Best Practices for Continuous Monitoring of Your SAP HR and Payroll Processes

Bhavesh C. Bhagat President & CEO EnCrisp

2006 Wellesley Information Services. All rights reserved.

What Well Cover

Identifying HR, Payroll, and FI Process Monitoring Needs Documenting Required Internal Controls Understanding Payroll and FI Dependency Designing and Monitoring HR and Payroll Controls via Business Rules Implementing Critical Process and Transaction Controls Ensuring Segregation of Duties in SAP HR Addressing Privacy Issues in SAP HR Wrap-up
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Control and Monitor Your SAP HR/Payroll System

2006 expenditures on Compliance and related activities to top $6 billion

HR and Payroll identified as key factors in compliance money going out the door factor Establishing and monitoring adequate controls in SAP is necessary but difficult

Best practice steps you can take to ensure compliance

Are business processes and approvals appropriate for supporting the HR Payroll and related subsystem, including FI components? User access processes, approvals, and controls Internal control accountability processes
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Control and Monitor Your SAP HR/Payroll System (cont.)

Is documentation clearly written and appropriate?

Payroll controls and run manuals updated upon process or system changes Time-entry procedures relevant to support the current controls environment

Are processes and controls functioning as intended?

Reviews established to periodically assess appropriateness of documentation Reviews conducted to periodically test functionality of controls through use of business rules

What Well Cover

Identifying HR, Payroll, and FI Process Monitoring Needs Documenting Required Internal Controls Understanding Payroll and FI Dependency Designing and Monitoring HR and Payroll Controls via Business Rules Implementing Critical Process and Transaction Controls Ensuring Segregation of Duties in SAP HR Addressing Privacy Issues in SAP HR Wrap-up
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WHY Payroll and Related HR/FI Processes Are SENSITIVE

Payroll is one of the largest cash outflows for most companies Time feeds into payroll and directly impacts the bottom line Sarbanes-Oxley (SOX) and other audit criteria focus on financial data of any material impact. Payroll, as a process, has been deemed to be MATERIAL by default. Integration between HR and FI processes often interfaces with other systems and a myriad of manual/hybrid processes built into them
EVERYONE TURN TO YOUR LEFT AND ASK HOW MUCH THAT PERSON SITTING NEXT TO YOU MAKES
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Proactive Internal Controls Monitoring

Payroll, Time, and other Human-Capital-related processes have been the SECOND LARGEST focus in SOX efforts for regulatory compliance after the financial procedures Manual point-in-time audits in past Sampling of records and review of payroll checklists in past NEW PARADIGM end-to-end process review (minimize sampling)
Configuration Integration Security Objects and Transactions Segregation of duties (SOD) is reviewed NOT one time, but is ongoing
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What Well Cover

Identifying HR, Payroll, and FI Process Monitoring Needs Documenting Required Internal Controls Understanding Payroll and FI Dependency Designing and Monitoring HR and Payroll Controls via Business Rules Implementing Critical Process and Transaction Controls Ensuring Segregation of Duties in SAP HR Addressing Privacy Issues in SAP HR Wrap-up
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Types of Controls in SAP HR and Payroll

Controls (process-driven)
Entity Level Controls System Level Controls Process Level Controls

Audits and Auditors

Controls (system-driven)
Inherent Manual Automated Hybrid

Systems and Controls

Compliance Lifecycle

Business Processes

Control Documentation Monitoring

B u ild in g B lo c k

SAP Payroll and Time are involved in all of these activities. The HR business and HR systems resources must be engaged when these controls are being developed.

Create HR and Payroll Controls Repositories

R e f Exposure/Risk What? (What could go wrong scenario) Threat Severity How? (Identify the root cause of the Problem-how can the exposure occur) Prob (without and with controls)

Information Integrity Loss/ Disclosure

1 Unauthorized access to the system. II /III Unauthorized user gains access to authorized user ID while logged on. P

Ref number Uniquely identifies the item to document What Provides the what could go wrong scenario Severity Identifies the impact (I-greatest, IV-Least) How Identifies how the what could go wrong scenario could occur Prob Probability of the scenario occurring (P-Probable, L-Likely, S-Small)
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Create HR and Payroll Controls Repositories (cont.)

Controls (Identify the controls implemented to mitigate the exposure/risk T I M I N G Controls/Practices T Resp Status Y P E Plan Control Tested

Users are encouraged to log off when leaving their desks for long periods of time.

