INFS7004 Group Assignment

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INFS7004 Group Assignment
Semester 1, 2020 25% of Overall Assessment

INFS7004 Group Assignment – Semester 1, 2020
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W I T H O U T T H E P R I O R P E R M I S S I O N O F T H E U NI V E R S I T Y .

INFS7004 Group Assignment – Semester 1, 2020
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W I T H O U T T H E P R I O R P E R M I S S I O N O F T H E U NI V E R S I T Y .
Introduction
You are a consultant in a business consulting firm. You are assigned to a client, Woodmaker Furniture
Company (WFC), a furniture manufacturing business serving furniture shops across Australia. Its strategy is
to sell stylish affordable furniture from recycled materials. In your first meeting with WFC you find that it
uses old in-house developed computerised systems to record transactions in its following functions: Sales
Department, Accounting Department, Procurement Department, Production Department (the Factory) and
Warehouse. WFC also has IT Department as supporting department.
WFC was a small family business and over time it grew into a mid-size company. WFC current systems were
built following the growth, i.e. gradually added to support expanding processes. Its systems were built one
department at a time throughout many years and intended to be integrated. However, until now they have
not yet integrated them.
Due to this integration issue, WFC uses paper document to send data between departments via manual input.
All document are pre-numbered and filed in numerical order and all printed document can be traced to its
creator because each staff has a unique user ID. However, the risk of losing these document is very high. This
is a concern because all approval must be done on paper as there is no approval workflow embedded within
these systems (i.e., no electronic approval). Therefore, the only way of finding out whether transactions have
been properly approved is to check the paper document. Further, high data entry error could result in data
held in different departmental systems are not updated correctly. Finally, to produce monthly financial
statement, IT Department will have to compile end-of-month data downloaded from each departmental
system. Overall, this integration issue creates organisation silos because departments do not have adequate
means to share information or knowledge with each other.
In view of those deficiencies, WFC realises that their current systems suffer from some critical governance
issues. Therefore, they want to know whether to fix the existing issues OR to adopt an ERP available in the
market to ensure streamlined integration across the company1.
WFC is a mid-size private company that is run like a family business. It has a low employee turnover and a
company culture that trusts employees’ integrity. WFC expects to start planning for its businesses expansion
next year and hopes to attract big investors. Thus, this year, it aims to first improve its corporate governance.
Business Process
The following systems documentation and narration are created by the WFC internal audit department after
interviewing relevant employees. Please refer to “The Expenditure Cycle – Interview Protocol” to see what
potential questions might have been asked. WFC is a mid-size manufacturing company. Its transaction cycles
consist of Revenue Cycle, Expenditure Cycle, Production Cycle, HR and Payroll Cycle and Financial Cycle, as
depicted in Figure 1:
1 Before adopting an ERP, an organisation must identify whether they really need an ERP and if so, which ERP is the best fit for
them. Consultants are typically needed to assess business processes and current systems.
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W I T H O U T T H E P R I O R P E R M I S S I O N O F T H E U NI V E R S I T Y .
Due to time constraint, it is not possible to review all transaction cycles. WFC main concern is to address
problems in its purchase to payment processes as they impact its ability to minimise costs, thus selling
affordable products. WFC carefully plans its production every month based on historical data. However, lack
of integration between departments—also with its stakeholders especially with its suppliers to support the
expansion plan—affect the efficiency of its purchase to payment processes. Therefore, you are asked to
review the Expenditure Cycle as follow.
The Expenditure Cycle
Figure 1: WFC Transaction Cycles
Figure 2: WFC Expenditure Cycle
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W I T H O U T T H E P R I O R P E R M I S S I O N O F T H E U NI V E R S I T Y .
The expenditure cycle is triggered by reorder point requests for purchasing raw materials from the
production cycle. Every day, the production cycle starts with the Factory Manager on duty generating
production notice in the Production system based on monthly production plan2. The production notice lists
raw materials needed for the day production run and is sent off to Material Logistic Officer in the Warehouse
for picking. Once Material Logistic Officer confirms required raw materials picked into the Warehouse
system, the level of raw materials recorded in the Stock data file drops. The Warehouse system is designed
to automatically create a purchase requisition (PR) when a raw material reaches reorder point and prints
them to the Warehouse Manager desk. Every morning, the Warehouse Manager sends them off to the
Procurement Staff at the Procurement Department.
