NATIONAL ASSOCIATION OF AUDITORS, COMPTROLLERS AND TREASURERS 2005 ANNUAL CONFERENCE Portland, Oregon

1. NATIONAL ASSOCIATION OF AUDITORS, COMPTROLLERS AND TREASURERS2005 ANNUAL CONFERENCE Portland, Oregon ERP Systems – Independent Auditor Perspective Presented by: Jim Kreiser Tom Marks Senior Manager, Ernst & Young Deputy Auditor General for Audits Technology and Security Risk Services PA Department of the Auditor General Central Pennsylvania Market Leader

2. ERP Systems – Auditor Perspective Agenda/Overview: • Benefits • Training • Audit Approach • Audit Challenges

3. Benefits • ERP provides a basis for full accrual and budgetary reporting (simultaneously) • Better access to data (and tracking of historical information) to review and analyze estimations • Enhanced ability to review data on a consolidated basis

4. Benefits (continued) • Possibilities for leveraging a controls approach for the audit (due to entity wide control implementation) • ERP Packages are working to develop and enhance modules and functionality for government entities such as tax collection, grant accounting, and budgetary statements

5. Training • Based on the significance of the change from legacy systems to ERP, significant training and “learning curve” time is typically needed • Current customization needs and unique configurations for governments create a distinctive obstacle regarding auditing the ERP

6. Audit Approach • Audit efforts need to be re-evaluated to ensure the right approach of controls testing and substantive work • Challenges exist regarding “cultural” changes. Approaches taken for many years may need to be significantly altered, updated, or even omitted • Auditors must adjust to changes in reporting, changes in data formats, changes to processes, changes in controls, etc.

7. Audit Challenges • Auditing of two systems during system implementation, including general controls and review of data from multiple systems (extent of this is dependent on the timing of “cutover” during the fiscal year) • Auditing of customized features and functionality poses a unique challenge • Updating, understanding, and auditing the various interfaces that may exist to and from the ERP can be more involved than anticipated

8. Challenges (continued) • ERP systems provide a variety of methods to perform similar tasks. This can result in a lack of consistency across various agencies, departments, offices, etc. Such inconsistency results in greater effort for walkthroughs, testing, etc. and challenges auditors to question reliance on specific controls or processes • Auditing of data conversion processes during implementation often involve extensive effort

9. Challenges (continued) • Challenges exist related to Single Audit reporting, specifically around control processes which may not be as robust in a new system implementation as in the legacy applications • Auditors must ensure they understand data sources, data flows, and how to use the data appropriately (i.e. business warehouse, R/3, legacy systems, Treasury, etc.) An ERP or BW may provide reports regarding Medicaid for example, but this data and detail may reside in the actual Medicaid application

10. Summary • ERP packages provide an array of potential benefits from a user and auditor standpoint • ERP packages also pose unique obstacles and challenges, particularly during implementation and early years following implementation until processes and controls are more robust • Auditors and users alike face challenges regarding training/learning curve and cultural changes • Early involvement of auditors in implementation and proactive communication is essential