Systems Control and Review File (SCARF)

What is a Systems Control and Review File (SCARF)?

A Systems Control and Review File (SCARF) is an embedded audit facility integrated within a computerized accounting system, usually at the behest of an auditor. SCARF consists of special program codes or additional data designed specifically to capture and monitor transactions that meet predetermined criteria set by the auditor. Transactions flagged by SCARF can be reviewed for anomalies, errors, or any form of fraudulent activity that might require further investigation.

How SCARF Works

Embedding in the Accounting System: SCARF is embedded into the existing accounting system by incorporating certain codes or data fields that the auditor deems necessary for monitoring.
Transactions Flagging: The system flags transactions based on specified criteria, such as exceeding a monetary threshold or being posted in specific accounts.
Audit Trail Creation: These flagged transactions are recorded in a SCARF file, which is secured and can only be accessed, altered, or deleted by authorized external auditors.
Review and Analysis: External auditors regularly review the SCARF file to identify potential issues, ensuring the integrity and accuracy of financial data.

Examples of SCARF in Practice

High-Value Transactions: An auditor may set a SCARF threshold to flag any transactions above $10,000 for scrutiny, ensuring large transactions are appropriately authorized.
Specific Account Monitoring: SCARF may be programmed to flag all transactions recorded in a sensitive account, such as the company’s main cash account, to monitor cash flow closely.
Post-Payment Verification: For compliance purposes, SCARF can capture transactions entered after the payment date to verify the legitimacy and accuracy of reported figures.

Frequently Asked Questions (FAQs)

What is the primary purpose of SCARF?

The primary purpose of SCARF is to provide an extra layer of audit control within a computerized accounting system, ensuring that transactions meeting specified criteria are flagged for review by external auditors.

Who defines the criteria for SCARF?

The criteria for SCARF are defined by external auditors based on the risks identified in the company’s financial processes and the areas requiring stringent monitoring.

Can internal staff view or modify SCARF files?

No, SCARF files are highly secured and can only be accessed, modified, or deleted by authorized external auditors to prevent tampering.

Is SCARF used in all companies?

SCARF is more commonly used in companies with complex and high-volume financial transactions where additional audit controls are necessary to maintain financial integrity and compliance.

What is the difference between SCARF and an Integrated Test Facility (ITF)?

While SCARF is used for continuous monitoring of actual transaction data, an Integrated Test Facility (ITF) is designed to test the accounting system using fictitious data without impacting the actual transactions.

Integrated Test Facility (ITF): A method used by auditors to test the accounting system using fictitious data to ensure the system’s accuracy and reliability without affecting actual financial transactions.
Audit Trail: A sequential record detailing the history of financial transactions within a system, enabling auditors to trace the flow and transformation of data.
Embedded Audit Module (EAM): Software functions integrated into an accounting system to continuously monitor and report on specific types of activities or transactions.

Online References

AICPA: American Institute of CPAs - IT Audits
IIA: The Institute of Internal Auditors - IT Guidance

Suggested Books for Further Studies

“IT Auditing Using Controls to Protect Information Assets” by Chris Davis, Mike Schiller, and Kevin Wheeler
“Computerized Accounting with QuickBooks 2018” by Kay
“Accounting Information Systems” by Marshall B. Romney and Paul J. Steinbart

Accounting Basics: “Systems Control and Review File (SCARF)” Fundamentals Quiz

### What is the main function of SCARF in an accounting system? - [ ] Recording daily transactions. - [x] Flagging transactions for audit review. - [ ] Automating payment processes. - [ ] Managing payroll systems. > **Explanation:** The main function of SCARF is to flag transactions that meet specified audit criteria for further review, ensuring compliance and integrity in financial processes. ### Who can alter or delete SCARF files? - [ ] Internal IT staff - [ ] Finance department - [ ] All employees - [x] External auditors > **Explanation:** Only authorized external auditors are allowed to access, alter, or delete SCARF files to ensure their integrity and prevent tampering. ### What is typically a criterion for transactions to be flagged by SCARF? - [ ] All transactions - [x] Transactions above a monetary threshold - [ ] Employee expenses - [ ] All of the above > **Explanation:** A common criterion for SCARF is to flag transactions that exceed a specified monetary threshold for additional review by auditors. ### How is SCARF integrated into a company's accounting system? - [x] Through program codes or additional data - [ ] By manual data entry - [ ] Offsite by external auditors - [ ] Via third-party software downloads > **Explanation:** SCARF is integrated into the accounting system using program codes or additional data fields set by the auditor. ### What additional controls does SCARF provide? - [ ] Payroll management - [x] Audit control and monitoring - [ ] Inventory tracking - [ ] Budget forecasting > **Explanation:** SCARF provides additional audit controls by monitoring and flagging specific transactions within the accounting system for review by auditors. ### Does SCARF impact actual financial transactions? - [x] No - [ ] Yes - [ ] Only during audits - [ ] Sometimes > **Explanation:** SCARF does not impact actual financial transactions; it only flags them for review based on specified criteria. ### What type of transactions might SCARF flag? - [x] High-value transactions - [ ] Routine daily expenses - [ ] Minor petty cash expenses - [ ] All transactions > **Explanation:** SCARF typically flags high-value transactions that exceed a preset monetary threshold for additional scrutiny. ### Can internal auditors specify criteria for SCARF? - [ ] Yes - [x] No - [ ] Only occasionally - [ ] It depends on the company policy > **Explanation:** Criteria for SCARF are specifically defined by external auditors, not internal auditors, to ensure unbiased monitoring. ### Why is SCARF typically used? - [x] To ensure financial integrity and compliance - [ ] To simplify payroll processing - [ ] For daily transaction recording - [ ] For internal financial reporting > **Explanation:** SCARF is used to ensure financial integrity and compliance by flagging transactions that meet specific audit criteria for review. ### Is SCARF mandatory for all businesses? - [ ] Yes - [x] No - [ ] Only for publicly traded companies - [ ] Only for international corporations > **Explanation:** SCARF is not mandatory for all businesses; it is more commonly used where additional audit controls are necessary due to the complexity and volume of financial transactions.

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