CASE_W13A: Collins Harp Enterprises

L EA R N ING OB JE C T IVE S
After completing and discussing this case you should be able to
[1] Recognize risks associated with the IT orga-
nizational structure and systems development
processes at a potential audit client
[2] Identify general IT-related controls that, if
implemented, could reduce risks associated with
IT systems development

BACKGROUND
You are the new information technology (IT) audit specialist at the accounting firm of Townsend and
Townsend, LLP. One of the audit partners, Harold Mobley, asked you to evaluate the effectiveness of
general and application IT-related controls for a potential new audit client, Collins Harp Enterprises,
which is a privately-held business. During a round of golf last week, an executive of Collins Harp
Enterprises asked Harold to have someone with good IT training look at the company’s IT systems
development process. Harold recently summarized the following information about Collins Harp’s IT
systems development process based on his recent conversation with Linda Seth, IT Vice President at
Collins Harp.

IT SUMMARY
Because of the company's unique business processes, Collins Harp Enterprises develops most of
its computer software applications in-house. Over the past several years, Linda Seth has been able
to hire several good software programmers with relatively strong programming experience. She has
assembled a team of five programmers who handle most of the application and systems programming
needs. Because of their strong backgrounds, Ms. Seth involves all five programmers in new application
developments or modifications to existing applications and also involves all of them in operating,
security, utility, and other system software programming and maintenance tasks. The staff is relatively
versatile, and any one of them is able to handle the programming demands of most changes.
Linda notes that because the programmers are typically more “free-spirited,” she prefers to
give the programmers relatively free latitude in the development of new applications or modifications
to existing applications. She comments that the programmers like to view their work as a form
of art. As a result, she notes that the programmers “attack” the programming logic development
using their own, unique programming style and approach. She believes that such “freedom” for the
programming staff enhances the quality of the application development.
New applications are generally initiated by Linda after she identifies suggestions for changes
to existing applications based on conversations with similar IT personnel at other companies.

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Because she regularly attends IT development conferences, she believes that she is in the best
position to identify ways to improve current application procedures. Occasionally, non-IT personnel
(like accounting department personnel who work with the accounting systems) identify suggested
changes. Linda notes that she generally hears about application changes or new application ideas
from non-IT personnel in informal settings such as over lunch in the company cafeteria or when
bumping into people in the office hallways. She also monitors emerging trends in the industry, such
as the growing use of cloud computing. When that occurs, she makes a mental note to take back to
her programming staff.
When applications are developed or changes are made, the assigned programmer generally
telephones or emails the non-IT personnel primarily responsible for the application to discuss the
programmer’s suggested modification and to get their unofficial “blessing” to proceed. Occasionally,
the programmer meets with the respective personnel, if requested. However, the programmers
generally feel that such meetings have limited benefit because users have very little understanding
of the programming logic used.
If the programmer is making a modification to an existing application, he or she makes a copy
of the current version of the software program being used so that they don’t have to reprogram the
entire application. Before beginning, the programmer generally tries to meet with the programmer
who was previously involved with any programming associated with this application to get a “big
picture feel” for the application. Given the small size of the programming staff, the programmer
can generally identify the person last involved with this application by talking with the other
programmers. The programmer locates documents related to the programming logic maintained
in the programming department’s files. Generally, this documentation includes electronic files and
memos that contain the programmer's notes about his or her programming logic used to program
the software application. The newly assigned programmer is able to recreate a trail of the most
recent modifications to the application from these notes.
Programmers test all application developments and modifications. To increase the
independence of the testing, Linda assigns a different programmer to perform the testing of the
application before implementation. The test programmer creates a fictitious data set by copying
one of the actual data sets used in the relevant application. The test programmer performs a test
of the new application or modification and documents the results. Linda says that there are tight
controls over program testing because of her detailed reviews of all program test results and personal
approval of each program before implementation into live production. And, she adds that copies of
all test results are maintained in the files for subsequent review.
Once Linda believes that the program is accurately processing the test data, she approves
the program for implementation into live production. Linda notes that it is a big event for
the programmers when their application is ready for implementation. She comments that the
programmers take pride in the completion of the project and that all the programmers celebrate
once the project programmer announces that he or she has compiled the final version into object
code and forwarded the object code version to the IT Librarian.

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R EQ U IR E D
[1] The Committee of Sponsoring Organizations of the Treadway Commission (widely known as
COSO) revised its Internal Control - Integrated Framework to update its guidance to reflect a
number of advancements in best practices, including those related to information technologies.
Visit COSO's website (www.coso.org) to obtain an Executive Summary of the revised Internal
Control - Integrated Framework. Review that summary to answer the following questions:
[a] What are the five components of internal control?
[b] What is the relationship between the components of internal control and the principles of
internal control and how many principles are in the framework?
[c] One of the principles describes the importance of general controls. Identify the component
of internal control that principle addresses and describe why COSO embedded that principle
in that component.
[2] Review COSO's Internal Control - Integrated Framework t o a n s w e r t h e
following questions:
[a] What are "technology general controls"?

[b] How do "technology general controls" differ from "automated controls"?

[c] What is the main focus of general controls over technology acquisition, development, and
maintenance processes?
[3] Harold would like you to prepare a draft letter to Linda Seth that
[a] Describes deficiencies in the Collins Harp IT system development and program change
process.
[b] Provides a brief description explaining your primary concern for each deficiency noted in part [a].
[c] Includes a recommendation of an IT system development control that could be implemented
to minimize your concern for each deficiency described in part [a].
Remember you are writing to Linda Seth at Collins Harp. Therefore, prepare your response in
a letter (not memo) format. Be sure to be professional in your response. You want to pinpoint
obvious deficiencies without being offensive, given that Collins Harp could become a new client.

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