AIS WEEK 2: ERP SYSTEMS

AIS WEEK 2: ERP SYSTEMS

1. Integrated cross-functional systems containing selectable software modules that address a wide range of operation alctivities (Grabski, Leech, Schmidt)

2. Integrate several business procedures, applications and departments while sharing 1 database (Kanellou, Spathis)

3. Business Cycles

   • Revenue cycle
     • Selling of goods and servicesfor cash or future promise to receive cash
   • Expenditure cycle
     • Purchasing of inventory for resal or raw materials to use in producing products in exchange for cash or future promise to pay cash
   • Production cycle
     • Performing raw materials into fenished goods
   • Human resource /Payroll cycle
     • hiring, training, compensating, evaluating, promoting and terminating employees
   • Financing cycle
     • Selling shares to investors or borrow money. Investors are paid dividends and interest is paid on loans.
   • General ledger
     • Registration of totals from all cycles
   • Interaction between cycles
     • Cash
     • Labor
     • Raw materials
     • Goods

4. Internal Control

   • A process affected by the board of directors, management and other personnel to provide reasonable assurance regarding the achievements of objectives relating to operations, reporting and compliance
     • Requires reliable information for decision making
       • It provides an accurate, complete, and timely picture of the organization’s activities
       • It is available when needed
       • The information and the system that produces it is protected from loss, compromise, and theft
   • Control Elements
     • Risk assessment
     • Monitoring
     • Control Environment
     • Control Activities
     • Information and communication
   • Cycle Approach
   • Seggragatioon of Duties
     • Good internal control requires that no single employee be given too much responsibility over business transactions or processes
     • An employee should not be in a position to commit and conceal fraud or unintentional errors
     • Accounting duties
       • Authorization
         • Approving transactions and decisions
       • Recording
         • Preparing source documents; maintaining journals, ledgers, or other files; preparing reconciliations; and preparing performance reports
       • Custodian
         • Handling cash, maintaining an inventory storeroom, receiving incoming customer checks, writing checks on the organization’s bank account
     • Duties within system function

5. ERP and IC

   • ERP does not impose a specific control structure
   • Controls cannot be analyzed idependently of the technology
   • [?][?][?] Elimination of intermediate verification of data between steps in a business process [?][?][?]
     • The integrated nature of ERP systems means that unless every data item is validated and checked for accuracy at the time of initial entry, errors will autmatically propagate throughout the system
   • Data integration improves information quality
   • Data integration enables pervasive access to corporate data if appropriate access controls are not in place
   • Heightened segregation of duties risks
   • Configuration choices made during ERP implementation directly affect controls
   • Additional risks regarding network security, database security, application security. Authentication and authorization controls more important due to broad scope of data directly accessible.
   • Grabski, Leech, Schmidt
     • Research area is still quite undeveloped relative to criticalness
     • Audit complexity increases when auditors lack ERP knowledge
     • ERP increases opportunities for automatically auditing

6. ERP Implementation Process

   • Kanellou, Spathis
     • There is little scientific evidence on the ERP implementation processes
     • ERP's are different from other IT systems
   • Grabski, Leech, Schmidt
     • Implementing an ERPS systems is not like a typical, functionally oriented IT system. It calls for joint activities in operations and process reengineering as well as ERP configuration
   • Ram et al
     • Implementation of ERP systems remains a complex exercise, often resulting in difficulties and failures.
   • Misalignment
     • ERP systems work with best practices and are proces-oriented
   • Systems Development Life Cycle
   • Traditional Systems Development Life Cycle: fit system to organizational requirements
     • but...
       • Automating current system is counter-productive
       • Inherit old problems and flaws
       • Takes too much time
       • uses a great deal of resources
       • Expensive
   • ERP Design Process
     • Use best practices already built in the ERP-package
     • Select package
     • Re-engineer business processes or customize software
     • Implementation of ERP system necessitates organizational innovation
     • IS Implementation model
       • Initiation
       • Adoption
       • Adaptation
         • Development and installation of the system
       • Acceptance
       • Use
       • Incorporation
     • ERP Selection process

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