Transaction Objects Control tags and Tags Dynamics Miklos
Transaction Objects, Control tags and Tags Dynamics Miklos A. Vasarhelyi Rutgers University 8/2/2006 Prelimary – do not quote 1
Outline l l l Introduction Transaction Objects Control tags Tags Dynamics Conclusions 2
Introduction 8/2/2006 Prelimary – do not quote 3
The evolving environment l l l WEB services create a set of anonymous cooperating processes Transactions are complex virtual entities that can assume many forms and can be modified by sequential processes Transactions can be routed along processes and modified by these processes Data structures are being progressively balkanized Transactions, databases, and processes can cooperate in forms that are bizarre under traditional systems designs 4
Introduction l l l The emergence of digital business measurement and document processing has changed fundamentally business processes Control measurement has been interpreted as control documentation XBRL/FR deals with the reporting tail end of the process XBRL/GL allow for a more granular data structure There are major conceptual needs in this world 5
Conceptual needs l l l Transactions must be defined with unique characteristics relative to type (objects) Controls must be describable, measurable, monitorable, and combinable Transaction x control clusters must be definable and measurable Transactions must have some form of accuracy (quality) parameter and this parameter must be related to its entailing processes Transactions must have security mechanisms to ensure their integrity 6
Basic Elements l l l l Business process Transaction Control Database Events Procedures and Flows 7
Transaction Objects 8/2/2006 Prelimary – do not quote 8
What is a transaction? l l l Is a unique record transmitted among processes? Is a record that is modified in a sequence of processes? Is a single record of a database? Is a basic atom of certain XML derivative languages? Is a matching unit of an XBRL/GL taxonomy? 9
• A process generates a transaction that has 97% reliability • The best estimator is that the transaction is 97% reliable Management Control • What does that mean? Client Management Process Client Items Management Control Sold Customer database Sales • Bad database item • Bad data entry Automatic confirmation • Correct form, entry but fallacious transaction due to other process fault person • Not delivered Data entry edit - lookup Sales person database • Client Product database Client database cannot pay • Product defective • Broken in transit • Client changed mind • Product 10 bad
Transaction objects l l Must be defined when a process is conceived Have object characteristics, attributes, defined behaviors, and inheritance algorithms Have to have defined their interaction with other processes Are affected by controls and processes and events 11
Control Objects 8/2/2006 Prelimary – do not quote 12
Control Objects l l l There are many types They have unique attributes such as transactions They modify business processes and transactions The control object can be part of a transaction, part of a BP, encompass several business processes May be linear, layered, amorphous, sequential, parallel, etc… 13
Types of Controls – Summary l l l l I. AUTHORIZATIONS II. VALIDITY III. POPULATION AND TRANSFER CONTROLS IV. PROCESS CONTROLS V. COVERAGE • • Va. SEGREGATION V. b SUPERVISION V. c RULES AND PROCEDURES V. d INSURANCE VI. ACCESS VII. AUDIT (ex-post analysis) VIII. COMPLIANCE WITH GAAP 14
Types of Errors l l l l l I. III. IV. V. VIII. IX. PROCEDURAL ERRORS COMPUTATION ERRORS ACCOUNTING ERROR INTEGRITY ERROR TIMING ERROR GAAP ERROR IRREGULARITIES LEGAL ERRORS MISCELLANEOUS MANAGEMENT ERRORS 15
COSO and continuous monitoring 16
• "An internal control procedure (ICP) is a single control measure such as the checking of a control total. " (Cushing[1], p. 25) • Controls are seldom used in isolation and may entail anything from one procedure with many functions (such as supervision) to a precise numerical check. It is necessary, therefore to define and relate internal controls, and groups of controls. • "An Internal Control Cluster (ICC) consists of one or more internal control procedures related to one or more types of error or activity, while an internal control system (ICS) is a set of ICCs that constitute a particular cycle of the business organization. " (Vasarhelyi, op. cit. , p. 43) 17
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Control tags 8/2/2006 Prelimary – do not quote 20
Definition l XML derivative tagging with a new type of tag, the control tags that incorporate specific control information on items of information. 21
Types of Control Tags l l 1) reliability related tags • • that specify the reliability of the item being measured at its most basic it entails the reliability of the control process that has generated the transaction 2) control aid tags • • tags that serve to leave behind tracer information on the datum processing (cookie crumbs), tags that record processes that the transaction was submitted, tags that contain other control information, and a mixture of the above. 22
Reliability control tags l l l An ongoing assessment of the reliability of the control processes that generate a transaction is made. This measurement is carried with the transaction If it is subject to other processes, this reliability assessment is changed 23
Control tags, cookie crumbs and digital IDs DID 1 DID 2 Dynamic control spots with cookie crumb collection Subsidiary 1 Financial statements Subsidiary 2 Financial statements DID 4 DID 5 Consolidation Financial statements Assurance station DID 7 DID 8 DID 9 DID 3 Subsidiary 3 Financial statements Financial Intermediary Financial statements analysis DID 6 24
Tracer related control tags (cookie crumbs) l l l Tags carry a unique identifier of the transaction that is encrypted This identifier is deposited in tracer receptacles across the transaction path Public x private encrypting schema are used to verify transaction paths 25
Path recording control tags l l l Transactions record its path by collecting process DIDs and carrying them encrypted Alternatively these may be deposited in a third party safe Web site and a pointer carried Information about the crypt decoding key / method is carried by the transaction as a tag 26
Information Control Tags l Contain other control related information that could entail • Organizational placement and hierarchies • Reliability change related information • Name of the DLA assuror, e. g. KPMG • Outsource related agreements 27
Tags Dynamics 8/2/2006 Prelimary – do not quote 28
client Provisioning processes Process 1 Pre-sales Processes Sales Processes Receivables leads Followups Client database orders database Pricel. Complementary products Salespeopledatabase transaction entities database Cash Collections 29
Conclusions 8/2/2006 Prelimary – do not quote 30
Conclusions l l The balkanization financial information distribution creates serious integrity concerns One must create a new conceptualization to understand represent the elements of business processes Control tags associated to XML derivative transactions can deal with many of these problems Substantial investments on the standards, their implementation into software, and their conceptualization must be made 31
Conclusions 2 l l Transactions and controls are object types with unique characteristics related to their types They have to be unique in type and measurable They are denominated in clusters and procedures They are modified across the life-cycle of the busines process elements 32
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