Download - UWCISA Symposium 2009
UWCISA Symposium 2009
J. Mack Robinson College of Business / Georgia State University
Extending and using graphical representations of business processes in evaluating internal control
A. Faye BorthickGeorgia State University, [email protected]
Gary P. SchneiderQuinnipiac University, [email protected]
Anthony O. VanceBrigham Young University, [email protected]
Rationale for the learning experience
J. Mack Robinson College of Business / Georgia State University
1. Business on the cusp of a shift from flowcharts to business process diagrams (BPDs)
2. Scarcity of cases that afford students opportunities to:
1. Represent processes in diagrams from authentic sources, e.g., conversations
2. Evaluate internal control in highly automated situations
Learning activities/objectives
J. Mack Robinson College of Business / Georgia State University
1. Extend graphical representations of business processes from conversations: modify flowcharts or BPDs
2. User process representations to evaluate internal control
1. Identify information that the auditor should have obtained in the interviews
2. Identify control weaknesses
3. Explain potential effects of control weaknesses on the financial statements and operational effectiveness
3. Answer multiple-choice questions for 1 and 2 based on the case
Situation: Context in conversation
J. Mack Robinson College of Business / Georgia State University
The scene:
Corporate and store managers of the convenience store chain 24-Seven Company mulling over the implications for accounts payable processing in moving from their current system based on batch processing to a more customer-driven model for merchandise in the stores as a way to increase same-store sales over time.
Flowcharts vs. BPDs
J. Mack Robinson College of Business / Georgia State University
• Experiment:
Where are controls easiest to recognize?
• Flowchart
• BPD
• BPD with Krishnan et al. (2005) control notation
J. Mack Robinson College of Business / Georgia State University
Differences in systemsAspect Current: Batch Contemplated: Customer driven
Store manager role Passive Active
Store reporting to Corporate
Weekly from manual sales reports
Automatic daily polling
Ordering to replenish store shelves
Weekly based on sales reports, by Corporate
Daily based on store manager orders and Corporate enhancing
Deliveries to stores At vendors’ convenience, throughout the day
5 am daily from Corporate distribution center
Vendor-managed inventory
High-volume snacks and drinks
None
How vendors receive orders
Large vendors Over leased lines Programmatically
Local vendors None Web browser
J. Mack Robinson College of Business / Georgia State University
24-Seven: Missing information relevant to payablesQuestion that Kiran should have asked Reason for asking the question
1 How often are suspended transactions cleared?
Suspended transactions create potential for understated payables
2 How do you know EFT payments were made?
Ensure completeness of payables
3 How do you ensure correctness of spreadsheet calculations of payables adjusting entries?
Evaluate integrity of payables adjusting entries
4 To what extent are edits of payables transactions logged?
To ensure accountability for changes to transactions
5 How are no longer needed access privileges removed?
Ensure that incompatible access privileges are avoided
6 How connected are the servers and what vulnerabilities does that enable?
Evaluate access control
7 What vulnerabilities do personal technologies enable?
Evaluate access control
J. Mack Robinson College of Business / Georgia State University
24-Seven: Effects of control weaknesses in payables
Control weaknessesSys-tem Financial statements
Operational effectiveness
1 Potential for inaccurate route driver delivery tickets
Cur-rent
Potential for existence error in paying for goods not received
Potential for stockouts; overpaying for goods not received
2 Potential for souvenir vendor and store manager collusion to inflate delivery counts
Con-tem-plated
Potential for existence error in paying for goods not received
Potential for stockouts; overpaying for goods not received
3 Suspended payables omitted from adjusting entries
Both Understated payables
Cash needs underestimated
4 Inability to assure correctness of spreadsheet calculation of adjusting entries
Both Understated or misstated payables
Cash needs underestimated
FIGURE 524-Seven Company Procure-To-Pay System Flowchart: Current System
Enter store
Scan items; accept payment
Leave store
Customer Clerk ManagerStore
1. Count shelf inventory
2. Update store inventory
Daily
Corporate
Corporate inventory and sales
1. Update corporate inventory and sales
2. Prepare POs by store
Send POs to vendors (leased
lines)
Vendor:Low to medium volume
Corporate Local office
Receive orders (leased lines)
Prepare shipments and ship to stores
Prepare invoices and send to 24-
Seven Corporate (leased lines)
Receive invoice:‘R’
Route driver
Visit store
1. Inspect shelf quantities
2. Replenish stock3. Create delivery
ticket
Vendor:High volume
Transfer delivery tickets at end of
route
Record delivery tickets
Monthly, prepare invoices and send
to 24-Seven Corporate (leased
lines)
Shipments
1. Complete receiving report
2. Replenish shelves from shipments; put excess in back room
24-Seven Company
Weekly
Sales report
Prepare and send sales report to corporate
Weekly
Analyze overall sales
Enter sales
24 hours a day7 days a week
Store sales
Store inventory
Select items
Update store sales
Delivery tickets
PO #s and amounts
match?
