Untitled Essay, Research Paper
In accounting systems, certain controls are needed to ensure that employees
are doing their jobs properly and ensure that the system runs properly. These
checks are in the best interest of the organization. These controls come
in the form of internal and external controls for the system. The internal
controls are the checks that are placed in the system my the company’s
own management and directors. Today more and more companies are moving from
the manual accounting systems to computerized accounting information systems.
The advantages of a computerized system are increases in the speed and accuracy
of processing accounting information.
However, as systems become computerized, the internal controls for that system
has to be adapted accordingly. This is because computerized systems bring
with them certain unique problems that can only be removed or minimized by
adapting the present controls and adding new controls. These problems are
· In a manual system there is a paper trail for the internal auditor
to follow. All records and transactions are kept on paper and so an auditor
has clear and documented proof of what has transpired. Computerized systems
rarely have a clear paper trail to follow. Since computers do all of the
sorting of the information the company rarely sorts the source documents.
Also the computer does most of the calculations and processing so there would
not be the amount of documentation that there would be in a manual system.
· Another problem of computer systems is the fact that there can be
difficulty in determining who entered the data. In a manual system the identity
of the person entering the data can be identified possibly by the person’s
handwriting. This cannot be done in a computerized system. This makes it
very difficult to determine who is responsible for errors or fraud.
· Since the computers do all calculations and processing errors can
occur due to bad design of the program. This can be difficult to detect
especially if the error does not occur frequently and only does so under
particular conditions.
· Computer systems also offer new opportunities for fraud. If a computerized
system is not set up properly and certain checks not put in then the computer
system can be used to defraud the company. The fact that it is difficult
to trace who enters the data only adds to the magnitude of this. In order to minimize the risks of errors or fraud occurring
in the computer system certain controls have to be put into place. These
controls can be broken up into three different categories. They are
1. Administrative Controls
2. Systems Development Controls
3. Procedural ControlsAdministrative Controls
Administrative controls are those controls are those controls
that are placed on the system to ensure the proper organization and processing
of data. These administrative controls are
Division of duties.
Duties are assigned to different individuals in the
organization. This is done in such a way that no one person can have full
control over a transaction. This ensures that an individual cannot have full
control over the creation and operating of the system. One reason for this
division is having one person controlling the system can result in fraud
if that person is not completely trustworthy. Another reason for the division
of duties is to prevent the organization from becoming totally dependent
on the person controlling the computer system. If this person were to leave
then the organization would have no one to run the system. The division of
duties ensures that employees can leave without having any major effect on
the system.Operation Controls
Operation controls are necessary controls since they since
they determine what the computer systems and the employees using the system
have been doing. These controls can come in the form of
· rotation of shifts
· duty logs
· a manual of operating instructions
· attendance controls
· computer logs
These controls can allow an auditor to track the exact
actions of the computer systems and employees. This documentation allows
the to easily spot any errors or improper actions that have occurred.Files Controls
These controls are put in place to minimize the number
of errors and omission that occur in the file system. Good file controls
are
· Availability of a skilled technician
· Proper procedures for issuing and returning files
· proper labeling and indexing of files
· protection of storage media from dust, humidity, fire etc.
· Procedures for returning files for certain minimum periods
· Facilities for recovering files that have been damaged or corrupted.
· Facilities for creating backup copies of files.
The placement of these controls have very serious implications. These controls
that information that is vital to the organization is safe. The data in these
files must be protected from errors or tampering whether intentional or
accidental.Hardware Security
The computer hardware is not only important to the processing
of the information but is also a valuable fixed asset for the company. Therefore
controls for the protection of the hardware must be put into place. Computer
hardware must be placed in a secure area where the access to it is limited
only to those who need to use it. Certain levels of security must me maintained
e.g. only the systems administrator can have access to the CPU and storage
systems. The computer system must also be placed in a control environment
to protect it from environmental hazards e.g. dust and humidity. Arrangements
should be made to protect the computer against fires and power fluctuations.
There should also be some controls in place to recover the system in case
the hardware fails. These controls would ensure that the breakdown of the
hardware would not have a serious effect on the company.
Systems Development controls These are the controls that are put over the design and
implementation of the system. These controls ensure that the system is developed
with a minimum number of errors.Standardization
One important control is standardization. These consist
of various standards that are laid down by management for the design and
development of the system. These standards include the complete documentation
of the development of the system. These standards would not only benefit
in the correcting of problems and updating of the system, the documentation
would allow the auditor to get a better idea of how the system works. This
would help the auditor in spotting possible problems in the system.Involvement of Management
The involvement of the organizations management in the
development of the system is an important control. With these controls,
management must have documentation such as feasibility studies, budgets and
performance evaluations. These documents would allow management to decide
if the system being developed would be viable and cost effective. Without
such controls, expensive projects can be started and never finished, costing
the organization a great deal in time and money. These managerial controls
force the development team to do a thorough job since they are accountable
to management..Testing
Testing and trials are important controls and require
that systems are thoroughly tested before they become operational. The extensive
testing of programs will minimize or even eliminate the errors in the computer
system. The tests will show exactly what type of problems occur in the system
in the processing of certain data and would also indicate any problems in
the response time of the systems. Also, the benchmarks that are calculated
in testing can be compared with benchmarks taken later on to see if the program
has been tampered with.Training
The training of the data processing staff is a very important
control. Proper training of staff would reduce the number of errors that
would occur in the system due to inadequate knowledge of the system. The
trained staff would be less likely to make mistakes.Concurrent Running of old and new systems.
