 2007

Taking GL Analytics for a Test Drive -- Hard Way vs. Easy Way

"Dell Inc. said it would restate more than four years of its financial results, after a massive internal investigation found that unidentified senior executives and other employees manipulated company accounts to hit quarterly performance goals."

"The company [Dell] said it found evidence that various reserve and accrued-liability accounts were created or improperly adjusted -- usually at the close of the quarter to give the appearance that quarterly financial goals were met. The adjustments sometimes followed reviews of account balances "at the request of or with knowledge of senior executives." Dell added that employees in some business units purposely gave incomplete or incorrect information about these activities to headquarters personnel or auditors."

"According to the filing, the law firm Willkie Farr & Gallagher LLP and the accounting firm KPMG LLP led an investigation, using special software, that evaluated more than five million documents. They conducted 233 interviews with 146 individuals, according to the filling."

Sophisticated software can be used to analyze journal entries for suspicious patterns and potentially fraudulent transactions. Examples might include entries near month-end that subsequently reverse early in the next period, or entries that are made to accounts that normally receive only manual entries. For Dell, they tested this software the hard way -- as part of an SEC investigation and under advice from counsel.

Other companies are beginning to test similar analytic software the easy way -- as part of a routine internal audit or management review of balance sheet and related journal entries.

I'm reminded of the old saying from my pharmaceutical days -- even though medicine is often much more expensive than vitamins, fewer people actually buy the vitamins. As solution providers that often help clients with the preventive medicine of financial controls, I hope this illness causes a few more people to talk to their doctor while their health is still good.

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posted by Joe Oringel @ 8:14 AM   0 comments


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