This documentation provides a comprehensive overview of the Accounting Audit System, including its purpose, execution, operation, output details, and steps to address anomalies and frauds identified in the audit report.
1. Purpose
The Accounting Audit System is designed to:
Automate Auditing: Perform a systematic review of financial transactions and general ledger accounts.
Detect Anomalies: Identify irregularities in transactions, such as duplicates, missing descriptions, or invalid amounts.
Flag Fraud Indicators: Highlight potential fraud risks, such as unauthorized adjustments or unusual transaction patterns.
Ensure Compliance: Verify that the trial balance is balanced and that closing entries are properly recorded.
Generate Reports: Provide a detailed audit report with findings, summaries, and visualizations.
2. Execution
Prerequisites
Database: Ensure the following tables exist in your database:
gl_accounts: Stores general ledger accounts.
transactions: Records financial transactions.
bank_transactions: Tracks bank transactions.
audit_trail: Logs user activities.
settings: Stores system settings (e.g., financial period, currency).
PHP Environment: A server with PHP and MySQL/PDO support.
Dependencies: Bootstrap, Font Awesome, and Chart.js for the user interface.
Steps to Execute
Set Up Database:
Create the required tables using the provided SQL scripts.
Populate the settings table with default values.
Upload Code:
Place the PHP files (audit_accounting.php, connection.php, header.php, footer.php) on your server.
Run the Application:
Access the application via a web browser (e.g., http://localhost/audit_accounting.php).
Authenticate:
Log in with a user account that has the role of Admin, Accountant, or Viewer.
Run Audit:
Select a date range and click Run Audit to generate the report.
3. Operation
Inputs
Date Range: The start and end dates for the audit period.
Database Data: Transactions, general ledger accounts, bank transactions, and user activities.
Process
Fetch Settings: Retrieve the financial period and other settings from the settings table.
Run Audit: Perform checks on transactions, general ledger balances, and user activities. Identify anomalies and fraud indicators.
Generate Report: Compile findings into a structured report with summaries and visualizations.
Output
Audit Report:
Executive Summary: High-level overview of findings.
Anomalies: List of detected irregularities.
Fraud Indicators: List of potential fraud risks.
General Ledger Balances: Summary of account balances.
Trial Balance: Total debits and credits.
Closing Entries: Number of closing entries.
Charts: Visual representation of anomalies and fraud indicators.
4. Output Details
Executive Summary
Total Anomalies: Number of irregularities detected.
Total Fraud Indicators: Number of potential fraud risks.
Trial Balance Status: Whether the trial balance is balanced.
Closing Entries: Number of closing entries recorded.
Anomalies
Duplicate Transactions: Transactions with identical details.
Invalid Amounts: Transactions with zero or negative amounts.
Missing Descriptions: Transactions without a description.
Round Amounts: Transactions with round numbers (e.g., $1,000).
Outliers: Transactions with amounts significantly higher or lower than the average.
Weekend Transactions: Transactions recorded on weekends.
Fraud Indicators
Same Debit/Credit Accounts: Transactions where the debit and credit accounts are the same.
Unauthorized Adjustments: Transactions without proper approval.
Excessive User Activity: Users with a high number of edit/delete actions.
General Ledger Balances
Account Name: Name of the general ledger account.
Debits: Total debits for the account.
Credits: Total credits for the account.
Balance: Net balance (debits - credits).
Trial Balance
Total Debits: Sum of all debit amounts.
Total Credits: Sum of all credit amounts.
Status: Whether the trial balance is balanced.
Charts
Bar Chart: Number of anomalies and fraud indicators.
5. Addressing Anomalies and Frauds
Anomalies
Duplicate Transactions:
Action: Investigate the duplicates to determine if they are errors or intentional.
Resolution: Remove or correct duplicate entries.
Invalid Amounts:
Action: Review transactions with zero or negative amounts.
Resolution: Correct the amounts or remove invalid transactions.
Missing Descriptions:
Action: Identify transactions without descriptions.
Resolution: Add appropriate descriptions.
Round Amounts:
Action: Investigate transactions with round amounts.
Resolution: Verify if these are legitimate or manual entries.
Outliers:
Action: Review transactions with unusually high or low amounts.
Resolution: Confirm the accuracy of these transactions.
Weekend Transactions:
Action: Check if weekend transactions are valid.
Resolution: Ensure proper documentation for weekend activities.
Fraud Indicators
Same Debit/Credit Accounts:
Action: Investigate transactions with identical debit and credit accounts.
Resolution: Correct the accounts or flag for further review.
Unauthorized Adjustments:
Action: Identify transactions without proper approval.
Resolution: Require authorization for adjustments.
Excessive User Activity:
Action: Monitor users with a high number of edit/delete actions.
Resolution: Implement stricter access controls and logging.
6. Best Practices
Preventing Anomalies
Data Validation: Ensure all transactions have valid amounts, descriptions, and accounts.
Automated Checks: Use scripts to detect duplicates and outliers.
Regular Audits: Conduct periodic audits to identify and address issues.
Preventing Frauds
Access Controls: Restrict access to sensitive functions (e.g., edits, deletes).
Approval Workflows: Require approvals for adjustments and high-value transactions.
User Monitoring: Track user activities and flag suspicious behavior.
Improving Compliance
Regulatory Updates: Stay informed about changes in accounting standards (e.g., GAAP, IFRS).
Training: Educate staff on proper accounting practices and fraud prevention.
7. Conclusion
The Accounting Audit System is a powerful tool for automating financial audits, detecting anomalies, and flagging potential frauds. By following the steps outlined in this documentation, you can effectively use the system.