Developing Business Rules for the Conversion Process

Purpose of Business Rules

Business rules are constraints designed to enforce organizational policies and objectives. They ensure that internal controls operate effectively, aligning with business activities to reduce risks and maintain process integrity.

Types of Controls

• Preventive Controls: Focused on avoiding errors and issues before they occur, such as segregation of duties and proper authorizations.

• Detective Controls: Identify errors after they occur, including transaction reconciliations and inspections.

• Application Controls: Ensure data integrity by limiting user inputs and verifying values.

Examples of Business Rules

• Authorization of Production: Employees with proper authority must authorize production orders over a certain threshold.

• Issuing Raw Materials: The employee issuing materials cannot be the same person who authorized production.

• Recording Labor Costs: Employees recording direct labor must not modify production authorizations to prevent fraud or errors.

Implementation Using Technology

Systems are configured with access controls to enforce role-based permissions. Audit trails are maintained to track changes and ensure accountability. Limit checks and date defaults are applied to automate control over data inputs.

These business rules are integrated with IT systems to ensure compliance and smooth operations in the conversion process​​​.