Question

What are threats to inventory within the production cycle (both threats to physical inventory and the data related to inventory)? What specific controls does an AIS offer to help prevent or at least detect these threats?

Answer 1

General Issues Threats

1) Inaccurate or Invalid Master Data 2) Unauthorized disclosure of sensitive information 3) Loss or Destruction of Data

Controls to prevent Inaccurate of Invalid Master Data

1.1) Data processing integrity controls1.2) Restriction of access to master data. 1.3) review of all changes to master data

Controls to prevent unauthorized disclosure of sensitive information

1) access control

2) encryption

Controls to prevent loss or Destruction of Data

1)Backup and disaster recovery procedures

Product Design threat (4)

4) Poor product design resulting in excess cost

Controls to prevent poor product design (4.1-4.3)

4.1) Accounting analysis of costs arising from product design choices. 4.2) Analysis of warranty and repair costs

Planning and Scheduling threats (5)

5) Over & Under Production

Controls to prevent over & under production 5.1-5.3

5.1) Production planning systems 5.2) Review and approval of production schedules and orders 5.3) Restriction of access to production orders and production schedules.

Production Operations threats (6-11)

6) Theft of Inventory 7) Theft of Fixed Assets 8) Poor performance 9) Suboptimal investment in fixed assets 10) Loss of inventory or fixed assets due to fire or other disasters 11) Disruption of operations

Controls to prevent theft of Inventory (6.1-6.5)

6.1) Physical access controls 6.2)Documentation of all inventory movement 6.3) Segregation of duties-custody from recording and authorization of removal 6.4) Restriction of access to inventory master data. 6.5) Periodic physical counts of inventory and reconciliation of these counts to recorded quantities

Controls to prevent theft of fixed assets (7.1-7.3)

7.1) Physical Inventory of all fixed assets 7.2) Restriction of access to fixed assets 7.3) Maintaining detailed records of fixed assets, including disposal

Controls to prevent poor performance (8.1-8.2)

8.1) Training 8.2) Performance reports

Controls to prevent suboptimal investment in fixed assets (9.1)

9.1) Proper approval of fixed asset acquisitions, including request for proposals to solicit competitive bids.

Controls to prevent loss of Inventory or fixed assets due to fire or other disasters (10.1-10.2)

10.1) Physical safeguards 10.2) Insurance

Controls to prevent disruption of operations (11.1)

11.1) Backup and Disaster Recovery plans

Cost Accounting Threats (12-14)

12) Inaccurate Cost Data 13) Inappropriate allocation of overhead costs 14) Misleading Reports

Controls to prevent inaccurate cost data (12.1-12.2)

12.1) source data automation 12.2) data processing integrity controls

Controls to prevent inappropriate allocation of overhead costs (13.1)

13.1) Time-driven Activity Based costing

Misleading Reports (14.1)

14.1) Innovative performance metrics