Jeremy Clopton, CFE, CPA, ACDA
Senior Managing Consultant, Forensics and Valuation Services, BKD, LLP
Yet another 1980s movie icon is making a comeback. However, this is not your typical remake. Robocop is back, and geekier than ever. You read that correctly, Robocop has gone geek. In a recent Fortune article, the SEC’s new accounting quality model, Robocop, takes center stage. The SEC is going to begin using data mining procedures to identify companies with accounting records deserving a closer look. As a data mining professional, I found a few things in this article surprising, noticed some items not discussed and saw positive news for companies that may encounter Robocop in the coming years.
First, I don’t find the fact the SEC will be using data mining surprising. In fact, this is something I expected. What is surprising is the list of atypical parties encouraged to use data mining now that the SEC has unveiled its model. These include:
- Employees questioning their employer’s behavior are encouraged to use data mining to see if they are “on the right track.”
- Investors looking to analyze the financials of potential investments and make decisions that are more informed.
- Companies wanting to analyze the financials of the vendors and customers with which they do business.
Next, here are a couple of useful items to supplement this article. First, internal audit departments of organizations should also be users of data mining. The principles discussed in this article can help internal audit departments take a proactive approach to fraud detection and increase their effectiveness. If they are not already using data mining, the SEC’s use is a good reason to begin. Also, there is data analysis software available that does not require programming language or experience. Many organizations may already use these tools within their governance, risk and compliance program, possibly within the internal audit department.
Finally, there is good news for companies subject to Robocop’s review. Data mining is not a new concept; it has been around for quite a while. Fraud investigators have been developing data mining procedures for years and regularly implement these procedures within investigations. As a result, there are many resources available to companies looking to incorporate data mining into their testing and ease the learning curve. These resources can help companies implement their own data mining procedures and take a proactive approach to detecting potential issues in their financials.
If you have not been reading about Robocop and the new accounting quality model, I would encourage you to do so. The Fortune article is a great place to start, with many other articles out there to provide other insights.