CHAPTER 2 – BUSINESS PROCESSES ❖​ Security department

Introduction Advantages of Departmental or Functional

This chapter explains how internal auditors Approach
evaluate business operations by focusing on 1.​ The audit area is clearly defined.
business processes instead of individual 2.​ Management responsibility is clear.
departments. Since many business activities
involve different departments working together, Disadvantage of Departmental or Functional
auditing the entire process helps identify risks,
Approach
improve controls, and increase efficiency.
1.​ Departments do not operate
independently.
For example, when a customer buys a product,
2.​ If auditors only examine one
the Sales Department receives the order, the
department, they may miss problems
Warehouse prepares the item, the Accounting
Department records the payment, and the that happen when information moves
Delivery Team ships the product. If one between departments.
department fails to perform its task correctly, the
whole process is affected. This is why auditors
examine the entire process rather than only one 2. Business Process Approach
department. Instead of focusing on departments, auditors
can define the audit universe based on
An Audit Universe of Business Processes business processes.A business process is a
An audit universe refers to the complete list of series of connected activities performed by
areas, activities, departments, or processes different departments to achieve a specific
within an organization that can be reviewed by goal. The auditor examines the entire
internal auditors. It helps auditors decide what process, not just one department. Examples
areas need to be audited and how they should of business processes:
organize their audit plans. ❖​ Purchasing process
❖​ Customer complaint process
There are different ways to define an audit ❖​ Payroll process
universe. The two common approaches are: ❖​ Product development process
1. Departmental or functional approach
2. Business process approach Advantages of Business Process Approach
1. Provides a complete view of operations
1. Departmental or Functional Approach 2. Identifies weaknesses between departments
The simplest way to create an audit universe is 3. Improves efficiency and effectiveness
by looking at the organization’s departments
or functions. This means auditors divide the Disadvantages of Business Process Approach
company based on its structure, such as: 1. Requires more planning
❖​ Accounting department 2. Responsibility may become unclear
❖​ Sales department
❖​ Human resources department Self-Assessment of Business Processes
❖​ Manufacturing department (Control Self-Assessment)
Another approach is the Control A hybrid audit universe combines both
Self-Assessment (CSA) method. Instead of approaches; based on departments or
auditors performing the entire review, functions and based on business processes.
employees and managers involved in the In reality, many organizations use this
process evaluate their own controls and approach because not all areas can be
identify problems. reviewed using only one method. The main
problem is the possibility of auditing the same
A workshop is usually conducted where issue twice. To avoid this, auditors must
representatives from different departments carefully coordinate their audit plans and
discuss: define clear audit scopes.
❖​ Problems in the process
❖​ Risks they experience REASONS FOR PROCESS WEAKNESSES
❖​ Possible solutions
What are Process Weaknesses?
Advantages of Self-Assessment of Business
●​ Weaknesses or problems in how
Processes (Control Self-Assessment)
business processes are carried out.
1.​ Employees become more aware of
●​ Usually happens when different
risks and controls.
departments need to work together.
2.​ Problems can be identified by people
directly involved in the process. Why do Process Weaknesses happen?
3.​ Encourages cooperation between
departments. ●​ Weak coordination between
4.​ Solutions are easier to implement departments
because employees participated in ○​ Procedures are usually stronger
creating them. within a department than
between departments.
Disadvantage of Self-Assessment of Business ●​ Staff are more loyal to their own team
Processes (Control Self-Assessment) than to the whole organization
1.​ It provides less objective assurance ○​ Staff identify more with their
compared to traditional internal own team than with the whole
auditing. organization.
○​ This can create rivalry between
2.​ Employees may overlook problems or
departments.
may not be completely honest about
●​ Errors within the same team are
weaknesses because they are
usually fixed quickly
evaluating their own work.
○​ Mistakes within the same team
are usually corrected quickly
Control Self-Assessment (CSA) is useful but because members help each
may still require independent audit review. other.
○​ Mistakes made by another
Hybrid Audit Universe department may be ignored or
blamed on that department.
 ●​ Mistakes between different teams may ●​ The term business process is preferred
be ignored or blamed on others. because not all activities are cyclical.
○​ One department may only
notice another department's Why identify business processes?
mistake when it affects their
own work. ●​ Every organization is unique.
○​ This leads to comments like, ●​ There is no standard list of business
"It's not our responsibility." processes for all organizations.
●​ Procedures within a department are ●​ Internal auditors and management
often stronger than those between identify the most important processes
departments for auditing.
○​ Employees naturally help each
other within the same team. Six Main Business Processes
○​ Cooperation between different
departments is usually weaker. 1.​ Revenue Process – This process
involves selling products or services,
Role of Management collecting payments from customers,
and recording sales transactions.
●​ Improve coordination between 2.​ Expenditure Process – This process
departments. focuses on purchasing goods, services,
●​ Reduce conflicts and encourage labor, and property, as well as paying
teamwork. suppliers and other business expenses.
3.​ Production/Conversion Process – This
Role of Internal Auditors process converts resources, such as
materials and labor, into finished
●​ Have access to the entire business products or services.
process. 4.​ Treasury Process – This process
●​ Audit the whole process, not just one manages the organization's cash,
department. investments, cash flow, and other
●​ Focus on areas where coordination financial resources.
between departments is weakest. 5.​ Financial Reporting Process – This
process prepares and presents accurate
financial reports for management,
IDENTIFYING THE PROCESSES OF AN
investors, and regulatory authorities.
ORGANISATION
6.​ Corporate Framework Process – This
Business Process process ensures good governance
through ethics, compliance, internal
●​ A business process is a series of related controls, and effective management.
activities that help achieve the
organization's objectives. Alternative, More Detailed Classification of
●​ It follows the flow of business activities Business Processes
from beginning to end.
●​ It is also called the Business Cycle ●​ Cash Process – This process manages
Approach. the flow of cash into and out of the
 business, including receiving payments WHY ADOPT A "CYCLE" OR
from customers and paying suppliers. "PROCESS" APPROACH TO INTERNAL
●​ Information Process – This process CONTROL DESIGN AND REVIEW?
collects, analyzes, and converts data into
useful information to support Meaning
decision-making.
●​ Integrity Process – This process ●​ The process approach follows the entire
protects computer programs, systems, business process from beginning to end
and data to ensure they remain secure instead of focusing on only one
and reliable. department.
●​ Launching a New Product Process –
This process covers the development of Advantages
a new product, from market research
●​ Provides a complete view of business
and planning to production and product
operations.
launch.
●​ Follows each process throughout its
●​ Payments Process – This process
entire life cycle.
involves purchasing goods or services,
●​ Shows how different departments work
processing supplier invoices, and
together.
making payments.
●​ Helps identify risks, errors, and weak
●​ Planning and Control Process – This
controls.
process focuses on planning activities,
●​ Improves internal control.
monitoring performance, comparing
●​ Makes the audit process more effective.
results with plans, and making
improvements.
Audit Trail
●​ Production Process – This process
involves producing goods or providing An audit trail is a record that allows auditors to:
services while managing inventory,
labor, and production activities. ●​ Trace a transaction from its source.
●​ Product Life Process – This process ●​ Follow every step of the process.
covers the entire life cycle of a product, ●​ Verify the final result.
from its launch and production to its ●​ Trace the transaction backward if
revision or discontinuation. necessary.
●​ Revenue Process – This process
involves generating sales, delivering Why is the Process Approach Better?
products or services, collecting
payments, and recording revenue. Department Approach
●​ Time Process – This process includes
activities performed periodically, such ●​ Focuses on one department only.
as financial reporting, regular controls, ●​ Limited understanding of the overall
and other time-based business activities. process.

