Auditing in Erp Environment

8/11/2019 Auditing in Erp Environment

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Auditing in the

ERP

Environments



AGENDA

1. GENERAL OVERVIEW - ERP - Any Business,ERP solutions,SAP

R/3 – Architecture & Application components

2. MODULES IN ERP-Logistics,Accounting – Navigation of

Screen,Core Business Cycle in Manufacturing unit

3. RISK ASSESMENT IN ERP -Methology – Quantification Model ,

Impact-Severity X Detection,exposure,Statements – SD/MM/FI/Common-Examples,Registers and Heat Maps – Module wise,

Revenue, expenditure & Inventory cycles-Summing up

4. TECHANICAL RISK IN ERP - Basis application

infrastructure,Risks-in Installation management,ABAP/4 work

bench & transport (se38/sa38) computing center managementsystems,Profile Generator ( PGFC).

5. AUDIT IMPLEMENTATION IN ERP - Learning for auditors,

Excellence Model/ Global best practices (COBIT /COSO) and New

Directions in ERP Auditing



General Overview -Any Business

Purchase

Qty. Value

Vendor

Payable

FA

SalesOrder

Bill

Customer

ReceivableHR

Wages

Salary

Statut.Bodies

ShareHolders

Other

Business

Associates

Production/Service Enterprise



ERP solutions – What do they enable

1-Managing & Supporting the resources of organisationefficiently

-Employees

-Customers

-Vendors

-Share Holders

-Production Process

-Material & Services



2-.Increasing Competitiveness

3-.Reducing Costs

4.-Improving operational reporting

5.-Improving Quality decision making

6-.Enhancing customer service

7-. Improving profitability

8- Providing integrity of data

9-Enhancing productivity of value chain

10-Speed

ERP solutions-what do they enable



-ERP solutions are integrated ,Configurable,Real time

and often available as Cross Industry solutions-Today’s presentation is primarily based on SAPAlthough many ERP solutions are in use :e.g.- Oracle, J.D edward,Baan,Mfg Pro etc with similar concepts.

-SAP = Systems ,Applications,Products in Data processing

– ERP cost/user-Licence - Info-users – Rs. 60K +

‘ (Approximate) Operational-users – Rs. 90K+

Developers – Rs. 350K+AMC - Rs. 17 ~ 20%

ERP at Eicher = SAP 4.7c (375 users)

ERP solutions-what do they enable



SAP R/3 – Architecture -3 Layers

Presentation

Layer

Application

Layer

Data Base

Layer

- SAP R/3-S/W-GUI ( Enterprises

4.7c/ECC5) with which users interact

- Application Servers-with SAP R/3

Kernel that run ABAP/4 programms(WIN 2003/Server Pack 1)

-RDBMS (eg Oracle 9i with (Patch

level 4)-ABAP/4 Dictionary,source

&executable program.

-TCodes-se16/tstct=120314 nos

- Tables(DB02) =35650 nos



SAP -R/3 Enterprises - Application components

ERPAM

PS

CO

SD

QM

PM

HRIS

WF

FI

MMPP



Modules in Logistics – Navigation of Screen

1. Logistic General (LO)

2. Product Life cycle Management (PLM)3. Sales & Distribution (SD)

4. Material Management (MM)

5. Logistics Execution (LE)

6. Production Planning & Control ( PP)

7. Plant Maintenance (PM)

8. Customer Service (CS)

9. Quality Management (QM)

10. Project System (PS)

11. Environment Health & Safety ( EH&S)12. Retail

13. Agency Business (LO-AB)

14. Global Trade

15. Country Versions



Modules in Accounting - Navigation of Screen

1. Accounting General (AC)

2. Financial Accounting (FI)3. My SAP Banking

4. Corporate Finance Management(CFM)

5. Treasury (TR)

6. Controlling (CO)

7. Investment Management(IM)

8. Project System (PS)

9. Incentive & Commission Management

10. Enterprises Controlling

11. Rural Estate Management12. Public Sector Management

13. Flexible real Estate Management (RE-FX)

14. Production sharing accounting systems

15. Country version



Core Business Cycle in Manufacturing

Create

CustomerRelationship

Sales Qty.