Running the old and new systems concurrently is also an
important control. This control would allow the organization to compare the
results of the two systems when they do different tasks. These results would
allow them to find any problems in the new system by validating the results
of the new system with the results of the old oneProcedural Controls.
Procedural controls are one of the most important set
of controls as they are the ones that are placed on the day to day running
of the system. Procedural controls are particularly effective in detecting
whether a system has been tampered with and so are effective in detecting
fraud. Procedural controls are divided into those controls placed on input,
output, processing and storage.Input Controls
These are procedural controls that are placed on the input
of data into the system. These controls are
· Serial numbering of documents
· Validation checks on documents
· Batching documents and checking of batch totals
· authorization proceduresThese controls are carried out by the user department. The Data processing
depart also then gets the data and put carry out their own controls. These
are
· Vetting of batches to ensure that they are correct
· checks on data conversion methodsThese checks are made so that the data that is entered is as accurate and
as error free as possible.Processing Controls
Once that data has been entered into the system and is being processed, the
processing controls are used to ensure that the data is processed properly.
Processing controls are divided into two categories. These are
1. Validation tests
2. File checksThe validation checks are made on the data when it is being processed. These
checks ensure that the data is processed correctly. Validation checks include
· Check digit verification
· Checks in the size of file and records
· check on mode of the file
· Check on consistency of fields in files
· Range tests on numbers and values
· Hash totals
· Control record checks
· Sequence checks to ensure that records are entered in the right
order
· Error logs which contain a record of all errors that have occurred
during the processing of the data.
· Transaction logs which contain a record of each transaction that has
been made. This provides an audit trail for the auditor. The transaction
log would contain where a particular transaction originated and who initiated
it.
File checks are the controls to ensure that the integrity of the files that
hold the data for the organization remain intact during processing. Some
file checks are
· Use of header tables to identify files
· Use of trailer labels to ensure that the record is completely read.
· Arithmetic proof of the validation of certain fields by checking them
with other fields in the recordOutput controls
The outputting of processed data also has certain controls.
These output controls are used to ensure the completeness, accuracy and
timeliness of the output on screen, printed form as well as on storage media.
Some output control procedures are
· Initial screening of the output to detect obvious errors
· Output should only be distributed by authorized persons to authorized
persons.
· Controls totals on the output should be checked against the control
totals of the input to ensure the consistency of data.
· All the documents produced should be numbered and accounted for
· Highly sensitive materials should not be seen by the general data
processing staff but should be outputted to a secure location.
· A feedback system must be developed between the users and the data
processing department so that any errors that occur would be reported and
subsequently corrected.
Storage Controls
When data is stored additional controls must be put into
place to ensure that the data is stored properly and that the data is to
tampered with in any way. These controls ensure that no unauthorized persons
would be able to tamper with or destroy the data whether it be intentionally
or deliberately. Some of these controls are
· Authorization controls to ensure that only authorized personnel is
allowed to make amendments and deletions to the files.
· Controls to ensure that amendments and deletions are to be thoroughly
documented so that the person who made the amendments can be made accountable
for the changes they made.
· Controls to ensure that there are proper facilities for the backup
of files. These include ensuring that files are backed up regularly, multiple
backup files are kept and that these files are kept at a secure location
and are easily retrievable in case of an emergency.
· Controls that would ensure that the data can be recovered in case
of disaster. This includes transaction logs of complete system dumps which
will make periodic backups of all the transactions that occur within the
system.
Computerized accounting systems bring with then a set of new and unique problems.
The internal controls that have been put into place for a manual system to
help the internal auditor cannot fully prevent or minimize the possibility
of errors or fraud that come with the computerized systems. Therefore the
old controls must be modified for the new system and new controls must be
put in. Only then can the internal auditor ensure that the number of errors
that occur within the system be minimized or even eliminated..
BibliographyBasset P.H. (1993) Computerised accounts, 3rd Edition, Manchester : NCC
Blackwell. 1-85554-205-6.Grudinsku G., Burch J., (1989), Information Systems Theory and Practice,
5th Edition, John Wiley and Sons, Inc. 0-471-61293-6.