Users

Controls Identify controls implemented or to be implemented to prevent, detect, or correct the scenario Timing Identify when the control is to be implemented or if it already has been Type Type of control (P-Preventive, D-Detective, C-Corrective) Resp Who is responsible for the control? Status Identify whether the control is implemented or what stage of development it is in Plan Document the plan to implement or maintain the control Control Tested Identify whether the control has been tested and signed off

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What Well Cover

Identifying HR, Payroll, and FI Process Monitoring Needs Documenting Required Internal Controls Understanding Payroll and FI Dependency Designing and Monitoring HR and Payroll Controls via Business Rules Implementing Critical Process and Transaction Controls Ensuring Segregation of Duties in SAP HR Addressing Privacy Issues in SAP HR Wrap-up
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Challenges with FI and HR Payroll Linkages

Data is often fragmented and inconsistent (different scenarios for deploying HR and FI globally centralized vs. integrated systems) Processes and technology are not standardized (different global/regional processes and SAP versioning) Some processes are very manual and error-prone Improperly-defined information requirements lead to a lack of the right data and reports Improperly-defined posting requirements cause posting errors Lack of or inappropriate documentation for posting rules
GOTCHA!
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Understand Linkage Data Flow Between HR and FI

FI provides HR data to the following areas, which affects the available options when setting up the postings back to FI:
Chart of accounts/cost centers (used to meet the companys decision-making needs regarding HR expense information) House banks Direct deposit bank information Payment methods (direct deposit vs. check) Document types (used to identify documents that are to be kept for the same length of time)

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Understand Linkage Data Flow Between HR and FI (cont.)

HR provides data to FI in the form of postings. Posting accounts can exist for the following:
EE (employee): Amount to be paid, broken out by wage type ER (employer) or between cost centers: Dollar value of accumulated leave balances, wage types collected, wage types paid by company, cost of time for employees on loan Financial institutions (bank, credit union): Deposits, loan principal, and interest Government and regulatory agencies: Taxes due and garnishments Third-party administrators and benefits carriers: Premiums paid by EE or ER Vendors: Value of hours worked by consultants
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Internal Controls Factors for HR and FI Linkages

Understand the method and timing of passing data from Don't HR to FI

The number of instances Technical requirements, such as volume of data, available bandwidth, and downtime for scheduled system maintenance (consult with your technical experts to develop an appropriate procedure) Deadlines from accounting for monthly closings Auditors requirements to ensure all data is successfully transferred and to prevent multiple transfers of the same data Evaluate general steps in your company for HR/FI integration (decoupled or coupled systems)
Create reports to demonstrate how data is accumulated by wage type, in case problems or questions should arise once this data gets to FI

Forget

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Review Symbolic Account Linkages to G/L

On the accounting side, the symbolic account is assigned to an account (G/L account, customer account, vendor account)

On the payroll side, a symbolic account is assigned to each wage type via a rule. If the symbolic account indicates that the assignment is employee-group-dependent, feature PPMOD will indicate how to direct the wage type to the appropriate general ledger accounts, depending on the employee group.

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What Well Cover

Identifying HR, Payroll, and FI Process Monitoring Needs Documenting Required Internal Controls Understanding Payroll and FI Dependency Designing and Monitoring HR and Payroll Controls via Business Rules Implementing Critical Process and Transaction Controls Ensuring Segregation of Duties in SAP HR Addressing Privacy Issues in SAP HR Wrap-up
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Creating Good HR Internal Control Rules

Controls = Statements driven by policy and control objectives guided by internal controls frameworks to analyze critical business process elements and risks and violations thereof Don't Example: Wage Types for exempt and non-exempt employees must be set up differently in IMG and any exceptions must be identified Control Topic: Integrity of HR Payroll Controls and Rules Drivers: Law Regulation Business Policies Procedures Manuals System Documentation Board Memoranda etc. Control Rules = SAP HR and Payroll Tests applied to evaluate design and operating effectiveness of an identified and scoped control
Forget

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HR/Payroll Internal Controls H5W Formula

Internal Controls Monitoring Dimensions with an Example SPONSOR Scope = SOX Steering Committee OWNER Business Process = HR Payroll Functional Manager

Control Objective

HOW Process

WHAT Data

WHERE Location

WHO Accountability

WHEN Timing

WHY Incentive

CONTROL DESIGNER Design Details = Payroll SAP Analyst CONTROL TESTER Technical Test Details = External SOX or Controls tester INDEPENDENT EVALUATOR Audit = Internal Audit independent tests CONTROL PERFORMER Field Worker = Payroll or HR associate executing the activity

