Optimizing data analytics for effective charity audits

January 16, 2024

The recent BDO Charity Fraud Report revealed 92% of charities have experienced financial losses due to fraud, the most common culprit being misappropriation of cash or assets.  

There is a general assumption that charities do not have as comprehensive internal controls as large corporations for example, but this just isn’t true! In fact, the BDO report showed that internal controls (67%) remained the most common means for detecting fraud, so charities are clearly putting in the effort to strengthen their line of defense.  

It’s easy to think that big multinational businesses are the ones with the best controls and general processes, but actually the charity sector is held to a high level of account by comparison. After all, it's public money they’re handling, so the sector has strict charity governance and regulation requirements to adhere to.  

So, it’s clear that charities have their internal controls on lock - but what about their data?  

It’s fair to say that a lot of auditors in this space - like a significant proportion of those working with large companies - have not had the tools to utilize the available data effectively. You’d think that data analytics is only good for really big businesses with millions of transactions, right? Why therefore waste the effort on small audits with limited volume?  

However, there is still so much value to be unlocked. If you're looking at 100% of general ledger transactions, whether that's 20 or 20 million records, the opportunities for efficiency and insights unlocked by analytics are still worth having!

Like other businesses, many charities end their financial year between December and March, making this period a significant risk area for fraudulent entries.  

Luckily, the Inflo team is on hand to help! Our digital-first approach can make this time of year a lot less stressful for auditors with charity clients and ensure they’re using their data effectively to help combat fraud.  

Fight back against fraud with Inflo

It must be said that fraud is complex and is not something anyone can fully protect themselves against. However, Inflo’s platform is perfectly placed to arm audit firms with the tools needed to help reduce their clients’ own risk of becoming another statistic.  

Here’s everything you need to know.

Inflo Detect

Inflo Detect enables instant identification of high-risk transactions. It is therefore primed to deal with management override and fraud. It allows audit firms to visually interrogate trends in year-end transactions, design bespoke targeted tests on the whole general ledger, and further apply a tailored risk score to all transactions in the general ledger, so auditors can focus on the highest scoring transactions, and therefore those with the highest risk characteristics.  

Within Inflo Detect, engagement teams can tailor how the scoring system is applied to their own clients; they use the same fundamentals, but for each charity, they apply scores to certain characteristics so that they're focusing on what they consider to be the higher risk areas.

Inflo Explore

Inflo Explore helps to visualize the general ledger data that audit firms acquire from their clients (using the power of Inflo Ingest), providing new insights – informing audit risks, business risks and general understanding into their clients’ operations. So, the planning and risk assessment of that charity gets applied equally to every type of audit.

Then auditors can go one step further and substantively test any unusual activities. Some good examples in charities would be the voluntary income stream, donations and grants. With Inflo, audit firms and their clients gain a good understanding of these activities, with far greater visual oversight than before.  

Inflo Revenue Cascade

Inflo Revenue Cascade analyzes transactions against expected revenue cycles and account combinations, testing for accuracy and occurrence of revenue. Auditors may primarily focus revenue testing on completeness and rely on other (e.g. debtors) testing for occurrence of revenue, a common approach for charity audits. This Inflo module provides auditors with critical information about any out-of-cycle revenue, sometimes overlooked, to confirm their planned approach is not flawed.    

For example, if 30% of a charity's income arises from transactions outside of a typical revenue cycle to debtors and cash, then the occurrence of that 30% has no bearing on existence of year-end debtors.  Charities are more susceptible to income arising outside of typical debtors/cash cycles, such as third-party arrangements and gifts in kind.  Charity auditors may not have had access to the tools and capabilities to identify this. Inflo’s module now provides that additional - and critical - insight.  

If you’re an auditing firm working with charity clients and want to help them optimize their data effectively to drive better audits, speak to one of our expert consultants today.

Find out today what we can do for you!