Week 02: IT's Role & the Control Environment

As a class you did rather well on the first quiz.  If you didn’t do well don’t worry.  You will be taking eleven quizzes and I will only use ten to calculate your final grade.   If you struggled with this quiz or any of the topics, call me and let’s discuss it – 910 880 1254.

Two questions seemed to raise some problems:

1. Which of the following controls would an IS auditor look for in an environment where duties cannot be appropriately segregated? – The right answer is  a Compensating Control because you would have preferred to segregate the duties but couldn’t.  The best example of this that I’ve seen was at our small plants around the world.  Each plant employed less that 20 workers over multiple shifts so there just weren’t enough people to handle all the roles that needed to be done on a daily basis.  People had to be assigned conflicting roles with someone at another site looking over their electronic paperwork trail to ensure the correct handling of everything.
2. What does an organization want from its IT systems and organization?  For example, a company wants its IT systems to be available. – I was looking for the COSO list of seven attributes.  Most of you gave me the Confidential, Integrity, Availability and some form of Efficient.  Effective was often missing although some wrote in terms of adding value which I accepted. Compliant and Reliable were the two that were most often missing.

As I said, overall well done.

To be effective any organization needs to establish a certain structure, responsibilities and a strong sense of how they will operate.  A company’s board of directors is there to hold its most senior management accountable in terms of performance, compliance and managing risk.  They represent the shareholders and are there to ensure the continued success of the company.  They are not there to directly manage it.  Thus, the tone for how the corporation will behave starts at the top with the board of directors and flows down through senior management.

Companies need information systems to operate, so they create an IT organization.  To be effective, that sub-organization (IT) needs certain things:

• Terms of Reference or a Charter – What is its mission? Why is it there?  What is it trying to achieve?  On this last point, the COSO list of objectives for an IT organization (Confidentiality, Integrity, Availability and so on) is a good list.  You should learn it.
• A basic organizational structure, arranged to insure that the work required to satisfy the Terms of Reference will get done.  This implies that resources are allocated to different tasks and that someone is responsible for leading each area of work.
• Monitoring – there needs to be a “culture” of monitoring, each leader should be monitoring his/her people and each level should be monitoring the work of the level below in order to make sure the required work is being done.  Monitoring also implies that when problems arise, they are addressed.
• Performance Metrics – You can only monitor if you can tell a good job from a bad job and you can only tell that if you have some way of measuring success.

If you have these things, you are off to a good start.  This coming week we will look at another level of administrative controls that all organizations have, not just IT organizations (things like budgets, HR policies, etc.)

As for DentDel, I hope you all got the point.  Even the most basic governance controls like assigning responsibilities and monitoring were missing.  Yes the CIO picked a technology without doing due diligence, but why?  Because there was no expectation set that due diligence should be done on every project being initiated.  Note that they didn’t ask the client (in this case Sales) what they needed.  There was a much better project out there, but it never got visibility because there was no process to check.  Its all too easy to assume that governance at this level is being done correctly, but it often isn’t.  Always ask the basic questions first and then follow where they lead.

Rich

Check out this article from MIT that talks about the problems with compliance programs (ie control environments), the rationalizations people use when circumventing them, and some ideas on how to overcome those rationalizations.

https://drive.google.com/a/temple.edu/file/d/0B8S2SZTC04ViSE5lbGZ6a3BPQzg/view?usp=sharing

This update on the Wells Fargo sales scandle is a great example of how executives set the “tone” of an organization.  Unfortunately, in this case the “tone” was that sales were more important than ethics.

WSJ, 9/1/17

” Wells Fargo WFC -0.56% & Co. said its sales-practices scandal was far broader than it had previously acknowledged, ensuring that the bank will continue to face scrutiny about a problem that has weighed on it for nearly a year.”

Readings

1. In your own words, how would you define a control environment?
2. Define the three kinds of common controls and give two examples of each from your everyday life.
3. What is the role of the board of directors in IT governance?
4. Which of the EDM processes do you think is most important and why?
5. If you’re working, have you seen examples of active IT governance in your organization?

The DentDel Case

Think about the following questions before class next week.

1. What processes were ineffective and allowed this situation to occur.
2. Where could stronger  IT governance have helped DentDel avoid this situation?

Rich