Artificial brains to stop fraud

Audits of the big corporations are about to go through a revolution to cope with a phenomenal growth in use of the Internet for business-to- business transactions. That is increasing the risk of hackers and internal fraud, forcing auditors to become experts in data encryption, "firewalls" and on-line identity authentication.

Using computers as devices to communicate rather than simply to process data creates new challenges, and the big accountancy firms are devoting more resources to helping clients to improve their protection against computer fraud.

"Technology has not kept pace with the desire of business to use the technology," says Pat Russell, a partner in information systems risk management at Price Waterhouse. "We are working with clients to ensure that they are dealing with the person they think they are dealing with."

Medium-sized firms could be squeezed as a result of these new demands on auditors, suggests Clive Holtham, Bull Information Systems professor of information management at the City University, London, who is heading a research project on IT and the future of the audit. Small firms servicing small clients in traditional trading sectors will not be greatly affected by electronic commerce, he says, but larger firms, outside the big six, may struggle to meet the demands of clients committed to new technology, especially those operating multinationally.

Professor Holtham adds, though, that basic audit skills are as relevant as they have ever been. "Auditors continually emphasise that controls are their stock-in-trade," Professor Holtham says. "New technology will not change that.

Banks, insurers and the major retailing corporations are making strides not only in developing electronic commerce, but also in using "artificial intelligence" (AI) - where software uses evidence to make deductions or produce warnings - to strengthen their marketing and audit internally management controls and computer security.

AI is also being used by the big firms to check unauthorised access to confidential information. Forensic auditors use AI not only to analyse how a fraud has taken place, but also to detect it in action, and pre- empt it by locating control weaknesses. Effective AI software at Barings should have warned managers and auditors of what Nick Leeson was doing.

There are limits, though, to the use of AI as a substitute for old-fashioned, good quality auditing. Some auditors say there are simply too many transactions taking place in a large corporation for each to be analysed by computer.

AI should, though, prove useful in enabling auditors to benchmark clients against competitors, helping them to identify where a corporation is under-performing. John Mulholland, a senior manager at KPMG's audit research and development division, says that computer benchmarking is something to be gradually introduced into client audits. "Clients do appreciate a comparison," he says.

"Spider's web" diagrams can compress maybe 10 complex tables into a single graphic display: executives can see at a glance in which areas of activity their corporation under-performs against competitors. "People are much better at viewing patterns than reading tables," Mr Mulholland points out. But he adds: "The role of computers is to supply information so that people can bring their judgement to bear on the scenario. The main audit tool is still the brain"

Paul Gosling

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at

Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Digital Optimisation Executive - Marketing

    £30000 - £35000 per annum: Recruitment Genius: The UK's fastest growing, multi...

    Recruitment Genius: Financial Reporting Manager

    £70000 - £90000 per annum: Recruitment Genius: A Financial Reporting Manager i...

    Recruitment Genius: Payments Operations Assistant

    £23000 - £25000 per annum: Recruitment Genius: They win lots of awards for the...

    Recruitment Genius: Telephone Debt Negotiator

    £13500 - £20000 per annum: Recruitment Genius: This nationwide enforcement com...

    Day In a Page

    On your feet! Spending at least two hours a day standing reduces the risk of heart attacks, cancer and diabetes, according to new research

    On your feet!

    Spending half the day standing 'reduces risk of heart attacks and cancer'
    Liverpool close in on Milner signing

    Liverpool close in on Milner signing

    Reds baulk at Christian Benteke £32.5m release clause
    With scores of surgeries closing, what hope is there for the David Cameron's promise of 5,000 more GPs and a 24/7 NHS?

    The big NHS question

    Why are there so few new GPs when so many want to study medicine?
    Big knickers are back: Thongs ain't what they used to be

    Thongs ain't what they used to be

    Big knickers are back
    Thurston Moore interview

    Thurston Moore interview

    On living in London, Sonic Youth and musical memoirs
    In full bloom

    In full bloom

    Floral print womenswear
    From leading man to Elephant Man, Bradley Cooper is terrific

    From leading man to Elephant Man

    Bradley Cooper is terrific
    In this the person to restore our trust in the banks?

    In this the person to restore our trust in the banks?

    Dame Colette Bowe - interview
    When do the creative juices dry up?

    When do the creative juices dry up?

    David Lodge thinks he knows
    The 'Cher moment' happening across fashion just now

    Fashion's Cher moment

    Ageing beauty will always be more classy than all that booty
    Thousands of teenage girls enduring debilitating illnesses after routine school cancer vaccination

    Health fears over school cancer jab

    Shock new Freedom of Information figures show how thousands of girls have suffered serious symptoms after routine HPV injection
    Fifa President Sepp Blatter warns his opponents: 'I forgive everyone, but I don't forget'

    'I forgive everyone, but I don't forget'

    Fifa president Sepp Blatter issues defiant warning to opponents
    Extreme summer temperatures will soon cause deaths of up to 1,700 more Britons a year, says government report

    Weather warning

    Extreme summer temperatures will soon cause deaths of up to 1,700 more Britons a year, says government report
    LSD: Speaking to volunteer users of the drug as trials get underway to see if it cures depression and addiction

    High hopes for LSD

    Meet the volunteer users helping to see if it cures depression and addiction
    German soldier who died fighting for UK in Battle of Waterloo should be removed from museum display and given dignified funeral, say historians

    Saving Private Brandt

    A Belgian museum's display of the skeleton of a soldier killed at Waterloo prompts calls for him to be given a dignified funeral