1. Suspend invoice: ‘S’
2. Resolve discrepancy
Mark payable: ‘A’
5th & 20th of month
NoYes
10th & 25th of month
EFTs
To bank
Receive EFT confirmation
From bank
1st of month
Finish
Sum ‘R’ invoices
Post adjusting entries
Prepare EFT: ‘P’
Send request to bank: ‘R’
Find confirms with no request
Monthly
FIGURE 624-Seven Company Procure-To-Pay BPD: Contemplated System
Cus
tom
er
Cle
rk
Noon-2 pm daily
1. Update store inventory
2. Update store sales
Make daily
deliveries to stores
Shelve items
After 3 pm daily
Before 5 am daily
Select items 24/7
Scan items; accept
payment
Man
ager
Cor
pora
teD
istri
butio
n ce
nter
Ven
dor
Sto
re24
-Sev
en C
ompa
ny
Take shelf inventory with
handheld computer
Update inventory from handheld
computer
Predict next day demand and prepare
orders
Signoff on
orders
Poll stores electronically
for sales, inventory, and
orders
Analyze scanner data by store,
region, and overall
Enhance store
orders based on
sales analysis
2 pm daily
Accept and record
delivery
Prepare deliveries by store
Accept and
record delivery
Organize orders by
distribution center and
deliver
Pre-pare
orders
Retrieve orders
program-matically
Retrieve orders
with web browser
Manual
Auto-mated
Pre-pare items
Deliver items to store at
specified time
Shelve items
Accept and
record delivery
Post orders
for vend-ors
Prepare and send invoice
PO#s & amounts match?
No
Yes
1. Suspend invoice: ‘S’
2. Resolve discre-pancy
Mark pay-able: ‘A’
1. Prepare EFT: ‘P’; create EFT request: ‘R’
2. Send to bank
3. Post to cash
Receive invoice:
‘R’
1st of month5th & 20th of month: 10th & 25th of month
Receive EFT
confir-mation
1. Sum ‘R’ invoices
2. Post adjust-ing entries
Find pay-
ments with
no re-quest
Monthly
Order retrieval
type?
FIGURE 724-Seven Company Procure-To-Pay Process BPD: Contemplated System With Explicit Controls
Cus
tom
er
Cle
rk
Noon-2 pm daily
1. Update store inventory
2. Update store sales
Order retrieval type?
Make daily
deliveries to stores
Shelve items
After 3 pm daily
Before 5 am daily
Select items 24/7
Scan items; accept
payment
Man
ager
Cor
pora
teD
istri
butio
n ce
nter
Ven
dor
Sto
re24
-Sev
en C
ompa
ny
Take shelf inventory with
handheld computer
Update inventory from handheld
computer
Predict next day demand and prepare
orders
Signoff on
orders
Poll stores electronically
for sales, inventory, and
orders
Analyze scanner data by store,
region, and overall
Enhance store
orders based on
sales analysis
2 pm daily
Accept and record
delivery
Prepare deliveries by store
Accept and
record delivery
Organize orders by
distribution center and
deliver
Pre-pare
orders
Retrieve orders
program-matically
Retrieve orders
with web browser
Manual
Auto-mated
Pre-pare items
Deliver items to store at
specified time
Shelve items
Accept and
record delivery
Post orders
for vend-
ors
Prepare and send invoice
PO#s & amounts match?
No
Yes
1. Suspend invoice: ‘S’
2. Resolve discre-pancy
Mark pay-able: ‘A’
1. Prepare EFT: ‘P’; create EFT request: ‘R’
2. Send to bank
3. Post to cash
Receive EFT
confirma-tion
1. Sum ‘R’ invoices
2. Post adjusting entries
Receive invoice:
‘R’
1st of month5th & 20th of month: 10th & 25th of month
1. Match PO#s2. Match amounts
Find payments with no request
Objective questions: Performance objectives
J. Mack Robinson College of Business / Georgia State University
• Identify control strengths and weaknesses
• Design controls to mitigate control weaknesses
• By control objectives
• By financial statement assertions
• In business processes
• In SDLC
• In access control
6 practice questions and 30 assessment questions
Sample question: Identify control strength
J. Mack Robinson College of Business / Georgia State University
Verifying that each EFT confirmation has a corresponding EFT request would ensure the:
1. Validity of payments
2. Completeness of payments
3. Valuation of payments
4. Validity and completeness of payments
Learning theory: Situation model building
J. Mack Robinson College of Business / Georgia State University
• The best experience for future action is constructing mental models in current situations, i.e., comprehending.
• Ambiguities and conflicts are needed to prompt inferences and elaborations required to develop robust situation models.
References for situation model building
J. Mack Robinson College of Business / Georgia State University
• Barsalou. 1999. Language comprehension: Archival memory or preparation for situated action? Discourse Processes 28 (1): 61-80
• Zwaan and Radvansky. 1998. Situation models in language comprehension and memory. Psychological Bulletin 123 (2): 162-185
Learner reaction
J. Mack Robinson College of Business / Georgia State University
1. Realized “a ha” moments about payables weaknesses where they worked
2. Struggled with random positioning of utterances
1. Current vs. contemplated systems
2. Temporal sequence of processing
3. Recognized weaknesses more readily if they identified missing information first
4. Wished they’d developed better flowcharting/BPD skills on earlier assignments
5. Preferred BPDs: Easier to prepare and use
24-Seven’s contribution
J. Mack Robinson College of Business / Georgia State University
• Practice in evaluating internal control in a highly automated situation from conversation with assessment questions
• Introduction of notation
• BPMN in BPDs
• Krishnan et al.’s (2005) controls notation
Access
J. Mack Robinson College of Business / Georgia State University
Case on the Web: http://www2.gsu.edu/~wwwais/pro/24-Seven/site/24-SevenPart2.htm
Use name = acct431 and password = Pr2378
Krishnan, R., J. Peters, R. Padman, and D. Kaplan. 2005. On data reliability assessment in accounting information systems. Information Systems Research 16(3): 307-326.