Aspects of implementing a digital transformation strategy | Baker Tilly

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Aspects of implementing a digital transformation strategy | Baker Tilly

Internal processes and controls

In advanced technological environments, organizations can more reliably and consistently address risk if they can move to a more automated solution. IT-driven controls aren’t subject to human error, bias, or management override.

Companies can use the following controls to assist in their accounting.

Manual controls

Though technology can be used to supplement manual controls, there will always be instances where management will need to make a subjective conclusion on a complex topic. This must be done via some type of human intervention.

Consider manually monitoring the following:

Management review controls (MRCs)
Estimates or accruals and other dissemination of critical information
R&D spend expectations and percentage complete
Vendor banking details

Spreadsheets and end-user controls (EUCs)

In spreadsheet-heavy environments, organizations can establish entity-wide programs to help manage EUCs.

The following are strategies to implement that support security if your organization uses spreadsheets:

Maintain accurate inventory of all discovered, registered, and managed files
Implement version, access, change, and data integrity controls
Establish procedures that monitor changes to inputs and logic
Restrict access to spreadsheets so that only supervisors have access to unlock cells
Leverage Excel add-ons and embedded applications, such as Smartsheet, Tableau, or Domo

IT application controls (ITACs)

ITACs include safeguards in relation to specific applications. ITACs prevent, detect, and correct transaction errors and fraud in application programs. They are concerned with the accuracy, completeness, validity, and authorization of the data captured, stored, transmitted to other systems, and reported.

Several types of application controls exist with the objective to ensure that input and output data are accurate and complete, processed in an acceptable time, and a record is maintained to track the process of data from input to storage and to the eventual output.

Examples of application controls are:

Ensuring goods and services are only procured with an approved purchase order
Monitoring segregation of duties based on defined job responsibilities
Identifying received goods and services are accurate upon receipt
Ensuring fixed-asset depreciation is recorded accurately in the appropriate accounting period
Determining whether there’s a three-way match among the purchase order, receiver, and vendor invoice

IT general controls (ITGCs)

ITGCs refer to the overarching controls that relate to security, change management, and the use or design of computer programs. They ensure an organization’s control environment is stable and well-managed, including the IT infrastructure and software acquisition, development, and maintenance.

Several types of ITGCs exist with the objective to ensure that system and organization controls (SOC) reports for cloud-based systems are assessed for unmitigated risks, security and access to systems and key reports are limited via least privilege, and there is control over batch processing.

Managing third-party risk is critical for companies that rely heavily on third parties. Are you outsourcing IT or R&D? If so, work with vendors who have current SOC reports.

Organizations can gain significant effectiveness and efficiency in maintaining internal controls over financial reporting by following the steps needed to maintain this strong IT general control environment.

Automated workflows

To further strengthen your internal processes and controls, you can utilize automated process workflows.

Examples of automated process workflows include:

Journal entry approval
New vendor approval
Vendor bill approval
Vendor payment
Purchase order and purchase request

Defining scripts

Gain some efficiency and effectiveness in your operations using scripts. A script is a program or sequence of instructions that takes a series of commands and turns it into a single command. With one click, the script can run several sequential tasks.

A common example is using scripts for payroll processes.

Example for using scripts for payroll processes

There are many individual activities during this process, but with a script, the system is programmed to run the activities consistently and without error.

The script will let the user know if an error occurs. Scripts can be a very potent and effective tool for increasing the effectiveness and efficiency of your operations.

Cybersecurity

Cybersecurity should be a significant consideration as your organization develops a digital transformation strategy — including understanding what the risks are and how to mitigate them.

What are cybersecurity risks?

Data held in your network or in the cloud, such as intellectual property (IP), financial data, employee information, or client or customer data, can be targeted by bad actors. Through a variety of strategies, such as phishing, ransomware, and social engineering, bad actors can try to find and exploit vulnerabilities.

How to mitigate cybersecurity risks

If you can apply practical security through these basic hygiene measures, then you can reduce exploitation opportunities and reduce the risk of an attacker infiltrating your network.

Below are eight areas to focus on to lower the risk of a cyberattack and reduce data loss while developing and implementing a digital transformation strategy.

Security awareness training

There are reasonable, robust, and readily available ways to train and test users with realistic, orchestrated, phishing and social engineering campaigns.

