Benefit four: Mindset changes ..........................................................
Implementing automated controls requires more than changes to software.
Doing so also requires a mindset change. Management commits to a code of
ethics and to a new control consciousness, but they also have to ensure that
this filters down throughout the company.
Here is an example of how automation and better internal controls required a
mindset change. When companies implemented the automated procure-to-pay
process, vendors often complained that their invoices weren’t being paid. In
the old manual process, the accounting clerk would call the ordering depart-
ment and ask if the goods had been received or where the receiving documents
were in the process. In the automated process, the goods were delivered to the
ordering department but no paperwork was presented. Instead, the receiving
personnel were expected to enter the goods receipt into the system. The quan-
tity entered was then electronically compared to the invoiced receiptquantity.
Under the manual process, before the receiver could use the goods, the deliv-
ery person would ask for a signature. However, if the goods were delivered and
able to be used, there was no incentive for the recipient to enter their goods
receipt into the system. So when companies looked at the invoice receipts,
there were many items not covered by a goods receipt.
This imbalance held up many vendor payments — the system was not going
to pay an invoice for goods that were not received. It became essential to
report outstanding invoices without goods receipts as part of internal con-
trols to motivate employees to make timely entries.
Seeing How Automating Controls Makes Things Easier..........................
In the early 1990s, most companies had their own systems that they built to
run their accounting, purchasing, and personnel functions. With these sys-
tems came the necessary controls — sometimes as many as 500 of them. In
these home-grown systems, controls would be tested at various times, either
quarterly or at month-end, or, for some controls (such as three-way match),
perhaps only once a year. Typically, companies would manage their controls
in an Excel spreadsheet, with an attached control plan outlining the 10 to 15
steps to take if a particular control broke. This process was an extremely
intensive, laborious, and time-consuming.
Widespread adoption of enterprise resource planning (ERP) in the late 1990s
enabled companies, among other things, to automate their common processes.
ERP helped integrate each of the functional areas into an end-to-end process
Chapter 7: Taking Steps toward Better Internal Controls 131