Sales Order

Goods issue

Delivery Note

Our Invoice

A.R.

Collection

MRP Producing

Inventory

Create

ProductionOrder

Create

VendorRelationship

Production

Inventory

Manage-

ment

Handling

FGS

Raw Material

Management

Purchase

requisition

Purchase Order/

SchedulingAgreement

Goods Receipt

Vendor Invoice

Verification

AP

PaymentReporting



Key business processes in Sales and Distribution (SD),

Materials Management (MM) and Financial Accounting

(FI) need to be studied in detail to identify their

vulnerability to threats from within and outside. Based on

this and experience of internal audit team, risk statements

relevant to businesses are to be captured.

For each risk statement, risk impact and risk exposure is

to be assessed as under

RISK ASSESMENT METHODOLOGY – BY A QUANTIFICATION MODEL



R

I

S

K

I

M

P

A

C

T

HIGH 100 Y1 R2 R1

MEDIUM

40

G1 Y2 R3

LOW 20

G3 G2 Y3

0 2 4 10

LOW MEDIUM HIGH

RISK EXPOSURE →

Risk Registers and Heat Maps – Module wise

Using the risk impact and risk exposure scores as worked out above,all possible riskstatements ( like 3 examples given for each SD/MM/FI ) need to be prepared in the form of aRISK REGISTER of many pages and ultimately ,all risk statement Sr nos to be plotted on 1page HEAT MAP.



Risk impact ( Severity x Detectability) to be assessed

on a scale of 1 – 100 (100 being the highest adverseimpact.

A-Risk Severity ( on a scale of 1- 10 ) is determined based on weighted average affect on 5 parameters ie

i- PBT, ii- Statutory / regulatory compliance iii-Strategic value iv- Financial statement accuracy ,v- Reliability/ operational effectiveness .

B- Risk Detectability ( on a scale of 1 – 10 ) isdetermined based on the stage of detectability of adverseevent ie with in the co.or from outside customers.

Risk impact-Severity X Detection



Risk exposure (likelihood of occurrence) to beassessed on a scale of 1-10 (10 being most likely).

Risk exposure is determind based on weightedaverage effect of 10 parameters,responsible for the exposureie

I-Incorrect source data/ data entry ii Incorrectincomplete execution iii-Incorrect/ non verification of outputiv-Skill/ resource constraint v-Inadequate segregation ofduties vi-Lack of system documentation vii-Authority normsnot defined/ followed viii- Inappropriate configuration/

process logic ix-Weak internal/ compensating controls x-Others (i.e.: process complexity, frequency of changes,software limitation, unassignable causes etc.)

Risk exposure



S.

N

o

Risk statement

Risk

Risk

exposur

e

Heat

zone

Severit

y DetectabIlity

Impa

ct

1

Invoice may be raised withouteffecting physical delivery of the

goods from depot/ plant (bill and

hold)

7 8 56 5R1

2Sales order may not be executed in

time and in full

4 6 24 3Y2

3 Debit / credit notes sent to customers

may not contain adequate supporting

details

2 4 8 4G2

RISK STATEMENTS – SD-Examples



S.

N

o

Risk statement

Risk

Risk

exposur

e

Heat

zone

Severit

y DetectabIlity

Impa

ct

1

Financial authority norms for releaseof PO may not be mapped into SAP 4 8 32 6

R3

2 GR may be prepared for a quantity

lower/ higher than vendor delivery

challan

4 6 24 4Y2

3 CENVAT credit availed may be lower

than CENVATABLE excise duty

credited to vendor through invoice

verification

3 6 18 4G2

RISK STATEMENTS – MM-Examples



RISK STATEMENTS – FI-Examples

S.

N

o

Risk statement

Risk

Risk

exposur

e

Heat

zone Severit

y DetectabIlity

Impa

ct

1

Depreciation rates may have beenincorrectly set up

5 6 30 5 R3

2Vendors account may not have been

reconciled/ confirmed as per laid

down frequency

5 6 30 4Y2

3Line items (individual entries)

clearing may not have been carried

out in vendor accounts

3 6 18 4G2



RISK STATEMENTS – Common to all functions Examples

S

.

