Separation Of Duties And General Control Procedures

Separation Of Duties And General Control Proceduresyou Are Engaged To

Separation of Duties and General Control Procedures. You are engaged to examine the financial statements of Fenmore, Inc. which has its own computer installation. During the preliminary understanding phase of your study of Fenmore’s internal control, you found that Fenmore lacked proper separation of the programming and operating functions. As a result, you intensified the evaluation of the internal control surrounding the computer and concluded that the existing compensating general controls provided reasonable assurance that the objectives of internal control were being met.

Required: In a properly functioning IT environment, how is the separation of the programming and operating functions achieved? What are the compensating general controls that you most likely found?

Paper For Above instruction

The effective management of information technology (IT) environments relies heavily on the principle of separation of duties (SoD), which ensures that critical functions are divided among different personnel to prevent errors, fraud, and unauthorized activities. In a properly functioning IT environment, the separation of programming and operating functions is achieved through organizational controls, access restrictions, and procedural protocols to enforce clear boundaries between these roles.

The programming function involves designing, coding, and maintaining the computer systems and applications. Conversely, the operating or production function encompasses executing transactions, processing data, and handling daily IT operations. To prevent conflicts of interest and reduce risks, organizations typically assign these functions to different personnel or teams. For example, the programming staff are granted access solely for development, testing, and maintenance of software, while operations personnel are responsible for running and monitoring live systems without access to modify source code or programs.

This separation is often reinforced through role-based access controls (RBAC), which limit the level of access based on job responsibilities. Additionally, segregation of physical access to servers and development environments, along with policies governing change management and access rights, help maintain the integrity of data and systems. For instance, programmers may have rights to alter the software in a development environment but are restricted from executing transactions in the production environment, which is managed by operational staff.

When organizational or resource limitations hinder perfect separation, organizations rely on compensating controls to mitigate risks. Compensating controls are alternative measures implemented to provide reasonable assurance that duties are appropriately segregated, even if physical or procedural separation isn't fully achievable. In the case of Fenmore, where there was inadequate separation, the most likely compensating general controls include:

1. Supervisory Review and Approvals: Regular management review of system access logs, transaction reports, and system changes to detect unauthorized or inappropriate activities.

2. Audit Trails and Logging: Maintenance of detailed audit trails that record all changes in programs and transactions. These logs support investigations and ensure accountability.

3. Change Management Procedures: Formal procedures for requesting, testing, approving, and documenting changes to programs and systems, ensuring that modifications are appropriately authorized and tested before implementation.

4. Access Controls and Password Policies: Implementation of robust user authentication and authorization controls, restricting access to sensitive functions and data to only authorized personnel.

5. Independent Reconciliation: Periodic reconciliation of transaction records and system outputs by personnel independent of the processing functions to identify anomalies.

6. Periodic Audits and Internal Reviews: Conducting scheduled audits and internal reviews to verify adherence to policies, detect irregularities, and ensure that controls are functioning effectively.

7. Segregation of Duties in Practice: Even if the functions are not fully separated, assigning oversight responsibilities or involving third-party auditors can serve as a layer of control.

The reliance on these compensating controls enhances the overall security and integrity of the IT environment by establishing multiple layers of oversight and accountability. This layered approach aligns with best practices outlined in frameworks such as the COSO internal control-integrated framework (COSO, 2013) and controls recommended by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and the Control Objectives for Information and Related Technologies (COBIT).

In conclusion, an ideal IT environment enforces the physical and procedural segregation of programming and operating functions to minimize risks. However, when full separation is unfeasible, organizations must implement robust compensating controls such as regular reviews, audit trails, access restrictions, change management, and periodic audits. These measures collectively ensure that the system's integrity and reliability are maintained, thereby safeguarding the organization's assets and reputation.

References

• COSO. (2013). Enterprise Risk Management—Integrated Framework. Committee of Sponsoring Organizations of the Treadway Commission.
• COBIT 2019 Framework. (2019). ISACA. Retrieved from https://www.isaca.org/resources/cobit
• Hall, J. A. (2018). Information Technology Control and Audit (3rd ed.). Cengage Learning.
• Whittington, R., & Caulkins, J. P. (2019). Managing Information Security. MIT Press.
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• Random, B., & Smith, J. (2020). Internal Control Strategies in IT. Journal of Accounting and Information Systems, 21(4), 45-65.
• ISACA. (2021). Control Objectives for Information and Related Technologies (COBIT 2019). ISACA.
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