Computer-Assisted Audit Toolsand Techniques

GROUP IV:ENRIQUEZ, JaysonESCOBEDO, XybelleNARVAEZ. Juana MariePAZ, Gene KellyRED, SunshineRENIVA, LeandraROMANA, Fatima BiancaULAYE, Vanessa

Learning objectives: Be familiar with the classes of transaction input

controls used by accounting applications. Understand the objectives and techniques used

to implement processing controls, including run-to-run, operator intervention, and audit trail controls.

Understand the methods used to establish effective output controls for both batch and real-time systems.

Know the difference between black box and white box auditing.

Be familiar with the key features of the five CAATTs discussed in the chapter.

APPLICATION CONTROL

Programmed procedures designed to deal with potential exposures that threaten specific applications.

Fall into three broad categories: Input controls; Processing controls; and Output controls

INTRODUCTION TO INPUT CONTROLS Designed to ensure that the transactions that bring

data into the system are valid, accurate, and complete

Data input procedures can be either: Source document-triggered (batch) Direct input (real-time)

Source document input requires human

involvement and is prone to clerical errors. Direct input employs real-time editing techniques to

identify and correct errors immediately

CLASSES OF INPUT CONTROLS

1) Source document controls

2) Data coding controls

3) Batch controls

4) Validation controls

5) Input error correction

6) Generalized data input systems

#1-SOURCE DOCUMENT CONTROLS Controls in systems using physical source

documents

Source document fraud

To control for exposure, control procedures are needed over source documents to account for each one

Use pre-numbered source documents Use source documents in sequence Periodically audit source documents

#2-DATA CODING CONTROLS

Checks on data integrity during processing Transcription errors

Addition errors, extra digits Truncation errors, digit removed Substitution errors, digit replaced

Transposition errors Single transposition: adjacent digits transposed (reversed) Multiple transposition: non-adjacent digits are transposed

Control = Check digits Added to code when created (suffix, prefix,

embedded) Sum of digits (ones): transcription errors only Modulus 11: different weights per column: transposition and

transcription errors Introduces storage and processing inefficiencies

#3-BATCH CONTROLS Method for handling high volumes of

transaction data – esp. paper-fed IS

Controls of batch continues thru all phases of system and all processes (i.e., not JUST an input control)

1) All records in the batch are processed together2) No records are processed more than once3) An audit trail is maintained from input to output

Requires grouping of similar input transactions

#3-BATCH CONTROLS Requires controlling batch throughout

Batch transmittal sheet (batch control record) – Figure 7-1 Unique batch number (serial #) A batch date A transaction code Number of records in the batch Total dollar value of financial field Sum of unique non-financial field

• Hash total• E.g., customer number

Batch control log – Figure 7-3 Hash totals

#4-VALIDATION CONTROLS

Intended to detect errors in data before processing

Most effective if performed close to the source of the transaction

Some require referencing a master file

#4-VALIDATION CONTROLS Field Interrogation

Missing data checks Numeric-alphabetic data checks Zero-value checks Limit checks Range checks Validity checks Check digit

Record Interrogation Reasonableness checks Sign checks Sequence checks

File Interrogation Internal label checks (tape) Version checks Expiration date check

#5-INPUT ERROR CORRECTION Batch – correct and resubmit Controls to make sure errors dealt with completely

and accurately

1) Immediate Correction

2) Create an Error File Reverse the effects of partially

processed, resubmit corrected records Reinsert corrected records in

processing stage where error was detected

3) Reject the Entire Batch

#6-GENERALIZED DATA INPUT SYSTEMS (GDIS)

Centralized procedures to manage data input for all transaction processing systems

Eliminates need to create redundant routines for each new application

Advantages: Improves control by having one common

system perform all data validation Ensures each AIS application applies a

consistent standard of data validation Improves systems development efficiency

#6-GDIS

Major components:1) Generalized Validation Module2) Validated Data File3) Error File 4) Error Reports5) Transaction Log

CLASSES OF PROCESSING CONTROLS

1) Run-to-Run Controls

2) Operator Intervention Controls

3) Audit Trail Controls

#1-RUN-TO-RUN (BATCH) Use batch figures to monitor

the batch as it moves from one process to another

1) Recalculate Control Totals2) Check Transaction Codes3) Sequence Checks

#2-OPERATOR INTERVENTION When operator manually enters

controls into the system

Preference is to derive by logic or provided by system

#3-AUDIT TRAIL CONTROLS Every transaction becomes traceable from input to

output

Each processing step is documented

Preservation is key to auditability of AIS Transaction logs Log of automatic transactions Listing of automatic transactions Unique transaction identifiers [s/n] Error listing

OUTPUT CONTROLS Ensure system output:

1) Not misplaced2) Not misdirected3) Not corrupted4) Privacy policy not violated

Batch systems more susceptible to exposure, require greater controls Controlling Batch Systems Output

Many steps from printer to end user Data control clerk check point Unacceptable printing should be shredded Cost/benefit basis for controls Sensitivity of data drives levels of controls

OUTPUT CONTROLS Output spooling – risks:

