Internal audits and AI
Exploring the abilities and potential of generative AI tools for use in the internal audit space has been an interesting learning experience. Beginning with the topic of contracts essential to audits, here are a few ideas that involve application of AI:
1) Review of contracts typically takes a substantial amount of time. AI can do the same instantaneously and summarize the key aspects/clauses of the contracts.
2) Two or more contracts can be compared to identify (a) the main clauses that are similar/common and (b) clauses that are unique to each of the contracts.
3) Two contracts of the same type (say, distribution agreements) could be compared to determine which of the contracts (and clauses) are more onerous to comply with from the standpoint of the distributor.
4) In a contract between two parties (A & B), AI can be used to identify the key areas to review for compliance and risk management as the internal auditor of either A or B.
5) Obtaining a summary of the requirements relating to change orders and contract amendments with reference to the contract (with clause references).
6) Getting a list of the main aspects of the contract that could be subject to potential fraud and hence needs proper monitoring and review.
7) Obtaining an outline of the potential areas of fraud relating to warranty management (in a sales and services agreement) from the standpoints of the manufacturer and the distributor.
Points to consider
a) When uploading contracts or extracts of contracts into AI chatbots, appropriate data protection laws and related corporate policies should be complied with. One option to consider would be to use suitable contract redaction measures so that sensitive and confidential information (including direct identifiers) are not shared. Till date, for research purposes, I have been using contracts and contract templates that are freely available in the public domain.
b) While internal auditors would generally be aware of the aspects to cover and focus on in audits based on their experience and familiarity with their companies, AI can provide additional pointers and list more comprehensive ‘what can go wrong’ scenarios that can enhance the effectiveness of audits and improve the quality of audit outcomes.
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