RFID risk management: although there are many benefits to using the new RFID technology, careful thought must be given to the possible risks that come with it

Internal Auditor, April, 2005 by John Kopalchick, III, Christopher Monk

* Have key risks regarding network security been identified?

* Have risks regarding data management and integrity been identified?

* Are organizational culture and change management risks understood and addressed effectively?

* Have business processes been identified and positioned for backup or exception process purposes?

* Will additional financial controls need to be in place for processing transactions directly to ledgers from networks or tags?

* Are current business processes mapped and understood prior to implementing any changes made possible by RFID?

RFID is a promising technology that provides many potential benefits for companies across different industries. There are a variety of significant risks associated with RFID that need to be considered in any RFID endeavor. Internal auditors can play a vital role in the identification of RFID issues, risks, and process changes, ultimately impacting the technology's success in an organization.

Benefits of RFID

BENEFIT           DESCRIPTION

Enhanced          * Reduction in theft.
Control           * Reduction in counterfeiting.
(Financial and    * Real-time inventory integration with financial
Operational)        reporting systems.
                  * Verification of shipments and receipts for billing
                    purposes.
Process           * Automated inventory cycle counts.
Improvements      * Picking, packing, and shipping accuracy (order
                    fulfillment).
                  * Improved inventory planning and replenishment
                    processes.
                  * Improved supply chain integration.
Cost Reduction    * Reduction in inventory.
                  * Reduction in labor requirements for inventory
                    management (operating costs).
Data Collection,  * Increased receiving accuracy.
Accuracy, and     * Improved inventory visibility.
Integrity

RFID vs. Bar Code Technology

FEATURE        BAR CODING                RFID TAGGING

Proximity and  * Requires line of sight  * A sensor can read the tag
Orientation      to be read (i.e., the     without having line of sight
                 bar code must face the    or orientation requirements,
                 reader at close range     as long as the tag is within
                 to be read).              range of the reader.
Environmental  * Bar code technology is  * Tag packages can be designed
Conditions       sensitive to              to withstand harsh
                 environmental issues      environments and
                 such as dirt, label       manufacturing processes.
                 abrasion, or
                 temperature.
Read Quantity  * Only one bar code can   * Many tags can be read
                 be read at a time.        simultaneously. Read rates
                                           are much higher than with
                                           bar codes.
Data           * Bar codes use           * RFID tagging uses electronic
Granularity      Universal Product Code    product codes (EPC), where
                 (UPC) data at the         each item contains a unique
                 product level (only       identification serial number.
                 identifies                Historical information, such
                 manufacturer and          as date/time/place of
                 product, not unique       manufacture and movement
                 items). Information is    history, can be captured for
                 static and cannot be      each item. Some tags have
                 changed.                  read/write capability.