First, an accurate representation of the process topology is required. Second, a system of sensors that report on the state of individual system components, and by derivation on the health and proper functioning of the system as a whole, is required. Third, a system of timely alarms that provide rule violation and out of bound conditions is required.
In accounting systems, data flows down a hierarchical data processing topology from capture systems, to journals, to ledgers, and then to reports. Each level of the hierarchy must be reconciled to its downstream receiver to assure accurate reflection of the data captured in the source systems. It is useful to conceive this as a system of sensors that provides the data quality assurance component of internal accounting control, separate from a second system of sensors that aims at providing assurance that personnel are acting with integrity and complying with the rules that govern the discharge of their functions.
The process topology conceived in this second system marries the activities of order taking with order fulfillment, and the procurement of the goods and services ordered, through correlation to proceeds from the settlement of sales — eliminating the opportunity for fraud, theft, and costly errors that escape detection.
A third system of sensors provide timely alarms for rule violations and out of bound events. Examples are: Tests against material thresholds (e.g., a journal entry exceeds a dollar threshold); Anomalies: (e.g., sales orders greater than a dollar threshold); Detection of rule violations: (e.g., a purchased order is changed after approval); Preventive and compensating controls: (e.g., a journal entry is made and posted by the same individual).
In internal accounting control, the first and second systems of sensors typically involve timely reconciliations while the third system involves reporting filters that trigger real time notifications.
The first and second systems of internal accounting control sensors are illustrated below:
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| Figure 1 |
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| Figure 2 |
