Using New Technology on Government Audits

This article is one of a 7-part series on “Technology Auditing Strategies” co-authored by Roberto Calderon, Lyn McGee, Eric Stewart and Dr. Paul Eder.

It is almost 2019, with less than two weeks to finish an already tech-busy 2018. When reflecting back to the beginning of the year, or two years ago, or five years ago, or ten years ago, we can definitely conclude that the world has changed quite a lot thanks to advancements in technology. Nowadays, it is possible to communicate with people from all over the world by just using phone or computer apps. Leveraging technology, we travel faster and further. We can safely send and store information in seconds in the cloud, where this information will rest safely, and be automatically saved and backed up. Technology has continued to develop with the purpose of helping perform certain tasks at a faster rate, communicating worldwide in real time, safely storing and transmitting information, adding features to devices and belongings to enrich our daily activities, reaching new places quicker and faster, or enabling us to perform job duties in a better way.

As technology advances, processes, policies, and procedures change to adapt to the use of new inventions. In fact, since technology usually enhances the way daily operations are done, modern work is constantly being evaluated to find ways to leverage new technologies to increase effectiveness and efficiency. Therefore, it is important to be prepared and updated about not only about the possibility of using a new software or hardware, but also to embrace the imminent change that technology brings along. Change will happen no matter which industry technology is applied to, and Government audits are no exception to this rule.

When preparing for government audits, it is important to first consider which technologies will affect the audit process. The advances of computers and the internet have imposed significant changes in the whole audit process, with the approach used today taking a very different form than twenty years ago. Shared services and mobile apps facilitate enhanced communication between auditors and auditees, making possible to a) request documentation in a much faster way, b) safely store information, and c) communicate in real time despite not being physically present.

The following new technologies have the potential to affect audits in the Federal government in huge ways in the upcoming years:

• Artificial Intelligence (AI): AI is high level algorithmic functionality or “intelligence” demonstrated by machines and computers. These machines can process information and execute decisions on their own from external stimuli or inputs. AI is developed with the intention of mimicking human decision-making processes. Machines with AI learn both from experience, as well as interpreting language through natural language processing (NLP). In Federal government audits, AI software can be used to analyze data more thoroughly, providing accurate patterns of information as well getting the most out of data provided. Auditors can benefit from these features to reach more accurate conclusions, determining findings, and providing recommendations from deep data analysis.

• Blockchain: In its simplest form, blockchain is an enhanced list of records, incorporating cryptography. Every time a transaction is made, and the parties between the transaction agree with it, a block of data is created to store this transaction. Once agreed upon, this block cannot be modified by anybody. If a change is decided, a new transaction must be placed, so a new block of data can be created. Each block of data is connected to the one before and after it. This chain of blocks of data allows an irreversibility function to the blockchain technology, not allowing or inserting blocks between previously created blocks of data, allowing secure data storage and safeguarding it from hacking attacks. In Federal government audits, blockchain technology can be used for safeguarding important data, creating irreversible transactions throughout the audit process, and utilizing the function of smart contracts, that blockchain projects such as Ethereum With smart contracts, audit data integrity can be assessed in real-time during the process as transactions are executed, allowing the auditing process to be better managed as well as defining critical data which must be obtained and stored throughout the audit process.

Both artificial intelligence and blockchain represent a subset of new big technologies taking over the audit process. Accordingly, adaption of these new technologies will further change the audit process. A good way to start thinking about adapting these new technologies in the audit process through change management is to consider the following:

1. Tracking unusual transactions. New technologies should be used to track unusual transactions or findings that deter agencies from completing strategic objectives. Blockchain provides the option of agreement between parties before the data block is closed and becomes an immutable record of the transaction as it occurred.
2. Helping to reach targets. Technologies should be aligned to organizational strategic goals and objectives.
3. Assuring compliance. Internal control standards when using these technologies should also align with Generally Accepted Government Auditing Standards (GAGAS).
4. Revising the law. Legislation regarding the extent of Artificial Intelligence in government audits should be revised. Set the parameters on how much Artificial software will do in the process.
5. Allocating resources. establish budget to the purchase of software and adaptation of new technologies and providing training and educational resources for staff to learn the new technologies will enable them to be used effectively in the audit process.
6. Determining safety policies of information. Enable all security checks when managing sensitive and confidential information using new technologies. If there is a new technology tool used by an auditing firm, run all security checks and request explanation on how the tool works for data collection, what does the tool do with the data, and how findings are determined.
7. Planning ahead for reactions towards new technologies. Perspective about these technologies might differ among different agencies. Be prepared to deal with different reactions.

Technology is evolving and finding ways that new technology can facilitate efficiency and effectiveness of audits in the Federal government is essential. By preparing ourselves for what comes next, we as auditors or auditees have a clearer perspective on what to expect and how to react to these technologies. It also sets the stage for leaders to continuously assess and improve the audit process through effective Change Management.