IT Application Controls and the benefits of automation - SafePaaS

IT Application Controls and the benefits of automation

IT Application Controls
IT Application Controls

IT Application Controls and the benefits of automation

In 2022, the cost of a data breach averaged $4.35 million. And the number and scope of these breaches continue to grow. The leading contributors to this dramatic rise in data breaches are attributed to compromised credentials and the drastic increase in remote working.

With remote work becoming the norm, organizations are scrambling to protect their data. And the best way to protect data is through solid application controls and an automated controls solution.


What is an application?


An application is a computer system that processes data for a specific business purpose. Applications are essential for businesses because they improve efficiency by streamlining business processes. A few common examples of applications are:


  • General ledger
  • Payroll
  • HR, and
  • Inventory control


Applications face three primary risks in handling data: confidentiality, integrity, and availability. Confidentiality relates to a data breach or a data release violating legal regulations, like GDPR and HIPPA. Integrity focuses on the accuracy of the application's data and its ability to be available on demand.


What are application controls?


Application controls are the security measures organizations can implement within their applications to keep them private and secure. Applications play a vital role in the operations of organizations. However, they also put organizations at risk of a breach. 

Each time users or applications share data there is a risk that the data could be compromised. IT application controls (ITACs) help mitigate that risk by putting checks in place to secure data. ITACs authenticate applications and data before entering or leaving the internal IT environment, ensuring only authorized users and applications can transmit or process data with protected digital assets. 

The purpose of ITAC is to assist in maintaining the privacy and security of data utilized by and sent between applications. The function of ITACs varies depending on the purpose of the application.

There are three main categories of ITACs, including input, processing, and output controls.

Application controls:


  • Verify transmitted data
  • Validate data sent out of the system
  • Authenticate information input into the system
  • Ensure output reports are protected from disclosure
  • Guarantee the input data is complete, accurate, and valid
  • Ensure the internal processing produces the expected results


Both automated controls and manual controls should be implemented to ensure proper protection of your applications. 


How ITACs differ from ITGCs


ITACs and ITGCs are different but equally essential to the organization's security. ITGCs apply to all system components, processes, and data throughout the organization. On the other hand, application controls are specific to a program or system supporting a particular business process. In other words, application controls are specific to a given application, whereas ITGCs are not. 

ITGCs consist of many types of controls, while ITACs consist of only three: input, processing, and output.


ITGCs


ITGCs apply to all systems components, processes, and data in an organization or system environment. The objectives of ITGCs are to ensure the appropriate development and implementation of applications and the integrity of program and data files and computer operations. The most common ITGCs are: 

  • Access control ensures each application has proper password management and identity authentication 
  • Managing administrator accounts with elevated privileges to create accounts for other IT applications
  • Software lifecycle management establishes controls to ensure the planning, design, building, testing, implementation, and maintenance are correctly recorded and authorized. These controls ensure systems are implemented as intended and proper approval of changes is obtained.
  • Patch management is the identification, acquisition, deployment, and verification of software updates for network devices. These include updates for operating systems, application code, and embedded systems, including servers.


Application Controls


Application controls are specific to the application and relate to the transactions and data from that application. The objectives of application controls are to ensure the completeness and accuracy of records and the validity of the entries made to each record. Common application control activities include:


  • Determining whether sales orders are processed within the parameters of customer credit limits
  • Making sure goods and services are procured with an approved purchase order
  • Monitoring for segregation of duties
  • Determining whether there is a three-way match between the purchase order, receiver, and vendor invoice


ITACs are more specific than ITGCs and focus on a more limited scope of the IT system function. ITACs consists of three methods of control: 


  • Input and access controls
  • Processing controls
  • Output controls


Input and access controls ensure that data is accurate, complete, and authorized. Input controls are used to check the integrity of data entered into the application and to ensure the data is entered within the required criteria. Examples include:


  • Date Selection
  • Check box
  • List box


Systems with strong access controls enforce the verification of each user's identity. Examples of access control are two-factor authentication, pin codes, and biometrics.

