One common obstacle that stops CFOs from implementing a robo-auditing system in their company is a lack of awareness surrounding the benefits of such a system.
It’s understandable, as the artificial intelligence (AI) and automation that powers robo-auditing systems can appear complex at first glance. It can be tempting to think that such a “complex” system would complicate the company’s processes, when in fact, the opposite is true.
A robo-auditor allows CFOs to give their people more flexibility. A company using a robo-auditor is able to institute less restrictive controls because its detective monitoring will find problems. The added flexibility increases productivity and efficiency.
How to improve efficiency with less restrictive controls
The evolution of muscle cars from the 1960s to today provide a great example for how efficiency improves with less restrictive controls.
In the ’60s, muscles cars were known for mega horsepower and poor gas mileage. The power of an engine (horsepower) was largely related to the size of the engine. The best performing cars generated close to one horsepower per cubic inch of engine.
Then, in the early 1970s, new EPA regulations made gas-guzzling engines obsolete. But today, despite even more restrictive regulations, many new cars produce more total horsepower than the old muscle cars, with smaller engines. How did this happen?
Car manufacturers are using smarter, automated controls. Here’s an example:
One method of improving the performance of a car is to change the point at which the spark plug ignites the gas in the system. The piston compresses the gas and air, the sparkplug lights, the gas burns (it doesn’t explode as you might think), and that burning creates an expansion that drives the piston that turns the engine.
When the engine begins to spin faster, you need to light that fire earlier to provide enough time for the gas to burn, which is called advancing the spark. In the Model T era, drivers advanced the spark with a lever on the steering column.
Detection stops spark knock risks
However, under some conditions, such as driving uphill with a heavy load on a hot day, the heat and pressure in the cylinder can ignite the gas, independent of the spark plug. This creates multiple flame fronts inside the combustion chamber.
As the two fires burn, the pressure waves from each fire collide and create what’s called spark knock. Instead of a single flame expanding smoothly to drive the piston, multiple flames create small shock waves that produce a pinging or knocking noise.
Spark knock can cause serious damage, from cracked pistons and rings to blown-out head gaskets. Model T drivers listened for the spark knock and wouldn’t advance the spark as much when they heard it. (Driving a Model T well required serious skill.)
Automakers developed systems that automatically advanced the spark, which worked well, but to accommodate for those uphill drives on hot days heavy loads, they limited how far the automated system could advance the spark—a preventive control.
You wouldn’t get spark knock on those hot days when you hauled a load uphill, but you also couldn’t advance the spark plug more all the other times it made sense to do so.
In other words, your car’s performance was limited in order to prevent one bad thing from happening during that rare uphill climb in the summer heat.
Now in the computer age, cars are built with advanced monitoring devices that advance the spark as much as possible but back off when spark knock is detected.
So, because your car can detect and prevent this problem from happening in the rare cases it occurs, you can now be more aggressive when the situation calls for it.
Detective controls throw off limits
Modern cars rarely experience spark knock because they monitor to avoid it. Modern cars take advantage of the more aggressive spark timing, giving you better performance and producing higher horsepower than was found in earlier muscle cars.
In this sense, the robo-auditor is like the monitoring device in your car’s engine.
A robo-auditor gives you great detective controls (it has an ear for spark knock) and allows you to be less restrictive with preventive controls designed to prevent a rare problem (the spark knock that only occurs on those hot, uphill hauls).
These benefits are important because, in recent years, regulations have forced most companies to implement increasingly strict preventive controls to reduce fraud.
Companies without a robo-auditor either have restrictive preventive controls or they double-check every transaction, which is time-consuming and expensive.
Now companies can have a robo-auditor check every transaction to ensure employees don’t act fraudulently, for example, approving an invoice for a vendor they created.
If, in an emergency, an employee creates a new vendor and approves the payment, the robo-auditor will flag it for review to ensure it was not a case of wrongdoing. This new approach reduces the risk of fraud while fostering a more flexible work environment.
Get confident with AI
Before adding artificial intelligence to your accounting system, you may have had preventive controls designed to save you during that 1 percent of the time when you were metaphorically struggling uphill. But those preventive controls limited you to the remaining 99 percent of the time when it’s better to advance the spark.
The superior detective controls in the robo-auditors throw off those limits and help you move ahead quickly and efficiently, confident you’ll avoid any spark knock risks.This is the fifth blog in an ongoing series based on the recently released book, Robo Auditing: Using Artificial Intelligence to Optimize Corporate Finance Processes by Patrick J.D. Taylor, Manish Singh and Nathanael L’Heureux.