Download Application Controls 06-17-2014

Application Controls
Presented to the Tallahassee ISACA Chapter
Brown Bag Luncheon
This presentation will walk you through the common application
controls and how to audit them.
• Application Controls
– Input controls
– Processing controls
– Output controls
• Auditing Application Controls
– Data integrity testing
– Testing application systems
– Online auditing techniques
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Application controls are controls over input, processing, and
output functions.
• Only complete, accurate, and valid data are entered and updated in
a computer system
• Processing accomplishes the correct task
• Processing results meet expectations
• Data is maintained
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Application controls can be automated or manual.
Application controls include:
• Edit tests
• Totals
• Reconciliations
• Identification and reporting of missing or exception data
• Automated controls combined with manual controls
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Application controls help ensure data accuracy, completeness,
validity, verifiability, and consistency, thus achieving data
integrity and reliability.
Application controls ensure:
• System integrity
• System functions as intended
• Information in the system is relevant, reliable, secure, and
available as needed
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Input or origination controls ensure that every transaction is
entered, processed, and recorded accurately and completely.
Types of input controls include:
• Input authorization
• Batch controls and balancing
• Error reporting and handling
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Input authorization controls verify that all transactions have
been authorized and approved by management.
Input authorization controls:
• Signatures on batch forms or source documents
• Online access controls
• Unique passwords
• Terminal or workstation identification
• Source documents
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Batch controls combine input transactions into groups or batches
to provide control totals that are matched to the source
documents to verify that the entire batch was processed.
Batch controls include:
• Total monetary amount
• Total items
• Total documents
• Hash totals
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Batch balancing controls can be performed through either a
manual or automated reconciliation.
Batch balancing controls must be combined with adequate
follow-up procedures. Batch balancing controls include:
• Batch registers
• Control accounts
• Computer agreement
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Input error reporting and handling ensures only correct data are
accepted into the system and input errors are identified and
corrected.
Input error reporting and handling can be processed by:
• Rejecting transactions with errors
• Rejecting the whole batch
• Holding batches in suspense
• Accepting the batch and flagging error transactions
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Input processing requires that controls be identified to verify
that only correct data are accepted into the system.
Input processing control techniques include:
• Transaction logs – detailed listings of all updates which can
be manually maintained or automatically generated
through computer logs
• Reconciliation of data – ensures all data are properly
recorded and processed
• Documentation – written evidence of control procedures
• Anticipation – user groups anticipate the receipt of data
• Transmittal log – documents the transmission or receipt of
data
• Cancellation of source documents – prevents duplicate
entry
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Input processing also requires that controls be identified to
ensure that input errors are recognized and corrected.
Error correction procedures include:
• Logging of errors
• Timely corrections
• Upstream resubmission
• Approval of corrections
• Suspense file
• Error file
• Validity of corrections
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Processing procedures and controls are meant to ensure the
reliability of application program processing.
Processing procedures and controls include:
• Data validation and edits
• Processing controls
• Data file control procedures
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Data validation and edit procedures ensure input data is
validated as close to the point of origination as possible.
• Limit check – benefits check should not exceed a certain
amount
• Range check – students registering for a certain grade should
be in a certain age range
• Validity check – the zip code matches the state in the address
• Sequence check – the check number being paid matches the
range of issued checks
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Data validation and edit procedures identify errors, incomplete
or missing data, and inconsistencies among related data items
and ensures only accurate data are processed.
• Existence check – a product number matches a product being
sold
• Completeness check – all required fields are required to be
filled in
• Duplicate check – a duplicate purchase order is identified
• Logical relationship check – the credit card number has been
provided if the payment is by credit card
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Processing controls are meant to ensure the completeness and
accuracy of accumulated processed data.
• Edit checks – most of the data validation examples would also
work as edit checks
• Manual recalculation – perform a recalculation of a sample of
transactions to verify the accuracy of calculations, for
example, sales tax
• Run-to-Run totals – control totals are maintained through
various states of processing to verify the completeness of the
records
• Exception Reports – reports programmatically identify
transactions or data that fall outside a predetermined range
or do not match other specified criteria
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Data file control procedures ensure that only authorized
processing occurs in stored data.
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Data file security – ensures only authorized users have access to alter the data
through either access to the application or direct access to the database
Source documentation retention – source documents retained for an
adequate time period to enable retrieval, reconstruction, and verification of
data if necessary
Version usage – make sure that the correct, current version of a file is being
used
Internal and external labels – use on removable media and files to ensure the
correct data is being used
File updating and maintenance authorizations – ensures that maintenance
follows an approved and documented process
Transaction logs – useful in tracking down which transactions were processed
in the event of an error and investigating the cause
Before and after image reporting – useful as a monitoring tool while not as
granular as the transaction log
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Output controls are meant to provide assurance that the data
delivered to users will be presented, formatted, and delivered in
an accurate, consistent, and secure manner.