Train users to inspect URLs before clicking on any links or images in their emails and conduct regular tests to help employees become familiar with phishing emails and malicious links. Provide users with guidance for reporting suspicious emails to the cybersecurity department, such as a phish alert.

Identity and access management

There are several important principles around identity and access management.

Limit privilege. Grant user access to the company network based on job roles, also known as role-based access.
Segregation of duties. Establish checks and balances; one user shouldn’t complete an entire process from start to finish without oversight.
Reviews. Regularly review user accounts to determine if access is still appropriate for certain users.
Privileged access management. Establish controls so that administrative accounts are only created and used when necessary.
Robust authentication methods. Create complex passwords or utilize multifactor authentication to enhance security and prevent attacks.

Device and software inventory

Maintaining accurate inventory of all software and hardware is a foundational and critical part of a cybersecurity program. It’s important that inventory records of approved hardware and software are accurate so accepted controls can be implemented to protect hardware and software from threats.

Maintaining inventories can be done manually with spreadsheets, passively with a device or software that listens to network traffic, or actively, with software that’s constantly scanning the network for active devices.

A solid inventory program allows for more effective remediation of hardware and software vulnerabilities. When updates or patches are needed, it’s more effective to identify assets that need to be updated if the inventory records are up to date; otherwise, hardware and software can become outdated over time, which increases risk to the business.

Accurate inventories also simplify the decommission process. Attackers look for outdated, vulnerable servers and software. An inventory can make it easier to assess devices and determine what needs to be decommissioned and removed from the network.

Vulnerability management

A vulnerability management program can be multipronged. Two important aspects are patching and antivirus:

Patching. When a software vulnerability is identified, developers, testing teams, and security analysts will issue a patch, which is a piece of software that remedies that vulnerability and corrects it with new code
Antivirus. When vulnerabilities within software programs are found, attackers could write a program, or virus, to leverage those vulnerabilities

Auditing and logging

Logging software activity can happen at two levels:

Application level. The actions each user takes
Operating system level. The number of connections, memory spikes, or high CPU usage

Benefits of creating an auditing and logging process include increased visibility, finding inefficiencies, and identifying attackers and malicious activity.

Data encryption

Data is many companies' biggest business asset, so determining what data is most sensitive and most highly valued is paramount.

The value and sensitivity of your data and regulatory requirements will help determine what protections you put in place, such as how you access it, who uses it, and the availability.

Encryption

For data in storage or in transit, there should be a level of encryption for these environments. Encrypting data stores and data transmissions could prevent you from having to pay regulatory fines if data is inappropriately access or disclosed.

To protect data, look at your firewall settings, make sure you're using the most up to date transport layer security, and implement a file integrity monitoring system. A comprehensive data loss prevention program can help identify and address the risk of how data can be inappropriately accessed or disclosed, and how the to reduce the occurrence of these events.

Data back-ups

Data that’s backed up should have the same level of security, or more, as data in the production environment. Production data and data backups should both be encrypted with strong encryption keys.

Determine how often this data is being overwritten, when it will be archived, if it has continuous data protection, and who’s responsible for the data. Identify and document all regulatory requirements for maintaining data over time before destroying data archives.

Incident response, disaster recovery, and business continuity planning

How resilient is your organization when it comes to a data breach? Attacks are just a question of when.

Prioritize. Make cybersecurity a priority in your company
Train. Staff should be trained, and training should encompass members from many different departments
Perform a business impact analysis. Identify critical data, critical business functions, services, and IT equipment that could be impacted in the event of a cyberattack
Test. Incident response plans should be tested on a regular basis and can help reduce the time it takes to recover from an attack
Respond. Timely response after an internal attack, or when a supplier or vendor is attacked, is critical

Cyber supply chain risk management

Supply chain risk management is being aware of any additional risk introduced into your organization through an outside supplier, vendor, or software. If providers are at a high risk, you may not want to do business with them.

Vet a new provider to help identify any potential problems before you sign a contract. With new or existing suppliers or vendors, you can monitor what they’re doing with your data, including when they’re accessing data, why they need access, and who’s accessing it. You can also log the activity to assess what happened in the event of an attack.

After a provider has been offboarded you can continue to keep security in mind by removing access to your network and email and request that third-party service providers turn over all data in their environment or provide proof data has been rendered unreadable.