• 30 Marks

AA – May 2024 – L2 – SA – Q1 – Auditing in a Computerized Environment

This question examines audit risks, controls, and auditor considerations when auditing an online banking system like FinPay Financial Solutions Limited.

FINPAY FINANCIAL SOLUTIONS LIMITED

FinPay, an innovative payment service bank, operates from its office on Lagos Island, overseeing all financial transactions, customer interactions, and relationships nationwide. The bank streamlines its processes for customer convenience, embracing the digital age.

Customers’ bank accounts are linked to their GSM phone numbers, with the initial zero removed. All banking operations, from account creation and deposits to withdrawals and account closure, are conducted seamlessly through the bank’s mobile App, which can be easily downloaded from popular App stores.

Access to the bank’s mobile App is allowed using an account number and a private six-digit PIN. A prospective customer completes the onboarding process by uploading scanned passport photos, ID card, utility bill, alongside providing other essential personal information, like name, NIN, telephone number, email address, and residential address.

To facilitate transactions, a four-digit PIN linked to the customer’s debit card is activated at Automated Teller Machines (ATMs). Additionally, customers can leverage USSD codes for payments. Customers are required to use their registered phone numbers on their smartphones when transacting businesses with the bank.

In the event of a declined transaction, swift resolution is a priority. Debits are promptly reversed, ensuring customer satisfaction. Customers can report issues directly through the mobile App or via email, and FinPay’s responsive support team resolves matters without necessitating a visit to the bank’s physical office. This efficiency cements FinPay’s reputation as a leading online bank in Nigeria.

FinPay expedites the delivery of debit cards to customers, ensuring they reach their designated addresses within 48 hours of account creation. Furthermore, a proactive follow-up call is made just 24 hours after opening an account, enhancing the overall customer experience.

With a focus on catering for tech-savvy Nigerian youths, FinPay is steadily expanding its customer base. The bank even offers small, easily accessible loans over a six-month period, further attracting and retaining a young clientele. Some customers instruct FinPay to pay monthly DStv subscriptions or send amounts to third parties on a regular basis by activating a prompt on the mobile App.

For added convenience, FinPay features a responsive chatbot, named Bobo. Customers can engage with Bobo through the bank’s mobile App, website, and social media channels, providing another layer of support and accessibility. This comprehensive approach positions FinPay as a forward-thinking financial institution at the forefront of digital banking in Nigeria.

Required:

a. Highlight four benefits an online system offers to FinPay and its customers. (8 Marks)

b. Identify and explain five General controls and five Application controls embedded in FinPay’s system. (10 Marks)

c. Explain three areas the auditors will give special considerations because of the audit risks associated with the online real-time system that dominates FinPay’s operations. (12 Marks)

a. Benefits of an Online System:

  1. Increased Convenience: Customers can perform banking transactions 24/7 through their mobile app without visiting a physical branch.
  2. Faster Transactions: Real-time processing ensures immediate transaction settlements, enhancing customer satisfaction.
  3. Cost Reduction: Automating banking processes reduces the cost of handling transactions manually.
  4. Wider Reach: The bank can serve more customers across various locations without needing physical branches.

b. General and Application Controls in FinPay’s System:

General Controls:

  1. User Authentication: Account access is secured through a six-digit PIN and account number.
  2. Password Management: Customers must use a private PIN for ATM and mobile transactions.
  3. Network Security: The bank uses secure encrypted channels for transmitting sensitive financial information.
  4. Backup Systems: Regular backups ensure data is not lost in case of a system failure.
  5. Audit Trails: The system logs all activities, allowing the bank to track and review transaction histories.

Application Controls:

  1. Input Validation: Data input during transactions is checked to prevent errors or incomplete information.
  2. Automated Reversals: The system automatically reverses transactions when they are declined.
  3. Transaction Limits: Customers are limited in terms of transaction amounts to prevent unauthorized large withdrawals.
  4. Access Restrictions: Specific functionalities in the app are restricted based on user role or account type.
  5. Real-time Monitoring: Transactions are monitored in real-time for fraud detection and system integrity.

c. Special Considerations for Auditors:

  1. Data Integrity Risks: Auditors must review how FinPay protects customer data from unauthorized access or alteration in the real-time system.
  2. Fraudulent Transactions: Auditors should assess the controls in place to detect and prevent fraudulent transactions, especially in the case of mobile and online banking.
  3. System Availability and Continuity: Given that FinPay relies heavily on its mobile app, the auditor must ensure there are adequate disaster recovery and business continuity plans.
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