• Tracking of sensitive output:
– Negotiable instruments
– Confidential information
– Etc.
• Report distribution control
• Output error handling
• Reconciliation of control counts/totals
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The starting point for auditing application controls is identifying
significant application components and the flow of information
through the system.
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Understand transaction flow
Assess application risks
Test user controls
Test data integrity
The impact of control weaknesses can be evaluated by reviewing available
documentation and interviewing appropriate personnel.
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An analysis of the transaction flow will allow for an
understanding of potential weak points where the controls
should be reviewed.
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Points where transactions and data are entered
Points where transaction calculations are performed
Points where data transformations occur
Points where transactions are posted
Points where databases are updated
Points where reports are generated
Points where data are transmitted
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A risk assessment can be based on a variety of factors and can
assist in focusing your audit on the inherent risks of an
application.
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Recent application changes
Time elapsed since last audit
Complexity of operations
Changes in operations/environment
Transaction volume
Monetary value of transactions
Sensitivity of transactions
Impact of application failure
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Key user controls may be directly tested to determine if they are
performing as intended.
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Review and testing of access authorizations and capabilities
Separation of duties
Error control and correction
Activity and violation reporting
Distribution of reports
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Data integrity tests examine the accuracy, completeness,
consistency, and authorization of data presently held in a system.
• Determine if data validation routines are functioning correctly
• Determine if database tables are properly defined and
applying appropriate input constraints and data
characteristics
• Ensure referential integrity for primary and foreign keys in
tables
Data integrity tests will indicate failures in input or processing controls.
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Data integrity testing is a set of substantive tests that examines
accuracy, completeness, consistency, and authorization of data
presently held in a system.
• Relational integrity tests - performed at the data element and
record-based levels and enforced through data validation
routines built into the application or by defining the input
condition constraints and data characteristics at the table
definition in the database stage
• Referential integrity tests - define existence of relationships
between entities in different tables of a database that need to
be maintained by the Database Management System (DBMS)
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In multi-user transaction systems, it is necessary to manage
parallel user access to stored data typically controlled by a DBMS
and deliver fault tolerance.
Of particular importance are four online data integrity requirements
known collectively as the ACID principle:
• Atomicity - from a user perspective, a transaction is either
completed in its entirety (i.e., all relevant database tables are
updated) or not at all
• Consistency - all integrity conditions in the database are
maintained with each transaction, taking the database from one
consistent state into another consistent state
• Isolation - each transaction is isolated from other transactions and
hence each transaction only accesses data that are part of a
consistent database state
• Durability - if a transaction has been reported back to a user as
complete, the resulting changes to the database survive
subsequent hardware or software failures
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Testing the effectiveness of application controls involves
analyzing computer application programs, testing computer
program controls, and selecting and monitoring transactions.
Methods and techniques for testing application systems include:
• Snapshot
• Mapping
• Tracing and tagging
• Test data/deck
• Base-case system evaluation
• Parallel operation
• Integrated testing facility
• Parallel simulation
• Transaction selection programs
• Embedded audit data collection
• Extended records
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Continuous online auditing is becoming increasingly important
in today's e-business world.
• Allows IS auditors to monitor the operation of systems on a
continuous basis while normal processing takes place and
gather selective audit evidence through the computer
• Cuts down on needless paperwork and leads to the conduct
of an essentially paperless audit
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There are five types of automated evaluation techniques
applicable to continuous online auditing.
• Systems Control Audit Review File and Embedded Audit
Modules (SCARF/EAM)
• Snapshots
• Audit hooks
• Integrated test facility (ITF)
• Continuous and intermittent simulation (CIS)
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The selection and implementation of continuous audit techniques
depends, to a large extent, on the complexity and understanding
of an organization's computer systems and applications.
Continuous Audit Technique
Useful When:
Systems Control Audit Review
File and Embedded Audit
Modules (SCARF/EAM)
Regular processing cannot be
interrupted
Snapshots
An audit trail is required
Audit hooks
Only select transactions or processes
need to be examined
Integrated test facility (ITF)
It is not beneficial to use test data
Continuous and intermittent
simulation (CIS)
Transactions meeting certain criteria
need to be examined
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Questions?
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