ACCT7209: BUSINESS INFORMATION SYSTEMSMODULE 9:PURCHASING/ACCOUNTS PAYABLE/CASH DISBURSEMENTS

Our Objectives in This SessionDiscuss the nature of the P/AP/CD systemDescribe the major functions of the P/AP/CD systemDescribe the components of and processing that occurs in a P/AP/CD systemDescribe some of the major decisions to be made in relation to P/AP/CDIdentify the risks/exposures associated with the P/AP/CD system and some appropriate rules and controls

Nature of the P/AP/CD SystemThe P/AP/CD system comprises those components (resources, agents, locations) that interact to achieve the goal of acquiring needed goods and services from authorized vendors

Functions of the P/AP/CD System - IPurchase goods and servicesonly those that are neededonly those that are authorizedfrom reliable vendors/suppliersonly those that are acceptable qualityonly those that have acceptable prices and terms

Functions of the P/AP/CD System - IIReceive goods and servicesonly those orderedonly those that are of acceptable qualityReturn of unacceptable goodsExercise control over goods receivedPay for goods and services received

Major Events in the Purchases/AP/CD System - IFunctional employee/manager recognizes need for goods/services

Authorization given to purchase goods/servicesRequisition completed/entered in information system (open requisition) Requisition authorized for purchase (authorized requisition)The Real-World SystemThe Information System

Major Events in the Purchases/AP/CD System - IIGoods/services purchased

Purchase order created/entered (open purchase order)Purchase order sent to vendor/supplierThe Real-World SystemThe Information System

Major Events in the Purchases/AP/CD System - IIIGoods/services receivedReceiving report matched against purchase orderLiability recognizedPurchase order marked as closedUpdate inventory, payables, GLThe Real-World SystemThe Information System

Major Events in the Purchases/AP/CD System - IVPayment for goods/services

Goods returnedThe Real-World SystemThe Information SystemVendors invoice received/enteredCheque/EFT sentUpdate payables, cash, GL

Update inventory, payables, GL

Flowchart of the Purchases/AP/CD System - IRequisitionOrderingReceivingRequisitions/ OrdersVendorsInventoryPayablesValidate inputCreate requisitionApprove requisitionGenerate purchase orderCompare receiving against purchase order Close purchase order Update inventory Update payablesTo SupplierSubtypes open requisition approved requisition open purchase order closed purchase orderPurchase Order

Flowchart of the Purchases/AP/CD System - IIInvoiceentryPayablesReceivingRequisitions/ OrdersVendorsInventoryPayablesValidate inputCompare to receivingApprove paymentGenerate chequeInput return Validate input Update inventoryUpdate payablesTo SupplierSubtypes open requisition approved requisition open purchase order closed purchase orderChequeInvoice/ StatementFrom Supplier

Purchase Process Systems Flowchart

Purchase Process Systems Flowchart Continued

BP Diagram Using BPMN Purchasing Process

AP/CD Process Systems Flowchart

Interactions between Purchases/AP/CD and Other SystemsInventoryPurchases/AP/CDGeneral Ledger

Factoring of the P/AP/CD SystemRequisitioningPurchasingReceivingPayingP/AP/CD System

Managing a System: Our ConcernsIs the real-world system safeguarding assets and operating effectively and efficiently?Is the information system faithfully representing the real-world system???Representation

What Must We Manage?The real-world systemis it effective and efficient?does it safeguard assets?does it comply with statute/regulation/ policy/procedures?The information systemis it faithfully tracking the real-world system?is it providing us with the information we need?

Levels of Decision Making and Focus of QuestionsStrategicManagement ControlOperational ControlTransactionalComponentsTypes/SubsystemsTypes/SubsystemsSystems

Goals and Things/EntitiesTHINGS:ComponentsTypesSubsystemsSystemsStatesEventsGoals:Asset safeguardingEffectivenessEfficiencyCompliance

Structuring Our QuestionsFirst choose a level (transaction, operational control, management control, strategic)Then choose a thing (component, type, subsystem, system)Next choose a goal (asset safeguarding, effectiveness, efficiency)Finally, choose a state or event of the thing pertinent to the goal

Asking QuestionsRemember!!With components (the lowest level)our focus will be hereditary variablesWith types,subsystems, and systems (higher levels)our focus will be emergent variables

Some Typical QuestionsStatesHow much? What value?How satisfied? What quality?EventsWhat happened? When did it happen?Why did it happen? Where did it happen?Who was involved? What resources were involved? How long?