When a PR is received, Procurement Staff use it to create a purchase order (PO) in the Procurement system.
Procurement Staff enter all PR data such as item number and quantity to order into the Procurement system
followed by clicking “Check Order” button. Based on PR data entered, the Procurement system retrieves data
from Supplier Master file and works out the best and cost-effective supplier for that order. Although WFC
only engages with small numbers of wholesale suppliers, WFC typically has more than one supplier listed for
each item and each has different minimum order requirements. The “Check Order” process allows the system
to automatically select a supplier with the best rating and most cost effective, for each order. The rating is
reviewed on a monthly basis by the Procurement Manager who also approves suppliers and maintains the
Supplier Master data in the Procurement system.
Once the supplier has been selected, the Procurement system displays it along with a confirmation request
to the Procurement Staff, who then click it to complete the PO creation process. At confirmation, the
Procurement system updates the PO data file and automatically prints three copies of PO for each PR to the
printer at the desk of Procurement Staff. For purchases up to $50,000, no approval is required. More than 80
per cent of PO value is $50,000 or under. For purchases more than $50,000, it must be approved by the
Procurement Manager and the Factory Manager, on paper. Since most POs do not require superior’s
approvals, typically once PO is printed Procurement Staff mail PO Copy 1 to the Supplier, file away PO Copy
2 together with relevant PR into Purchases tray and send PO Copy 3 to the Receiving Staff in the Warehouse—
who then file it into Incoming Delivery tray. When investigating long outstanding PO, i.e., PO that has not yet
been fulfilled by the supplier beyond promised delivery date, they find that usually it is due to suppliers not
receiving the PO in timely manner. Currently WFC sources most its raw materials from local wholesale
suppliers. However, in order to reduce costs—especially in view of upcoming business expansion—WFC plans
to cut the middlemen and for some items, directly from suppliers overseas. Due to lack of integration with
other systems, WFC’s current supply-chain is not cost effective. Its warehouse system uses static re-order
quantity, thus cannot dynamically calculate economic order quantity in responding to fluctuating demands.
Suppliers deliver raw materials along with two copies of delivery document directly to the Warehouse.
Receiving Staff retrieve the relevant PO Copy 3 from Incoming Delivery tray. Receiving Staff use PO Copy 3,
delivery document and a scanner to check and count the physical goods. First, the Receiving Staff scan all
item barcodes on the goods. Next, Receiving Staff compare the scanning results to the PO copy 3 and delivery
document to ensure goods delivered by suppliers are as ordered. If there is an issue, for example due to
damaged/missing, it is noted in handwriting on the delivery document and signed off by Supplier. If
2 Monthly Production Plan is created based on historical sales data. At the end of every month, the Sales Analyst in Sales Department
sends updated sales data to the Production Analyst in the Factory as a basis to create the following month Monthly Production Plan.
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W I T H O U T T H E P R I O R P E R M I S S I O N O F T H E U NI V E R S I T Y .
everything is as expected, Receiving Staff sign off the two copies delivery document and hand back Copy 2 to
Suppliers. Based on PO Copy 3 and delivery document Copy 1, Receiving Staff enter GR data into the
Warehouse system by scanning barcodes on PO Copy 3 and delivery document Copy 1 and uploading data in
the scanner to the Warehouse system. This process updates GR data file and automatically prints three copy
of GR report to the desk of Receiving Staff. GR report Copy 1 is attached to the goods and sent off to the
Material Logistic Officer in the Warehouse. Material Logistic Officer verifies the physical goods to the GR
report, enters GR verification into the Warehouse system and files away the GR report Copy 1 into Verified
GR tray. The verification process updates the Stock data file. At the end of the day, Receiving Staff file away
GR report Copy 2 and delivery document Copy 1 into Processed Delivery tray and drop off GR report Copy 3
together with PO Copy 3 to Accounts Payable (AP) Clerk into Incoming AP document drop box at the
Accounting Department.
