Chapter 7 ComputerAssisted Audit Techniques CAATs IT Auditing

Chapter 7: Computer-Assisted Audit Techniques [CAATs] IT Auditing & Assurance, 2 e, Hall & Singleton

INTRODUCTION TO INPUT CONTROLS Ø Designed to ensure that the transactions that bring data into the system are valid, accurate, and complete Ø Data input procedures can be either: § Source document-triggered (batch) § Direct input (real-time) Ø Source document input requires human involvement and is prone to clerical errors. Ø Direct input employs real-time editing techniques to identify and correct errors immediately IT Auditing & Assurance, 2 e, Hall & Singleton

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 IT Auditing & Assurance, 2 e, Hall & Singleton

#1 -SOURCE DOCUMENT CONTROLS 1. Controls in systems using physical source documents 2. Source document fraud 3. To control for exposure, control procedures are needed over source documents to account for each one 1. Use pre-numbered source documents 2. Use source documents in sequence 3. Periodically audit source documents IT Auditing & Assurance, 2 e, Hall & Singleton

#2 -DATA CODING CONTROLS Ø Checks on data integrity during processing § Transcription errors q Addition errors, extra digits q Truncation errors, digit removed q Substitution errors, digit replaced § Transposition errors q Single transposition: adjacent digits transposed (reversed) q Multiple transposition: non-adjacent digits are transposed Ø Control = Check digits § Added to code when created (suffix, prefix, embedded) q Sum of digits (ones): transcription errors only q Modulus 11: different weights per column: transposition and transcription errors § Introduces storage and processing inefficiencies IT Auditing & Assurance, 2 e, Hall & Singleton

#3 -BATCH CONTROLS Ø Method for handling high volumes of transaction data – esp. paper-fed IS Ø 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 together 2) No records are processed more than once 3) An audit trail is maintained from input to output Ø Requires grouping of similar input transactions IT Auditing & Assurance, 2 e, Hall & Singleton

#3 -BATCH CONTROLS Ø Requires controlling batch throughout § Batch transmittal sheet (batch control record) – Figure 7 -1, p. 302 q q q 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, p 303 § Hash totals IT Auditing & Assurance, 2 e, Hall & Singleton

#4 -VALIDATION CONTROLS Ø Intended to detect errors in data before processing Ø Most effective if performed close to the source of the transaction Ø Some require referencing a master file IT Auditing & Assurance, 2 e, Hall & Singleton

#4 -VALIDATION CONTROLS Ø Field Interrogation § § § § Missing data checks Numeric-alphabetic data checks Zero-value checks Limit checks Range checks Validity checks Check digit Ø Record Interrogation § § § Reasonableness checks Sign checks Sequence checks Ø File Interrogation 1. Internal label checks (tape) 2. Version checks 3. Expiration date check IT Auditing & Assurance, 2 e, Hall & Singleton

#5 -INPUT ERROR CORRECTION Ø Batch – correct and resubmit Ø 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 IT Auditing & Assurance, 2 e, Hall & Singleton

#6 -GENERALIZED DATA INPUT SYSTEMS (GDIS) Ø Centralized procedures to manage data input for all transaction processing systems Ø Eliminates need to create redundant routines for each new application Ø 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 IT Auditing & Assurance, 2 e, Hall & Singleton

#6 -GDIS Ø Major components: 1) Generalized Validation Module 2) Validated Data File 3) Error File 4) Error Reports 5) Transaction Log IT Auditing & Assurance, 2 e, Hall & Singleton

CLASSES OF PROCESSING CONTROLS 1) Run-to-Run Controls 2) Operator Intervention Controls 3) Audit Trail Controls IT Auditing & Assurance, 2 e, Hall & Singleton

#1 -RUN-TO-RUN (BATCH) Ø Use batch figures to monitor the batch as it moves from one process to another 1) Recalculate Control Totals 2) Check Transaction Codes 3) Sequence Checks IT Auditing & Assurance, 2 e, Hall & Singleton

#2 -OPERATOR INTERVENTION Ø When operator manually enters controls into the system Ø Preference is to derive by logic or provided by system IT Auditing & Assurance, 2 e, Hall & Singleton

#3 -AUDIT TRAIL CONTROLS 1. Every transaction becomes traceable from input to output 2. Each processing step is documented 3. Preservation is key to auditability of AIS 1. 2. 3. 4. 5. Transaction logs Log of automatic transactions Listing of automatic transactions Unique transaction identifiers [s/n] IT Auditing & Assurance, 2 e, Hall & Singleton Error listing

OUTPUT CONTROLS 1. Ensure system output: 1) 2) 3) 4) Not misplaced Not misdirected Not corrupted Privacy policy not violated 2. Batch systems more susceptible to exposure, require greater controls 1. Controlling Batch Systems Output 1. 2. 3. 4. 5. 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 IT Auditing & Assurance, 2 e, Hall & Singleton

OUTPUT CONTROLS Ø 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 IT Auditing & Assurance, 2 e, Hall & Singleton

