Assessment

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IT Auditing 2 IT BUSINESS
OPPORTUNITIES Edo Roos Lindgreen roos.edo_at_kpmg.
nl
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Roadmap
2. Business opportunities 3. Information risk
management
4. Financial mgt and IT organisation 5. System
development 6. IT management 7. Security
13. ERP 14. E-business 15. Forensic
8. and 9. IT and the financial statement 10. Due
diligence 11. Digital durability 12. Knowledge
management
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Contents

• History
• IT the business case
• At least 18 reasons to invest in IT
• IT in large and small businesses
• A classification of information systems
• Cases

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History

• 60 - central computing applications payroll, ...
• 70 - central administrative applications general
  ledger, business transactions, order entry, ...
• 80 - departmental applications sales databases,
  personnel information system, general ledger, OA,
  ...
• 90 - distributed applications end-user
  computing, client/server applications, data
  warehousing, web-based applications, workflow,
  ERP, Intranet
• 00 -ubiquitous computing, e-business,
  e-commerce, mobile computing

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IT the business case

• Facts
• High investments in information technology
• High operational costs
• Information technology is seen as a major
  instrument to achieve strategic goals
• ICT companies are among the worlds most powerful
  organisations
• Can your client afford not to keep up with the
  competition?

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Six possible reasons to invest in IT

• Improving efficiency
• Improving quality of service
• Increasing capacity
• Ability to deliver new products or services
• Finding new marketing and sales channels
• Knowledge management

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Six more possible reasons to invest in IT

• Exchanging information, group working
• Improving management information
• Improving accuracy
• Increasing the quality of work
• Just-in-time delivery
• Keeping up with the competition (peers)

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Another six possible reasons to invest in IT

• Hobbyism
• Prestige
• Fear, uncertainty, doubt
• Commercial interest
• Cash surplus
• Because We Must - Y2K, Euro,

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IT in large and small businesses

• Large
• 10M
• pro IT organisation
• strong buyers position
• internal expertise
• custom software and
• large packages
• high reliability
• segregation of duties
• economies of scale

• Small and medium-sized
• 100K
• network manager
• dependent on supplier
• no internal expertise
• small packages and
• shrink-wrapped software
• high vulnerability
• no segregation of duties
• have less, pay more

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A classification of information systems

• Traditional classification
• A - Transaction systems
• Processing core transactions
• B - Management information systems
• Supplying information to mgt
• C - Decision support systems
• Supporting business decisions
• See Stair Reynolds

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New developments that do not fit in nicely

• Office automation and group working
• Enterprise Resource Planning (ERP)
• Workflow Management
• Imaging
• Computer-Telephone Integration (CTI)
• E-business, e-commerce
• Mobile computing

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Office automation and group working

• Simple tools, extensive functionality
• Text processing, presentations, e-mail,
  appointments, teleconferencing, group working,
  multi-authored document management, Intranet used
  for knowledge management
• Dramatically changes our way of working
• Knowledge workers enslaved to Outlook, Word,
  Powerpoint, Internet Explorer

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Enterprise Resource Planning

• Integrated package for all business processes
• Based on a large central database
• Automatic actions on predefined conditions
• Used for inventory control, BOM management, HRM,
  planning, shipping
• ERP-systems interconnected by Electronic Data
  Interchange (EDI)
• Examples SAP, Baan, Peoplesoft, J.D. Edwards,

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ERP opportunities

• Single supplier, end of island automation
• Integrated approach, better communication
• Improved data consistency
• Tight fit to business process
• Uniform user interface
• Suited to connections with other systems
• But...

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Workflow Management and Imaging

• Popular definition the right form at the right
  time
• Automate subsequent process steps with
  conditional actions
• Support process by predefined forms and actions
• Paper documents are scanned and stored in digital
  format
• Suited to repetitive standard processes, e.g.
  issuing mortgage proposals or processing
  insurance claims

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Workflow advantages for the auditor

• New information systems offer better
  opportunities for internal control
• Automation of process steps
• Automatic tracking of goods and money
• Automatic consistency checks
• Structured reporting and audit trails
• Scanning paper documents less weight
• Strong authentication of individuals
• AO/IC remains necessary

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Computer-Telephone Integration (CTI)

• Intelligent telephone switch, call centre
• Automatic customer recognition
• Intelligent routing of incoming calls to agents
• skill-based
• language-based
• context-sensitive
• Automatic customer file retrieval
• System keeps track of calls and actions by agents
• Ultimate goal total customer care