Some Types of Things/ComponentsThingsLocationsAgentsResourcesExternal AgentsInternal Agents

Components in P/AP/CD SystemResourcesProducts/ServicesExternal AgentsVendor/SupplierInternal AgentsFunctional MgrPurchasing Clerk Receiving ClerkPayables ClerkLocationsFunctional areaReceivingSuppliers premises

Questions about Components - IResourcesState Question: What is the current purchase cost of a specific instance of Product X? (effectiveness)Event Question: Over the last reporting period, when was a specific instance of Part Y ordered from Supplier A? (efficiency)

Questions about Components - IIExternal AgentsState Question: What value of products did we purchase from Supplier A at the end of last year? (effectiveness)Event Question: Over the last reporting period, how did the number of times Supplier A delivered raw materials late change? (efficiency)

Questions about Components - IIIInternal AgentsState Question: At the end of last month, how many requisitions had been submitted by Manager X? (effectiveness/efficiency)Event Question: Over the last reporting period, how long did Manager Y take to approve the last requisition? (efficiency)

Questions about Components - IVLocationsState Question: What value of goods had been received at Receiving Dock A at the end of last year? (effectiveness/efficiency)Event Question: Over the last reporting period, how did the number of times Receiving Dock A accepted goods that did not meet quality standards change? (effectiveness/efficiency)

Questions about Types - IResourcesState Question: What was the average purchase cost of all instances of Product X at the end of the last month? (effectiveness)Over the last reporting period, when was a decline in the quality of Product X first noticed? (effectiveness)

Questions about Types - IIExternal AgentsState Question: Which Suppliers do not give a discount on Product X purchases as at the end of last month? (effectiveness)Event Question: Over the last reporting period, on average, how long did Suppliers take to fill orders? (efficiency)

Questions about Types - IIIInternal AgentsState Question: As at the end of last month, on average, how many Receiving Clerks are needed to staff a receiving dock? (efficiency)Event Question: In the last year, how many times did Purchasing Clerks wrongly approve purchase orders? (efficiency)

Questions about Types - IVLocationsState Question: At the end of last week, what dollar value of goods was received at Head Office Receiving Docks? (effectivness/efficiency)Event Question: Why did Receiving Docks have more goods stolen last year relative to the previous year? (asset safeguarding)

Questions about Subsystems - IRequisitioning At the end of last month, what was the average cost of requisitioning products? (state)How many requisitions were processed as at the end of last year? (state)PurchasingOver the last reporting period, how has the average cost of processing a purchase order changed? (event)As at the end of the last reporting period, what was the average time to process a purchase order? (state)

Questions about Subsystems - IIReceivingAt the end of last month, on average, how long did it take to receive and store a product? (state)As at the end of last month, what is the average cost of receiving and storing a product? (state)PayingWhat is the average cost of processing the payment on a bill as at the end of last month? (state)Over the last reporting period, how has the average float time on payments changed? (event)

Questions about the P/AP/CD SystemIn addition to the purchase price, what is the average cost of acquiring a product (requisitioning, purchasing, receiving, paying) as at the end of last month? (state)Over the last reporting period, on average, how long did it take from the time a requisition is prepared until the time inventory is stored in a warehouse? (event)Over the last reporting period, how has the average number of errors made each month in the P/AP/CD system changed? (event)

What Can Go Wrong?An exposure arises/eventuates in the RWS and wedont focus on the right CSFsdont have the relevant informationOur IS does not faithfully track the RWS

Our ConcernsIs the real-world system safeguarding assets and operating effectively and efficiently?Is the information system faithfully representing the real-world system???Representation

RWS Exposure 1: Errors and Irregularities with RequisitioningExcessive goods/services requisitionedInsufficient goods/services requisitionedGoods/services not requisitioned on a timely basisWrong goods/services requisitionedGoods/services requisitioned by an unauthorized person

RWS Exposure 1: Rules/ControlsInventory/services control system to ensure accurate, complete, and timely requisitioning of goods/servicesAccurate perpetual inventoryOnly high-quality personnel authorized to requisition goods/services

RWS Exposure 2: Errors and Irregularities with OrderingGoods/services ordered do not match requisitioned needsGoods/services not ordered on a timely basisGoods/services ordered by an unauthorized personGood/services not ordered on most favourable prices/termsQuality of goods/services ordered inadequate

RWS Exposure 2: Rules/ ControlsSupplier performance analysesApproved supplier listsMatching orders against requisitionsPrenumbered ordersOnly high-quality personnel authorized to order goods/servicesProhibition of supplier giftsRequirement for purchasing agent to disclose financial interests in suppliers