Every day, the AP Clerk receives invoices from Suppliers. Prior to creating AP entries in the Accounting system,
the AP clerk validates these invoices by matching them to relevant PO Copy 3 and GR report Copy 3 retrieved
from Incoming AP drop box. The AP Clerk ensures that prices in the invoice match with prices listed in the
PO and quantities match with quantities received as listed in the GR report, notes down any discrepancies
on the invoices. The AP Clerk then enters purchase details to the Accounting system based on PO Copy 3 and
GR report Copy 3, enters invoice details and saves it. This process updates AP data file in the Accounting
system and automatically prints AP to the desk of AP Clerk. AP clerk records each AP created in an AP register
form, listing the AP number and relevant PO number, GR Report number, invoice number as well as any
issues if any. Then AP clerk files away Invoices, PO Copy 3 and GR report Copy 3 into Processed AP tray. At
the end of the day, AP clerk manually batches printed APs, compares the total number and value of APs in
the batch to the AP register and stamps “Approved” on the AP register. The AP clerk files away batched APs
to Approved AP tray and sends the AP Register to the Cashier.
Based on the AP register, the Cashier in the Accounting Department creates scheduled bank payment in the
Accounting system. Once saved, the Accounting system updates the AP data file and displays the number of
payment schedule for that AP register. Cashier writes down the number on the AP register and then sends it
to the Accounting Manager. The Accounting Manager enters the payment schedule number into the
Accounting system to display the payment schedule. The Accounting Manager then reviews the payment
schedule by comparing it to the AP register, clicks the approve button and files away AP register into a locked
cabinet. The approval process updates the AP data file and Cash data file in the Accounting system and
automatically sends the payment data to the bank via secured line3. The data relating to the payment made,
which is contained in the AP data file, is transferred to the Financial Cycle, where it is used to update general
ledger accounts.
Cashier can only find out whether a scheduled payment has run successfully or not via internet banking.
However, the Cashier does not check regularly and only checks when suppliers complain about payment
issues. The issue sometimes could go further back such as due to incorrect AP entry. Otherwise, any issue is
typically identified by the Accounting Manager at the end of the month when doing the reconciliation.
3 On due date, the scheduled payment in the bank system will run automatically and send Remittance Advice to Suppliers via e-mail.
At the end of each month, the Accounting Manager reviews payment recorded and actually paid by manually reconciling payment
data downloaded from the Accounting system and from the bank via internet banking, then enters adjustment to the Accounting
system if necessary.
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W I T H O U T T H E P R I O R P E R M I S S I O N O F T H E U NI V E R S I T Y .
Required Tasks
As an Accounting Information System specialist, you are asked to assess all Expenditure Cycle processes
detailed in the narration.
You will review WFC current relevant business process and then assess existing internal controls to allow you
to suggest improvements required. As a final step, you will determine whether WFC needs to adopt an ERP
or not. In doing so, you will have to do the following:
PART 1
Task 1 (7 of 25 marks for this assessment item)
Create:

Task 2 (6 of 25 marks for this assessment)
Create flowcharts of the current WFC systems you are asked to review. For ease of drawing, split the
flowchart into two.
Flowchart 1: from “Determine demand for goods” to “Receive goods” processes (3 Marks); and
Flowchart 2: “Pay for good processes” (3 marks).
PART 2
Task 3 (6 of 25 marks for this assessment item)
Refer to Flowchart 1 you have created in Task 2. Explain, using the table provided, the strengths and
weaknesses of “Determine demand for goods” to “Receive goods”; by identifying two critical activities under
each processes, associated risks, and common controls. Explain whether controls are present or missing and
thus control activities for the associated risks that contribute to the achievement of the control objectives to
an acceptable level (2 marks for each subprocesses).
When assessing the internal control, you may refer to Tables 11.3 – 11.5 in Chapter 11 to ensure that you review critical controls in
each subprocess. You may also use the “The Expenditure Cycle – Interview Protocol” as a guide.
Task 4 (6 of 25 marks for this assessment item)
As a consultant, provide an analysis and suggestions on what should WFC do. In your answer, identify WFC
current company-wide weaknesses and what WFC needs to support its expansion plan. Clearly determine
whether WFC will have to continue with its plan to integrate its departmental systems or to adopt an ERP on
the market. Explain why. Discuss current technology used and future technological trend. Explain what
approach should WFC use, Total Quality Management (TQM) or Business Process Reengineering.
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W I T H O U T T H E P R I O R P E R M I S S I O N O F T H E U NI V E R S I T Y .
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