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E-business

• Doing business using standard Internet technology
• Major advantages no special client software
  required, low threshold, consumer benefits
• Business-to-business versus business-to-consumer,
  including m-commerce
• Critical factors security, trust, ease of use,
  quality of service, social acceptance

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Great expectations

• By 2004, 40 of e-commerce transactions will be
  initiated from a portable, cellular-enabled
  device (0.8 probability) Gartner Group, August
  1999
• By 2003, all e-business initiatives will include
  some element that is delivered across a mobile
  wireless channel Gartner Group, September 2000
• (The immediate problems of the century rollover
  will be traumatic, and Y2K changes will continue
  for at least one year past the actual rollover.
  Beyond that, the banking industry will undergo a
  shakeout, as many retail financial institutions
  will be acquired or leave the industry because a
  lack of funding and expertise to complete the Y2K
  work, or to deal effectively with the aftermath,
  will drive them out.- Gartner Group, January
  1998)

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E-business dead or alive?

• B2B
• Delivers
• E.g. e-procurement
• B2C
• Does not deliver yet startup shakeout
• Orientation versus closing the deal
• But Internet as integral part of multichannel
  strategy
• M-commerce
• Does not deliver yet, see WAP
• But promises immediate satisfaction of basic
  needs
• Conclusion
• E-business is hype and breakthrough
• Beware of cynicism

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Cases

• Cases
• Questions to be addressed
• what is the primary motivation for investing?
• is there any spin-off?
• are there major risks?
• are there attention points for the auditor?

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Case Railpocket

• Special software in handheld device
• Invented by NS conductor
• Implementation and roll-out by NS in 1998
• After each trip, conductor empties Railpocket
• Data is uploaded to central system (trip info)
• Data is downloaded to Railpocket (news,
  schedules)
• Data are consolidated and stored in data
  warehouse
• Management information accessed daily by process
  managers using graphical user interface

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Case Meinders Euro Services

• Truck repair intermediate
• Call center truck driver gives info on damage
• MES calls garage to send mechanic
• Simple automated system automatic forms based on
  trucks licence plate given by truck driver
• Bill of materials automatically generated
• Call duration reduced from 10 min to 6 min
• System attracted large new customer
• Turnover doubled in 6 months

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Case Teleroute

• Website connected to closed IP network
• Matches demand versus supply of transport
  capacity
• E.g. need 20 m3 from Dusseldorf to Geneva on 2
  February, 2000
• System does not show transport tariff information
• Users need subscription and pay per inquiry and
  advert
• Highly succesful transformation from ordinary
  publisher to advanced info broker

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Case Accounting firm

• Knowledge management world-wide Intranet
• Information on
• clients, engagements
• products and services
• human resources, adresses, skills, CVs
• external information
• Office automation
• Accounting of time and materials
• Financial management, invoicing

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Case Fruitmasters

• Co-operative auction of fruit and vegetables
• Automatic registration of incoming lots
• Touch-screens and barcodes
• Facilitates tracing the origins of products
• Product information is delivered with product
• Provides information on spray schemes, etc.
• Important for eco-oriented customers
• Transformation of classical co-operative auction
  to value-added information provider

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Case Amazon.com

• See www.amazon.com and www.nasdaq.com
• Worlds largest virtual bookstore
• Now open to sell and auction anything
• But

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Case Stater Portfolio management

• Daughter of Bouwfonds Nederlandse Gemeenten
• System for mortgage portfolio management
• administration
• invoicing
• adjustment
• Low fee per mortgage
• System is sold to banks
• Portfolio management services are offered to
  other mortgage providers
• Euro facilitates international expansion

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Case Customer care center

• Call center for all European airline customers
• Customer calls toll-free number in own country
• Call is routed to CCC
• Telephone switch recognises country and customer
• Call is routed to appropriate agent
• Customer file pops up automatically
• Data is entered in customer database during
  assistance
• Customer database is used for commercial purposes

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Conclusions

• IT is a strategic weapon in todays business
• Business opportunities may be enormous
• Opportunities justify high investments
• Can one afford not to keep up with the
  competition?
• High stakes, continuous change
• Auditor should
• be aware of business opportunities of IT
• know how client may use IT for profit
• be able to assess opportunities... and risks

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Questions
?
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Roadmap
2. Business opportunities 3. Information risk
management
4. Financial mgt and IT organisation 5. System
development 6. IT management 7. Security
13. ERP 14. E-business 15. Forensic
8. and 9. IT and the financial statement 10. Due
diligence 11. Digital durability 12. Knowledge
management