Processing Controls ensure that processing is performed without deletion or double counting data. Many processing controls are identical to input controls but used during the processing phase. Examples include:


  • Sequence check
  • Completeness check
  • Duplicate check


Output Controls manage the data leaving the application to ensure that transactions are processed accurately and that data is not lost, misdirected, or corrupted. Examples include:


  • Authentication of data leaving the system
  • General ledger posting of all individual and summarized transactions posted to the general ledger
  • Sub-ledger posting of all successful transactions posted to sub-ledger


ITGCs and application controls are interdependent, and if ITGCs are not implemented or operating effectively, the organization may be unable to trust its application controls. For example, if you have ineffective change management controls, unapproved program changes can be introduced to the production environment, compromising the integrity of the application controls. 


Auditing IT application controls


Risks to your data are constantly evolving, and organizations must ensure that their controls keep pace to mitigate these risks. By conducting regular ITAC audits, organizations can protect their systems, data, and reputation. ITAC audits involve analyzing and recording every software application, ensuring that all transactions and data resist the control tests. 

Internal auditors can test the application controls and determine if the controls are designed adequately and will operate effectively once the application is deployed. If any controls are designed inadequately or do not operate effectively, auditors can present this information and any recommendations to management to prevent unmanaged risks to the application. 


Automating internal controls


By automating your controls, you allow for continuous monitoring. For example, ensuring supplier data remains correct is essential for the accurate payment of invoices. Because the time between onboarding and payment can be long, bad actors have a large window of opportunity to manipulate your data. Continuous monitoring ensures that your data stays correct and up to date. Other benefits of control automation are:

  • Increased Efficiency

When a finance team is responsible for processing thousands of invoices, it can be a significant challenge to ensure that all the data in the invoices are correct. This process can consume many resources, including precious time and staff hours. Automated controls can shave hundreds of hours of manual checks, freeing your team to focus on other priorities.

  • Reduced fraud risk

Increasingly, organizations are concerned about insider threats. One malicious employee with elevated privileges can manipulate data in your ERP and perpetrate fraud against your organization. Identifying an employee engaged in fraud can take years to detect because they are adept at covering their tracks, know what manual controls are in place, and understand how to circumvent them. Automated controls can reduce risk by limiting access to data and systems vulnerable to manipulation.

  • Improved security posture

Automated controls improve an organization's overall security posture. For example, you can automate reminders to managers to test or execute a specific control and alert compliance officers when that work isn't completed. Reports from tests can be used in standard reports or risk dashboards to let you see and report security compliance quickly.

  • Increased cost-efficiency

The upfront costs of implementing automated controls may be higher than manual controls. However, over time automated controls are more cost-effective. Once an organization embraces automated controls, it can meet compliance obligations more efficiently. Automated controls also require fewer staff hours, saving you money.

  • Regulatory compliance

Reducing manual controls can significantly reduce SOX compliance costs. Manual processes requiring the involvement of employees or auditors are not sustainable. In the long run, automated controls are more stable because they enable a repeatable, reliable, and predictable framework while lowering the cost of compliance.

It is challenging to overstate the importance of application controls for protecting your data. However, knowing where to begin when testing and automating your application controls can be challenging. To maintain effective operations and safeguard your organization from threats, you need an automated controls solution that will allow you to see your organization's risks in real-time.

Recommended Resources

ITGC SOX

Everything you need to know about ITGCs

Technology and applications are part of almost every business process in the enterprise today. From the finance department to marketing, businesses depend on technology solutions to help them run. But technology doesn't come without some risks, and that's where your IT General Controls (ITGC) come into play. 

Internal Controls

Why automate internal controls

Internal Controls are the rules and processes put in place to mitigate a range of risks that can arise within an organization. Controls are typically designed with the guidance of the organization's board of directors or senior management. Internal Controls help to ensure the organization's goals and objectives are met. In many cases, internal controls will also need to align with regulations or standards, such as SOX or GDPR, established by external governing bodies.

Automated controls

The benefits of automated controls

 Automated controls allow for Continuous Monitoring. For example, it is essential to ensure that the data entered in your ERP when onboarding a supplier remains correct when it is time to pay invoices. Given the time between onboarding and payment can be lengthy, there is ample opportunity for internal and external bad actors to manipulate your data.  Continuous Monitoring ensures that your data stays correct and up to date.