N

o

Risk statement

Risk

Riskexposu

re

Heat

zone Severi

ty

DetectabIlit

y

Impa

ct

1

SAP transaction authorizations

granted to users may not relate totheir assigned role/responsibility

8 8 64 8 R1

2

SAP transactions may be carried out

using group IDs resulting in non

traceability of transactions to any

specific individual (employee)

8 8 64 8 R1

3

Audit trails (chronological log of

changes) may not be reviewed/

analyzed by process owners

5 8 40 7 R3



Imp-table mappings &Concepts• SD-Sales orders=vbak/vbap/vbpa-different types• SD-Shipping=vblk/likp/lips-different types• SD-Billing=konv/vbrk/vbrp/vbuk—different types,PRICING procedures• SD-Cust mast used in AR=knvp/knvv/kna1/knb1,sales organisation

• MM-Purc requisition=eban/ebkn• MM-PO/SA=ekko/ekpo• MM-Deliv sch=eket/ekkn• MM-GR=mkpf/mseg/ekbe•

MM-Mat Mast=marc/mlan/makt/mara/mbew• MM-PO inf record=konh/konp/eina/eine• MM-BOM-STKO/STOP• MM-Mat-types ,Material Movements,Material groups,Material types,purchase groups

• FI-Paym=payr, Acctg=bkpf/bseg,-open/closed items-Cust=bsid/bsad,Vend=bsik/bsas,G/L=bsik/bsas

• FI-Mast-G/L=skb1/ska1/skat,CC=csks/cskt,profit c=cepc/cskt

• FI-Vend mast-used in AP=pur-lfm1/lfm2/gen-lfa1/lfb1/lfbk• FI-Document types-30 types- AB-acctg, BR-bank recp,KR-vend inv, RV-sale inv• FI-Acct types-5-A-Assets,D-Cust, K-Vend,M-Material, S-G/L ,• FI-COA-Chart of accts



Risks in – Revenue, expend,inventory cycles-overview -400+

Configuration :-

Authorisation :-

Masters :-

Procedure

manuals:-

Audit Trails :-

SAP System land scope ,R/3 customizing ,organ objects,currencies,

Tax procedures,charges in customer /vendor master.Document types

,depreciation keys, overhead cost allocation,PO release,Payment

terms ,Pricing procedures in SD, credit controls,outgoing invoice

posting/Free goods ,Automatic account determination.

Authorization objects ,user management,Tolerance groups,Work

flows,Conflicting combinations,owned developed

transactions,super user ,change management.

GL Masters-,Customer Masters,Vendor Masters, Material masters,

Selling price,Tax codes,Quota arrangement,BOM.

Risk based queries (SD,MM,FI) Using SAP +MS access

/AIS/Critical tools/tables/LDB-SAP — eg At Eicher —

SAP-Querries=106+133+25, MSAcc-Querries=103+135+39

Configuration control,Authorization ( change management,Master &

Application ( PO/Sales order credits /FI documents)



Technical - Basis application infrastructure in SAP R/3.

4 Key Basis Tools + UtilitiesA. Installation Management guide-IMG- SPRO

B. ABAP/4 Work Bench &Transportation System ( Development

+ Test + Production.)

C. Computing center management system (CCMS)

- Utililities to monitor ,Control & Config. R/3…. Start up ,shut down,NW monitoring,security ,back ups,alerts

trouble shooting,system Config.& system profile

management,DBA, Profile security.)

D. Profile generator & security Adm.(PG&SA) ( SUIM-Authorisation ,Information System,SU03-

.Maintainence& Authorisation.



Risks-in Installation management

1-The organisationModels :-

2-Critical no

. Range:-

3-Modif of

critical tables

SPRO & SCC4 – control productionclient settings.---Risks are:

- Incorrect consolidation /Inadequate

reporting /Incorrect MIS/Manual work

around.

Assigned to individual DB record –

Internal No by SAP & external no by

users (snro+suim+spro).

SAP – Tables – Other than X* Y*

-Tables fields (SE16/SE11/DD03M)



Risks in ABAP/4 work bench & transport(se38/sa38).

•Change Control Procedure(Programme,Queries).

•Development & Testing Servers.

•Transport system testing.

•Logs.

•Emergency change procedures.