Ensure that inaccurate payroll cash disbursements are not made to the G/L

Evaluate HR/PY and FI integration Review the wage type maintenance and management process Review the Symbolic Account linkages in FI

HR Wage Types FI Symbolic Accounts

IMG /nSPRO (Wage Type Manage -ment menu tree under HR Config) Wage Type Statement Execution report
RPCLGA 09

HR business process manager HR/PY functional integrator Basis/ ABAP report and security designers

Annually in 1st Quarte r after fiscal close

Annual Compliance Effectiv eness Project in 2006 for optimiz ing HR/PY Stream line PY/FI integra tion

Business Rules Design Criterion Template Good Internal Controls Rules answer the H5W formula

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What Well Cover

Identifying HR, Payroll, and FI Process Monitoring Needs Documenting Required Internal Controls Understanding Payroll and FI Dependency Designing and Monitoring HR and Payroll Controls via Business Rules Implementing Critical Process and Transaction Controls Ensuring Segregation of Duties in SAP HR Addressing Privacy Issues in SAP HR Wrap-up
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Key SAP HR Transactions and Processes

Recruiting Personnel Administration Time Management Payroll Performance Management

SAP HR Internal Controls Components Process Configuration Transactions Objects Reports Security SOD
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Understand Control Points by Macro Process Overview

Enter CATS Approval N Y Run RPTEXTP transfer Program CATS to 2002 Run RPTIME00 Evaluate time Is payroll control Record correct for Payroll area and period? N Y Run PY Simulation Release PY Are the simulated results reasonable? N Y Exit PY Set PY control record to proper period and area in PA03 Time and PY ended Problems with Simulation analyzed CATS rejected Time and PY ended

Building Block

Run live PY program RPCALCU0 Are the simulated N postings reasonable? Y

Exit PY for corrections

Make Corrections

Release PY

Run Simulated Posting

Run live PY program RPCALCU0

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Understand Control Points by Macro Process Overview (cont.)

Are the simulated N postings reasonable? Y
B u ild in g B lo c k

Document Posting Issues

Exit PY

Payroll results

Pre-DME

Pre-data medium program populates the REGUH table with the relevant bank details and payroll payments for the payroll relevant employees Data medium exchange programs create the monetary transfer file usually and ACH file or it generates the printed checks END

Posting Run

DME

Display posting documents

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Critical Process and Control Areas Identify ALL HR-Related TCODES Key Transaction Codes (TCODES) Current count from 4.6C 55300
Examples PA**, PC10**, etc. Specific HR SOD rules must be customized for your business

Auditors may bring a list of standard TCODES that have to be secure! This list has been developed outside of your business proccesses and function.
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Critical Process and Control Areas Identify Key HR Objects

Key Objects Examples

P_ORGIN, PLOG, PCLx, etc.

Authorization Objects are the Nuts and Bolts of your HR Security. They decide WHAT can be done in a given infotype and a given transaction by the values defined within.

Additionally, ensure that your programmers use Authorization Groups in the code to check for security at auth object level in your custom HR programs

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SAP HR and Payroll Objects to Consider

Key Object Examples S_TABU_DIS P_ABAP PLOG P_ORGIN S_GUI PCLx P_PCR Key Transactions Payroll Driver Time Driver Posting to FI Key Workbenches Offcycle workbench Time managers workbench HR Process workbench

Work with Basis to understand and plan!

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End-to-End Human Capital Management Hire to Term Cycle

EE Lifecycle Key ISSUE Employees leave the organization, and HR usually has the responsibility to provide the notification ARE YOU PAYING YOUR ex-EMPLOYEES? Is your HR department part of your IT departments ID management process?