RWS Exposure 3: Errors and Irregularities with ReceivingGoods/services received that were not orderedGoods/services received that do not match order in terms of type, amount, or qualityDamaged goods receivedGoods stolen/damaged/misplaced upon receiptGoods transferred to wrong person/location

RWS Exposure 3: Rules/ControlsMatch goods/services received against approved purchase orderQuantity ordered not disclosed to receiving (Receiving must count/inspect)Physical control over goods receivedOnly high-quality personnel authorized to receive goods/servicesDocumentation for all internal transfers of goods

RWS Exposure 4: Errors and Irregularities with PayingPayment made for goods/services not orderedPayment made for goods/services not receivedDiscounts lost without justificationLate payment/failure to make paymentPayment for wrong amountPayment to wrong vendorDuplicate payments

RWS Exposure 4: Rules/ ControlsRecheck supplier invoice accuracyCompare invoice against purchase order and receiving reportProcedures to evaluate discounts and track due datesOnly high-quality personnel authorized to pay for goods/servicesFunds transfer separated from authorization to pay

IS Exposure 1: Errors and Irregularities in Standing DataNatureinaccurate, incomplete, untimely, redundant data representing the states of things in the P/AP/CD systemdata representing unauthorized or fictitious states of things in the P/AP/CD systemLosseslosses through untimely or wrong decisionslosses through misappropriation of assets

IS Exposure 1: Rules/ControlsRulescriteria/procedures for capturing, establishing, and maintaining standing dataControlsaccess controlsinput validation controlswell-trained personnelindependent review of secure log/exceptions/personnel

IS Exposure 2: Errors and Irregularities in Event DataNatureinaccurate, incomplete, untimely, redundant data representing events that occur in the P/AP/CD systemdata representing unauthorized or fictitious events that occur to things in the P/AP/CD systemLosseslosses through untimely or wrong decisionslosses through misappropriation of assets

IS Exposure 2: Rules/ControlsRulescriteria/procedures for capturing and reporting eventsControlsaccess controlsinput validation controlswell-trained personnelindependent review of secure log/exceptions/personnel

IS Exposure 3: Errors and Irregularities in Reported DataNatureinaccurate, incomplete, untimely, redundant reporting about the states of or events that have occurred to things in the P/AP/CD systemunauthorized reporting about the states of or events that have occurred to things in the P/AP/CD systemLosseslosses through wrong decisionslosses through misappropriation of assetslosses through privacy violations

IS Exposure 3: Rules/ControlsRulescriteria/procedures for generating reportsControlsaccess controlsinput validation controls for report parameterswell-trained personnelindependent review of secure log/exceptions/personnel

Some Critical Success Factors - IAdequacy of cash to pay suppliersTimeliness of payments to suppliersCash FlowStatementAged PaidInvoicesReport

Aged Paid Invoices Report

Sheet1

Cycle DateTotal Cycle0-30 Days31-60 Days61-90 DaysOver 90 Days

01/07/20XX113197734743321152981214

04/07/20XX87379629842013430111250

08/07/20XX11967492345201116231987

11/07/20XX7348255827140033045607

15/07/20XX85415590122098241061315

18/07/20XX96115779891145955481119

22/07/20XX760726354482903254984

25/07/20XX11555781237308152846659

29/07/20XX9204677223128381157828

Total858937643635171843344968963

Cumulative Total643635815478849974858937

Percent Paid100.0074.9320.014.021.04

Cumulative Percent74.9394.9498.96100.00

Sheet2

Sheet3

Some Critical Success Factors - IIIdentifying suppliers who offer the most favourable prices and termsPayment of suppliers at latest possible date withoutlosing discountsundermining relationships with suppliers

When to Take DiscountsTake a discount when the cost of not taking the discount exceeds the organizations cost of short-term borrowing.Example: 2/10, n/30 (2 percent discount if paid within 10 days; payment due within 30 days)What is the companys effective interest rate on the 20-day loan if it does not pay within 10 days?Answer: 36.5% (2 % X 365/20)Calculating Discount Interest Rates

ReviewNature of and functions of P/AP/CD systemComponents of and processing that occurs in a P/AP/CD systemMajor decisions to be made in relation to a P/AP/CD systemRules and controls within the P/AP/CD systemSome CSFs in the P/AP/CD system

********************Explain nature of different levels.******Also mention the need to know the purpose purchases are being put to. Hardened washers and suspension components********************************