Risks in - computing center management systems

Batch processing control :-

Application server parameters:-

Locking transaction codes :-

Restricted Password. :-

SAP Router :-

On Line Support systems :-(SAP Market place ,Web)

Remote function call :-

Batch input (SM35) ,Administration SM(64)

Processing (SM36)

a) Login IPW expiration 180 day b) Min pw length

6-8 (C) Login /fails to session end (incorrect pw-3

times)

SM 01 (Users who have access to lock /unlock

T.code)

Default PW , Name

Permission table authorization with valid IP address

(port 3200)

Remote Access to SAP vendor

Programme inter faces (SM59) Use of E-SCORE ,

/EPIC /DMS/ITS/ etc



Risks in -Profile Generator ( PGFC) :-

• Security Admin probel ( Create /change/display)

•Super user SAP* ,SAP all

•Authorisation documentation (Biggest risks )

•Log + Trace file



ERP implementation- Learnings for auditors

Managing Incharge :- •Higher no of IS auditors than traditional profile auditors.

•ERP trained – Auditors ( Functionally /Query)Audit Methodology :- •Risk assessment of audit universe (H/M/L)

•Audit Manuals ( Query ) Excel ,M.S.Access

•Segregation of duties.

•User authorisation ( object level security)

•Customized to fit each organisations’ unique needs.

Role of Auditor :- •Integrated approach ( involvement in project early stage for design +Controls of systems )

•Pre implementation review – Before go live ( Business case , projectrisks,Application security design).

•Post implement review – (Application)

•Quality assurance – BPR Programme.

Audit involvementin project :-

•During selection & implementation ( Contribute towardsestablishing control environment ).

Audit respons :- •Environment evaluation from risk prospective,

•Subject specials ( SD,MM,Tax) & ERP competent team

•Efficient audit

•Audit universe ( Business application + Basis appl.infrastructure)

•Use HELP



Audit Excellence Model/Global best practices (COSO)

Mapping in COSO (Committee of sponsoring Organisation of tread way commission)

A :- 3 Objectives Identifications : 1 Operation

2 Financial Reporting

3 Compliances.

B :- 5 Components of Internal Controls :-

1. Control Environments :- Ethics,Values,Standards,

2. Risk Assessment :- Technology,Operation,Finance,Heat Maps( Risk Impact vs ‘

Exposure).

3. Control Activities :- KPI, Polices,Procedures,TQM,Physical,Safe guards.

4. Information & Communication :- Up & down , Adequacy ,Q,Timeliness

5. Monitoring & controls :- Internal controls, Physical verification, Overheads, MIS, . ,

Feed backs,Forums etc



Audit Excellence Model/Global best practics (COBIT)

Mapping to COBIT (Control Objective for Information and related Technology ).

MAIN PROCESSESS No of Key Processes

•Planning and orgainsation 11

•Acquisition & Implementation 6

•Delivery & Support 13

•Monitoring 4

LEVEL OF CONTROLS -ASSESMENT

0. Non Existance

1.Initial /Adhoc

2.Repeatable but person dependent

3.Defined – Standardized & documented.

4. Managed – Monitoring OK & Feed back system.

5. Optimized Control- Industry Best Practices



New Directions in ERP Auditing :-

• Risk Based Auditing linked to COSO& Cobit

•Professional ethics& standards

•AIS (Materiality )+ Queries development(Tabledown load+MS access)

•Auditing tools- ACL/IDEA etc and many more

•On – line continuous audit(Remote-desk topauditing)

•E enabled applications (vendors/Dlrs, P2P, B2C)

•Outsourcing – Competence/costs – benefit based

100 % transaction Audit/AUDIT thr computers

•Continuous enhancing ERP competencies

•Qualified Auditiors-CIA/CISA….



References

www.theiia.org

Internal auditing :- Guidance for the profession

:- Code of Ethics

:- International Standards for the professional practices of internal auditing

:- Practice Advisories

:- Development & Practice Aids.

www.isaca.orgIS Auditing standards

IS Auditing guidelines

IS Auditing Procedures

Standards for Professional information system control

http://www.sapgenie.com/ (google search based)

http:/www.sap.com services / education

http://www.sap.com/ Community

Help ..sap.com



Thank you

Auditing in Erp Environment

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