26|CELONIS – Materiality Madness

[IWillyerd]

BYU Student Author: @IWillyerd
Reviewers: @Mark, @Donovon
Estimated Time to Solve: 10 Minutes

We provide the solution to this challenge using:

• Celonis

Celonis is a software company that offers a process mining platform designed to help organizations analyze how their processes are executed across the organization through visualizations. The software is cloud-based, so no download or setup is required. You can find a link to the dashboard needed to complete the challenge below.

Overview
As a first-year associate at a small audit firm, you have been tasked with performing preliminary checks for an upcoming audit. Specifically, you have been assigned two major tasks. The first task is to check the materiality for some of the revenue processes that were a prior year concern. The second task is to determine if there are any overarching Segregation of Duties issues.

Fortunately, the audit client, Nimbus Co., has recently implemented process mining software for its internal audits and has granted you access to it as the external auditor. You have been provided with a dashboard that you can use to answer some of the questions that your audit manager has. It is important to note that the dashboard has filters that not only apply to the current page but also across the entire dashboard. You may need to filter on a field from one page and find the relevant information on another tab.

Instructions
Your audit senior has asked you to answer the following questions with the dashboard before an upcoming meeting so they can get a high-level view before they drill down deeper. Note down some answers to the following questions you have so that you can bring them up later today with your senior.

1. Check the Segregation of Duties tab and make note of any discrepancies that you might want to bring up with your manager to discuss.
2. Check the total number of variations for the cash conversion cycle and answer the following questions.
   • How many cases were in the most common process variant?
   • What are the total number variations?
   • How many cases went through the “Credit Denied” activity in total?
3. Last year, there were some issues with sales reps pushing through orders where credit was originally denied to pad their commissions. Please answer the following questions to check if there is a material issue to bring up with your manager:
   • How many cases are there where the “Credit Denied” activity occurred that was then directly followed by “Create Picking Ticket” activity?
   • What was the total sales order amount of those cases?
   • Did any orders go through the “Review and Deny Sales Invoice” activity after the picking ticket was created? If so, how many?

Data Files
Click here for the dashboard.

Suggestions and Hints

To answer some of the questions you may need to filter on one page and move to another page.

Solution
If you enjoyed this challenge, consider earning the Process Mining for Audit Professionals badge from Celonis.

Question 1

Possible Answers: 1) Salesclerk denying credit only a few times 2) Sales Managers approving and reviewing sales invoices, and then printing deposit slip Note: There are multiple answers to the question, and it is very open ended. It is used to highlight some of the other utilities found in process mining software like Celonis.
2a. 371
2b. 22
2c. 82
3a. 27
3b. $73,468.36
3c. Yes, 1 instance.

Question 2

Question 3

Solution Video: Challenge 26|CELONIS – Materiality Madness

[Parker_Sherwood]

This was a very interesting software! Here are some of my answers to the challenge questions:

1. There were several issues, the one that stood out to me was the scanning remittance and shredding remittance. People across all functions did these functions (including the computer system somehow
2. 371 cases; I think there were 22 total variations; 82 went through credit denied
3. There were 27 credit denials followed by “create picking ticket” activities totaling $73,468.36. One of the orders went through the “Review and Deny Sales Invoice” process, but it seemed to go through the rest of the process anyway.

Fun exposure to Celonis! Thanks for the intro @IWillyerd

[Mark]

Same answers as the solution!

A few thoughts on credit approval and this process:
The credit approval/denial process seems a little unorganized, though it’s not necessarily apparent in the Variant Explorer. If the auditor was just looking at the flow, there wouldn’t seem to be any problems depending on the company’s credit terms (585 orders skip approval, but they may be low enough amounts or clients trusted enough to justify skipping). The Segregation of Duties tab, however, shows a little more detail on the matter. Why would the accounting clerks, computer system, sales clerk, AND sales managers all be involved in this process? If I were an auditor, I would look into this further and ask a few more questions. Maybe their credit terms are lax and management isn’t very worried about it? Maybe sales reps are simply ignoring credit approval and pushing orders to the next process? Or maybe many approvals are slipping through the cracks because each employee involved thinks the others are approving/denying the rest?

[Spencer]

This is really cool software! One thing I’ve noticed is that the accounting clerks have multiple duties, including creating the SO, approving credit, matching the deposit slip and bank receipt, and receiving payment. The fact that they are responsible for both receiving payment and reconciling records is concerning. This situation could potentially allow the clerks to pocket payments and then falsify the records to make it appear as though the payment had been deposited into the bank.

[Alex_Garrett]

I’ve used this software in my classes, and it’s pretty neat. Here are some of my answers to the questions:

Segregation of Duties - I noticed that the “Deposit Slip and Bank Receipt Do Not Match” activity happened 127 times! That’s a high percentage for such a critical activity. I also thought it was a problem for the Accounting Clerks to have the duty of receiving the payment, saving the remittance advice, and then shredding it. There’s a lot of room for abuse there. Finally, I thought it was a threat to have the Sales Clerks be the ones approving credit and creating sales orders.

I found 371 cases that followed the path of the most common variant. Total number of variations was 22. And 82 cases went through the “Credit Denied” activity.

In 28 cases, a picking ticket was created immediately after credit was denied, and the total sales order amount on these cases is $72,468.36. Additionally, only one of these orders went through the “Review and Deny Sales Invoice” activity after the picking ticket was created.

Thanks for the challenge! I look forward to using this technology again in the future!