OUTPUT CONTROLS Ø Print Programs Ø Operator Intervention: 1) Pausing the print program to load output paper 2) Entering parameters needed by the print run 3) Restarting the print run at a prescribed checkpoint after a printer malfunction 4) Removing printer output from the printer for review and distribution Ø Print Program Controls § Production of unauthorized copies § Unauthorized browsing of sensitive data by employees q Employ output document controls similar to source document controls q Special multi-part paper that blocks certain fields IT Auditing & Assurance, 2 e, Hall & Singleton

OUTPUT CONTROLS Ø Bursting § Supervision Ø Waste § Proper disposal of aborted copies and carbon copies Ø Data control § Data control group – verify and log Ø Report distribution § Supervision IT Auditing & Assurance, 2 e, Hall & Singleton

OUTPUT CONTROLS Ø End user controls § End user detection Ø 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 IT Auditing & Assurance, 2 e, Hall & Singleton

OUTPUT CONTROLS Ø Controlling real-time systems output § Eliminates intermediaries § Threats: q q Interception Disruption Destruction Corruption § Exposures: q Equipment failure q Subversive acts § Systems performance controls (Ch. 2) § Chain of custody controls (Ch. 5) IT Auditing & Assurance, 2 e, Hall & Singleton

TESTING COMPUTER APPLICATION CONTROLS 1) Black box (around) 2) White box (through) IT Auditing & Assurance, 2 e, Hall & Singleton

TESTING COMPUTER APPLICATION CONTROLS-BLACK BOX Ø Ignore internal logic of application Ø Use functional characteristics § Flowcharts § Interview key personnel Ø Advantages: § Do not have to remove application from operations to test it Ø Appropriately applied: § Simple applications § Relative low level of risk IT Auditing & Assurance, 2 e, Hall & Singleton

TESTING COMPUTER APPLICATION CONTROLS-WHITE BOX Ø Relies on in-depth understanding of the internal logic of the application Ø Uses small volume of carefully crafted, custom test transactions to verify specific aspects of logic and controls Ø Allows auditors to conduct precise test with known outcomes, which can be compared objectively to actual results IT Auditing & Assurance, 2 e, Hall & Singleton

WHITE BOX TEST METHODS 1) Authenticity tests: § Individuals / users § Programmed procedure § Messages to access system (e. g. , logons) q 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) IT Auditing & Assurance, 2 e, Hall & Singleton

WHITE BOX TEST METHODS 4) Redundancy tests: § Process each record exactly once 5) Audit trail tests: § Ensure application and/or system creates an adequate audit trail q Transactions listing q 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¢ IT Auditing & Assurance, 2 e, Hall & Singleton

COMPUTER AIDED AUDIT TOOLS AND TECHNIQUES (CAATTs) 1) Test data method 2) Base case system evaluation 3) Tracing 4) Integrated Test Facility [ITF] 5) Parallel simulation 6) GAS IT Auditing & Assurance, 2 e, Hall & Singleton

#1 –TEST DATA Ø Used to establish the application processing integrity Ø Uses a “test deck” § § § Valid data Purposefully selected invalid data Every possible: q Input error q Logical processes q Irregularity Ø Procedures: 1) Predetermined results and expectations 2) Run test deck 3) Compare IT Auditing & Assurance, 2 e, Hall & Singleton

#2 – BASE CASE SYSTEM EVALUATION (BCSE) Ø Variant of Test Data method Ø Comprehensive test data Ø Repetitive testing throughout SDLC Ø When application is modified, subsequent test (new) results can be compared with previous results (base) IT Auditing & Assurance, 2 e, Hall & Singleton

#3 – TRACING Ø 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. ) Ø Excellent means of debugging a faculty program IT Auditing & Assurance, 2 e, Hall & Singleton

TEST DATA: ADVANTAGES AND DISADVANTAGES Ø Advantages of test data 1) They employ white box approach, thus providing explicit evidence 2) Can be employed with minimal disruption to operations 3) They require minimal computer expertise on the part of the auditors Ø Disadvantages of test data 4) Auditors must rely on IS personnel to obtain a copy of the application for testing 5) Audit evidence is not entirely independent 6) Provides static picture of application integrity 7) Relatively high cost to implement, auditing inefficiency IT Auditing & Assurance, 2 e, Hall & Singleton

#4 – INTEGRATED TEST FACILITY Ø ITF is an automated technique that allows auditors to test logic and controls during normal operations Ø Set up a dummy entity within the application system 1) Set up a dummy entity within the application system 2) System able to discriminate between ITF audit module transactions and routine transactions 3) Auditor analyzes ITF results against expected results IT Auditing & Assurance, 2 e, Hall & Singleton

#5 – PARALLEL SIMULATION Ø 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 2) 3) 4) 5) the application under review Auditor identifies those processes and controls critical to the application Auditor creates the simulation using program or Generalized Audit Software (GAS) Auditor runs the simulated program using selected data and files Auditor evaluates results and reconciles differences IT Auditing & Assurance, 2 e, Hall & Singleton

Chapter 7: Computer-Assisted Audit Techniques [CAATs] IT Auditing & Assurance, 2 e, Hall & Singleton