Contingent Workforce may pose special issues

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Benefits HR Transactions to Consider

Benefits and compensation are included in the master data and payroll processing

Benefits linkages to banks 401K and other cash outlays Pensions Garnishments

Executive compensation should be closely scrutinized. Often resides OUTSIDE of SAP, thus needs special controls review.
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First Step Enter Time

The timekeeping method must be considered during security and controls design
Two main classes of timekeeping: Positive: Each hour must be entered to be paid Negative: All scheduled hours are paid unless an exception is processed

Positive time Punch clock or CATS

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SAP HR and Time Systems

Key control issues

Positive Who enters the hours or has access to the system generating the hours? Positive time using clock punches usually links SAP to a third-party tool
No SAP Security Applied Here SAP Authorizations and Security Applied Here
SAP MASTER DATA

Both systems will need controls designed, implemented, and documented to meet compliance

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Internal Controls Business Rules Best Practices Time

Risk = Detect any missing approvals or unusual approvals of employee time absence entries Related Transactions = PA30, PTMW, PA61, PA71, CAT2, PA62, CATSXT, CAXST_ADMIN,CATS_APPR_LITE Possible controls rule approach Evaluate difference between PA2000 (attendance) and PA2001 (absence) to PTEX2000 (has difference attendance and absence types) and compare to see any anomalies

Risk = Monitor running of the time driver program Related Transactions = PT60, PTMW, RPTIME00 Possible controls rule approach Work with security admin. to identify access to the above transaction/reports, plus monitor history of P_ABAP program execution history and focus on the following fields: REPID, AEDTM, and UNAME

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SAP Payroll Wage Type Management

When calculating payroll, wage types are read from infotypes and the Time Management cluster
Understand which wage types are processed in your payroll and the rules being run on them to calculate Payroll Report RPDASC00 can be used to list all schemas, subschemas, rules, and sub-rules for a given schema

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SAP Payroll Wage Type Management (cont.) Key Wage Type control issues
Ensure that wage types and their amounts are not hardcoded into rules for Payroll calculations Evaluate the IMG configuration for Payroll processing rules to identify hard-coded wage types

Wage Type Transaction examples = PC00_M99_CLGA09, RPCLGA09

Ensure that the Wage Type Statement report is executed during the Payroll Reconciliation process
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Internal Controls Business Rules Best Practices Payroll Execution and Results

Risk = Detect any improper execution of the payroll driver program RPCALCU0 Related Transactions = PC00_M99_PA03_RELEA, PA03, SE38, PC00_M10_CALC_
Possible controls rule approach

Identify any differences between releases in PA03 and number of PY runs for execution (RPCALCU0), especially if runs exceed releases and identify UNAME and AEDTM in T569U table

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Internal Controls Business Rules Best Practices Payroll Execution and Results (cont.)

Risk = Detect any improper execution of the payroll driver program RPCALCU0 Ensure that the Payroll driver log review is a mandatory step in your Payroll process Frequent and regular monitoring of this log could unearth some subtle issues in your Payroll process that might go unnoticed otherwise

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Internal Controls Business Rules Best Practices Payroll Execution and Results (cont.) Risk = Results from Pre-DME and DME execution are not reviewed Related Transactions = PC00_M10_CDTC, PC00_M10_FFOT, SE38, RFFOUS_T, RPCDTCU0
Possible controls rule approach

Evaluate execution of RPCALC on day X and running of pre-DME on day Y. Identify any changes in bank details between X and Y for a pernr, and evaluate for exceptional check amounts, null amounts, and any other conditions based on your business.

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SAP Payroll Workbench Issues to Consider

You may be using workflow and not even know it! Some processes require some form of workflow

Vacancy processing, the SAP Office, and the process workbench

Create an appropriate custom role rather than allow

SAP_ALL for workflow

Issue
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Internal Controls Business Rules Best Practices Offcycle Workbench Risk = Identify unauthorized access to the offcycle workbench Related Transactions = PUOC_10, SAPLHRPAY99_OC
Possible

controls rule approach

For any PGMID of RPCALCU0 with OFF CYCLE indicator or reason OCRSN, determine the AEDTM and UNAME (via T569U or T569V) for execution and compare with physical HR name list for authorized payroll users for offcycle processes. Users outside of the list should indicate problems.
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What Well Cover

Identifying HR, Payroll, and FI Process Monitoring Needs Documenting Required Internal Controls Understanding Payroll and FI Dependency Designing and Monitoring HR and Payroll Controls via Business Rules Implementing Critical Process and Transaction Controls Ensuring Segregation of Duties in SAP HR Addressing Privacy Issues in SAP HR Wrap-up
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Segregation of Duties Transaction Level

SOD processes and underlying TCODE and Object conflicts

Key Payroll Transaction Codes allowing some form of payroll execution:
PC00_M**_CALC SE38 SA38 PUOC_** PC00_M**_FFOT PA03 PC00_M**_CDTE PAUX PC00_M**_FPAYM PC00_M**_FFOC PC00_M**_RFF0AVIS PAUY

Other Transaction Codes that should be segregated from the payroll processing personnel
PA30 PA61 PA40 PA62 PA41 PA63 PA42 PA70 HRBEN* PA71

All HRCMP* and any other way to change pay-relevant master data
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SAP HR and Payroll Example of Common SOD Violation at the Object Level
Master data changes ... PA30/40 Object P_ORGIN and S_TCODE

Object P_ABAP and S_TCODE

Payroll Processing Ability to run RPCALCU0

Back-door SOD conflict from the objects!