Process Approach

●​ Reviews the entire business process.

●​ Improves coordination.
 ●​ Detects errors more easily. 16. defines risks within the process itself
●​ Strengthens internal controls.
Academic Cycles in a University
Business Processes in the Standard Audit
Programme Guides (SAPGs) The Four Academic Cycles:
1.​ The Course Cycle
●​ The Standard Audit Programme Guides 2.​ The Student Cycle
(SAPGs) accommodate the concept of 3.​ The Teacher Cycle
the business as a number of processes. 4.​ The Teaching Space Cycle

●​ First, each SAPG indicates other SAPGs Course Cycle

with which the subject of the SAPG Flow:
interacts. ●​ (Re)design
●​ Implementation
●​ Secondly, Appendix 2 classifies each ●​ Assessment
SAPG as belonging in a major or ●​ Review
secondary way to one or more of the six ●​
"ubiquitous" processes. Student Cycle
Flow:
●​ SAPG methodology differentiates ●​ Marketing
between the Main (or primary) and ●​ Recruitment
Secondary relationships. ●​ Development and care
●​ Assessment
The Hallmarks of a Good Business Process ●​ Graduation
●​ Alumni provision
1. designed to meet objectives which are clear
2. has regard to competitive issues Teacher Cycle
3. performance can be (and is) measured Flow:
4. unsatisfactory performance is rectified ●​ Determine future load
5. activities are completed in a timely way ●​ Plan preparation
6. processes are cost effective ●​ Preparation
7. controls are "preventative" rather than merely ●​ Design & reproduction of handouts
"permissive" ●​ Delivery
8. as few "movements"/"stages" as possible ●​ Assessment
9. unnecessary steps have been eliminated ●​ Review
●​ nothing is done which is unimportant to ●​ Revision
the achievement of objectives
10. proper authorisations Teaching Space Cycle
11. controls positioned as early as possible in the Flow:
process ●​ Estimate future need
12. documented ●​ Provide space
13. has an audit trail ●​ Equip space
14. right people doing the right job ●​ Timetabling
15. room for adaptation ●​ Utilisation