Business Processes

Did already - Chapter 7 - Revenue Cycle

Customer Order & Account Management

This handout is Ch 8 & Ch 9

Chapter 8 - Expenditure Cycle

Procurement & HR

Chapter 9Production (Conversion Process)

Chapter 8

Procurement(AKA Purchasing)

What are the objectives of this process?

Procurement:the business process of selecting a source, ordering, and acquiring goods or services. The general steps in the procurement process:

Requirements determination

Selection of source

Request for quotation

Selection of vendor

Issuing of a purchase order

Receipt of goods

Invoice verification

Payment

DATA FLOWS

  • Purchase Requisition
  • Purchase Order
  • Receiving Report
  • Packing Slip
  • Bill of Lading
  • Vendor’s Invoice (Bill)
  • Check
  • Materials Requirement Planning
  • Open Purchase Request
  • Open Purchase Order
  • Open Invoice or Vouchers Payable
  • Stock Status Report
  • Vendor Performance Report

SEPARATION OF DUTIES

AUTHORIZATION – Purchasing Department, Requisitioning by authorized individuals (usually from user departments)

CUSTODY – Receiving, Warehousing (Stores), Cashier, Treasury

RECORDKEEPING – Accounts Payable, Inventory Control, General Ledger

Transaction Cycle Controls Over Procurement

•Keep the following separate - Requisitioning, purchasing, receiving, stores, accounts payable and the general ledger.

•Adequate vendor selection procedures are an important factor in the overall integrity of a purchasing application system.

Human Resources (HR)

What is the purpose of this process?

Hiring to Paycheck

•Job Listing

•Job Descriptions

DATA FLOWS

  1. Timecards
  1. Job Time Tickets
  1. Payroll Register (Payroll Division verifies pay rates, deductions (ie social security taxes)
  1. Pay voucher
  1. Checks

PeopleSoft HR / Benefits / Payroll

•3 Modules – HR, Benefits, Payroll

Transaction Cycle Controls in Payroll Processing

SEGREGATION OF DUTIES:

  • AUTHORIZATION – Personnel (pay rate changes), Supervisors of employees
  • CUSTODY – Cashier (or Paymaster)
  • RECORD KEEPING – Time Keeping / Accounts Payable / Payroll / Cost Accounting

•Keep the following separate: Personnel, Timekeeping, Payroll Department

•Other controls:

  • Imprest Payroll Account
  • Reconciliation of Payroll Bank Account
  • Independent Paymaster (Cashier)
  • Someone in timekeeping observing employees punching in and punching out their OWN time cards.
  • Review and approval of time on timecards by a supervisor
  • Timekeeping’s reconciliation of job tickets and time cards to identify errors and discrepancies
  • Positive pay (at banks)

Payroll Processing Requirements

•Lots of Information – Employee information, SS, Tax information

•FICA

•Federal Unemployment Insurance

•State Unemployment Insurance

•Income Taxes Withheld

Chapter 9Production Cycle

PRODUCTION (CONVERSION PROCESS) – operating events to convert raw inputs into finished products or services

Inputs Outputs

Raw MaterialsProducts & Services

Equipment

Labor

Acquire Inputs ThroughSell Outputs through

Acquisition / Payment ProcessSales / Collection Process

Human Resource Process

Conversion processes are VERY different!

Production Control

  • A production control business process plans and schedules production and issues production orders to authorize production activities
  • Job/Order Costing – costs are assigned to a particular job or production order (or another cost object)
  • Process costing – costs are compiled in process or department accounts by periods. At period end, the total of the costs is divided by the units produced – calculating average unit costs.
Important Master Data

•Materials

• BOM

• Routing/Master operations list

• Activities/Tasks

• Work-center/cost center

• Resources

•Plant

Production

Completes the production order

- Makes the stuff

Inventory Control

  • Need records / reports of inventory use, balances, minimum & maximum levels of stock
  • Reorder point - level of inventory at which it is desirable to order / produce more & EOQ (economic order quantity) - Size of the reorder
  • Perpetual inventory (best for determining EOQ)
  • Physical counts
  • Evaluation of inventory turnover / Write downs for obsolete / slow-moving inventories
  • Storage / handling
  • Physical security

Integration with Accounting

material cost planning (standard costs)

 activities/tasks posting from work-center/cost center routing

 material usage BOM

 WIP calculation

 variance calculation and posting

 integration with GL

 integration with production cost centers, profitability
analysis, profit centers, product costing

Cost Accounting Outputs (pg 387)

Updated Production Status File

Completed Production Order File

Resource Usage File

Summary Report (journal entry)

Activity Based Costing

Calculates several overhead rates, one for each manufacturing activity and uses these rates to build product costs from the costs of the specific activities that are undertaken during production.

Production Transaction Controls

SEPARATION OF DUTIES

AUTHORIZATION – Production Control

CUSTODY – Production

RECORDKEEPING – Inventory Control, Cost Accounting, General Ledger

Keep the following separate: (pg. 372)

•Production Control

•Production

•Inventory Control

•Cost Accounting

•General Ledger

Important Flows

QUICK RESPONSE MANUFACTURING SYSTEMS (QRMS)

•Physical Manufacturing System (CAD/CAM)

•MRP II System

•Advanced Integration Techniques

Transaction Processing in QRMS

•Production Planning

•Production Scheduling

•Cost Accounting

•Reporting

Why is it a challenge?

•Quick-response manufacturing systems - transactions may have little or no human intervention.... could eliminate separation of duties entirely

•Increases need for compensating controls - security access, audit / transaction trails (must be designed in!!!)

MRP vs. MRP II

MRP (Materials Requirement Planning)

•The use of computers in production planning & control systems, particularly for material control

MRP II (Manufacturing Resource Planning)

•MRP and related systems for sales, billing, and purchasing

Control over Fixed Assets/Investments

  1. Maintain adequate records that identify assets with description, cost and physical location – (i.e., fixed asset register, investments register)
  2. Provide for appropriate depreciation and/or amortization calculations for book and tax purposes
  3. Provide for reevaluation for insurance and replacement cost purposes
  4. Provide management with reports for planning and controlling the individual asset items
  5. LOCK IT UP! – Provide physical security for items (i.e., for investment securities, it is common to require 2 people to be present when the firm’s safe deposit box or other depository is entered

Just In Time (JIT)

•Term used to describe a production system in which parts are produced only as they are required in subsequent operations

•MIPS (Minimum Inv. Prod’n System)

•ZIPS (Zero Inv. Prod’n System)

•MAN (Material as needed)

Other

FINANCING BUSINESS PROCESS – provides the capital resources an organization needs to fund all aspects of its operation.

Need to have cash available to pay obligations on time – this gives a company more leverage – Especially important for small businesses

Minimize idle cash, Collect Receivables ASAP, and convert cash to assets that earn interest or grow in value over time.

How do we do it?

  1. Bill customers immediately after a product is provided or a service is performed
  2. Keep cash in accounts that earn interest
  3. Use float to your advantage – when paying suppliers
  4. Use a lockbox or deposit box in a city where mail is delivered more quickly
  5. Hedge foreign currency transactions to minimize foreign exchange losses

Sometimes notes and A/R are factored (sold) so we can get SOME money

With cash – organizations should bond (insure) people who have access to cash and other liquid assets

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