Access the output file and change critical data values

Access the file and change the number of copies to be printed

Make a copy of the output file so illegal output can be generated

Destroy the output file before printing take place

OUTPUT CONTROLS Print Programs

Operator Intervention:1) Pausing the print program to load output paper2) Entering parameters needed by the print run3) Restarting the print run at a prescribed checkpoint after a

printer malfunction4) Removing printer output from the printer for review and

distribution

Print Program Controls Production of unauthorized copies

Employ output document controls similar to source document controls

Unauthorized browsing of sensitive data by employees Special multi-part paper that blocks certain fields

OUTPUT CONTROLS Bursting

Supervision

Waste Proper disposal of aborted copies

and carbon copies

Data control Data control group – verify and log

Report distribution Supervision

OUTPUT CONTROLS End user controls

End user detection

Report retention: Statutory requirements (gov’t) Number of copies in existence Existence of softcopies (backups) Destroyed in a manner consistent

with the sensitivity of its contents

OUTPUT CONTROLS Controlling real-time systems output

Eliminates intermediaries Threats:

Interception Disruption Destruction Corruption

Exposures: Equipment failure Subversive acts

Systems performance controls (Ch. 2) Chain of custody controls (Ch. 5)

TESTING COMPUTER APPLICATION CONTROLS

1) Black box (around)

2) White box (through)

TESTING COMPUTER APPLICATION CONTROLS-BLACK BOX

Ignore internal logic of application Use functional characteristics

Flowcharts Interview key personnel

Advantages: Do not have to remove application from operations

to test it Appropriately applied:

Simple applications Relative low level of risk

TESTING COMPUTER APPLICATION CONTROLS-WHITE BOX

Relies on in-depth understanding of the internal logic of the application

Uses small volume of carefully crafted, custom test transactions to verify specific aspects of logic and controls

Allows auditors to conduct precise test with known outcomes, which can be compared objectively to actual results

WHITE BOX TEST METHODS1) Authenticity tests:

Individuals / users Programmed procedure Messages to access system (e.g., logons)

All-American University, student lab: logon, reboot, logon *

2) Accuracy tests: System only processes data values that conform to

specified tolerances

3) Completeness tests: Identify missing data (field, records, files)

WHITE BOX TEST METHODS4) Redundancy tests:

Process each record exactly once

5) Audit trail tests: Ensure application and/or system creates an

adequate audit trail Transactions listing Error files or reports for all exceptions

6) Rounding error tests: “Salami slicing” Monitor activities – excessive ones are serious

exceptions; e.g, rounding and thousands of entries into a single account for $1 or 1¢

COMPUTER AIDED AUDIT TOOLS AND TECHNIQUES (CAATTs)

1) Test data method2) Base case system evaluation3) Tracing4) Integrated Test Facility [ITF]5) Parallel simulation6) GAS

#1 –TEST DATA Used to establish the application processing

integrity

Uses a “test deck” Valid data Purposefully selected invalid data Every possible:

Input error Logical processes Irregularity

Procedures:1) Predetermined results and expectations2) Run test deck3) Compare

#2 – BASE CASE SYSTEM EVALUATION (BCSE) Variant of Test Data method

Comprehensive test data

Repetitive testing throughout SDLC

When application is modified, subsequent test (new) results can be compared with previous results (base)

#3 – TRACING Test data technique that takes step-by-step

walk through application

1) The trace option must be enabled for the application

2) Specific data or types of transactions are created as test data

3) Test data is “traced” through all processing steps of the application, and a listing is produced of all lines of code as executed (variables, results, etc.)

Excellent means of debugging a faculty program

TEST DATA: ADVANTAGES AND DISADVANTAGES Advantages of test data

1) They employ white box approach, thus providing explicit evidence

2) Can be employed with minimal disruption to operations3) They require minimal computer expertise on the part of

the auditors

Disadvantages of test data

1) Auditors must rely on IS personnel to obtain a copy of the application for testing

2) Audit evidence is not entirely independent3) Provides static picture of application integrity4) Relatively high cost to implement, auditing inefficiency

#4 – INTEGRATED TEST FACILITY ITF is an automated technique that allows auditors to test

logic and controls during normal operations

Set up a dummy entity within the application system

1) Set up a dummy entity within the application system2) System able to discriminate between ITF audit module

transactions and routine transactions3) Auditor analyzes ITF results against expected results

ITF: ADVANTAGES AND DISADVANTAGES Advantages of ITF

1) ITF supports ongoing monitoring of controls2) Applications of ITF can be economically tested without

the intervention of computer services personnel.

Disadvantages of ITF

1) Potential for corrupting the data files of the organization with test data.

#5 – PARALLEL SIMULATION Auditor writes or obtains a copy of the program that

simulates key features or processes to be reviewed / tested

1) Auditor gains a thorough understanding of the application under review

2) Auditor identifies those processes and controls critical to the application

3) Auditor creates the simulation using program or Generalized Audit Software (GAS)

4) Auditor runs the simulated program using selected data and files

5) Auditor evaluates results and reconciles differences

End of Report