Detecting Compliance Failures in Unmanaged Processes

Detecting Compliance Failures in Unmanaged Processes

Yurdaer N. Doganata (IBM T.J. Watson Research, USA)
DOI: 10.4018/978-1-4666-0197-0.ch022
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The importance and the challenges of detecting compliance failures in unmanaged business processes is discussed, and the process of creating and verifying internal controls as a requirement of enterprise risk management framework is explained. The effect of using automated auditing tools to detect compliance failures against internal control points in unmanaged business processes is investigated. Risk exposure of a business process due to compliance failures is analyzed, and the factors that affect the risk exposure of a business process are evaluated.
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Detecting compliance failures help organizations better control their operations and remain competitive. The quality of product and services can not be ensured in a business if the processes do not conform to design goals and comply with the rules and regulations. Moreover, organizations may be subject to serious financial penalty as well as civil and penal consequences if they failed to comply with established guidelines, rules and regulations. Hence, the impact of non-compliance may have severe consequences that need to be managed either by reducing or eliminating the associated risk. Companies invest significantly on detecting compliance failures to ensure governance and manage risk. The cost of reducing the risk of being non-compliant could run into millions of dollars (Greengard, 2005). AMR Research survey reveals that the spending of companies on governance and risk management and compliance expected to grow to $29.8 billion in 2010, up nearly %4 over the $28.7 billion spent in 2009 (AMR Research, 2010).

Compliance can be managed relatively easy when the set of interrelated and interacting activities to achieve business goals are coordinated by business process management systems. This is the case where processes are well structured and documented. When the activities in a business process are structured enough, the transitions from one activity to another are automated by software systems. In a fully automated structured business process real time information about the status of various activities can be collected by business activity monitoring software (McCoy, 2002). Hence, compliance of processes against rules and regulations can be checked automatically. In such automated environments, the trace of the business operations is completely visible and it possible to know who did what and when.

In reality, business activities span multiple systems and organizations across modern enterprises, integrating legacy and newly developed software applications. There exists no single system or organization that controls the process end to end. Operations often depend on activities that rely heavily on human interaction without predefined control structures. Human actors decide what to do to achieve business goals. Since the transitions between human activities can not be fully automated or monitored by software systems, the visibility of end to end business operations is reduced. The processes that consist of such activities are called unmanaged processes. In the absence of business process management software with business activity monitoring that registers various aspects of the business operations, compliance check is usually performed manually by auditors, hence it is costly, time consuming.

There are primarily two challenges in ensuring compliance of unmanaged or partially managed processes. The first challenge is to increase the traceability of end to end operations. This requires tracking, capturing and correlating relevant aspects of the business operations. Once the visibility of the operations is increased, the second challenge is to create internal controls without depending on in depth knowledge of IT system and business application code. Creating and deploying new internal controls should be done without incurring additional IT cost. If the operations are tractable and the relevant business artifacts can be gathered, automated auditing systems and tools can detect compliance failures continuously and reduce the cost of employing auditors significantly.

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