Especially for infotypes 8, 14, 15, 2001, and 2002!

You may be able to mitigate the risk by setting up a monitoring system

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SAP HR and Time Processing Example of Common SOD Violation at the Object Level
Master data changes to infotype 2001 or 2002 ... PA30/40 Object P_ORGIN Change Auth

Object P_ABAP Program access to RPTIME00

Time Evaluation Ability to Change the hours worked or the type of hours Reg to OT

Back-door SOD conflict from adjusting the hours!

Especially for infotypes 2001, 2002, 2010, 2011, and 2013!

You may be able to mitigate the risk by setting up monitoring system

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SOD Analysis and Non-SAP Systems SAP may not be the only point of SOD scrutiny!
Change or Processing access here
Tip

SAP Time Evaluation

Program access

SOD Violation

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Look Beyond HR for Security in HR

The HR Objects are not enough! You will need to know the Basis objects and when they are used to support HR functionality

HR functionality has a layered approach from infotypes to workbenches to its programs

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What Well Cover

Identifying HR, Payroll, and FI Process Monitoring Needs Documenting Required Internal Controls Understanding Payroll and FI Dependency Designing and Monitoring HR and Payroll Controls via Business Rules Implementing Critical Process and Transaction Controls Ensuring Segregation of Duties in SAP HR Addressing Privacy Issues in SAP HR Wrap-up
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SAP HR and Payroll Data Sensitivity PAYROLL SPOOLS Must Be Secured

Warning

Spool list inadequately secured

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SAP HR and Payroll Data Sensitivity Sensitive Infotypes

Sensitive information is distributed too widely (especially infotypes 0, 2, 6, and 8)

Disable this loophole by IMG configuration Go to Personnel Admin > Customizing UI > Change Header Info In infotypes deemed to be sensitive, remove the SSN field PERID from Header info table
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SAP HR and Payroll Data Sensitivity Query Access from Non-HR Users

ABAP Queries or programs from other teams select against HR tables with sensitive information

SECURE the ABAP Queries via special authorizations by working with your security team and controls experts Eliminate backdoors such as /h debug mode by enforcing parameter security and debug timeouts in production

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Upcoming Legislation That Will Affect SAP HR and Payroll Sub-Process Privacy issues driven by the tremendous increase in identity fraud have generated significant legislative activity at the state level and are likely to generate significant federal legislation soon The use of SSN for any non-payroll or social security activity should be eliminated California is the bellwether state regarding personal identification information legislation Expect a convergence of HIPAA, Sarbanes-Oxley, and Identity Fraud compliance

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What Well Cover

Identifying HR, Payroll, and FI Process Monitoring Needs Documenting Required Internal Controls Understanding Payroll and FI Dependency Designing and Monitoring HR and Payroll Controls via Business Rules Implementing Critical Process and Transaction Controls Ensuring Segregation of Duties in SAP HR Addressing Privacy Issues in SAP HR Wrap-up
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Resources

www.epic.org Electronic Privacy Information Center www.COSO.org SOX internal controls framework driver www.ISACA.org Information Systems Audit and Control Association www.s-oxinternalcontrolinfo.com/ Combined Big 4 Web site for basics on SOX

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7 Key Points to Take Home

Critically review ALL aspects of HR and FI linkages Create an HR and Payroll Controls repository for your organization Create HR internal control rules focusing on Configuration (IMG), Transactions, and Security Objects Reduce or eliminate access to execute programs/reports (SA38, SE38)

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7 Key Points to Take Home (cont.)

Security of custom programs: Add authorization object as development requirement Assignment to area menus: Create a new and specific transaction for payroll/time reports, queries, and programs Evaluate authorization profiles to locate and eliminate back doors

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Your Turn!

Questions?

Contact Bhavesh C. Bhagat @ Web: www.EnCrisp.com Email: bb@EnCrisp.com Tel: 703-728-2493

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