MANAGEMENT AND FINANCIAL REPORTING SYSTEM : PROCUREMENT PROCESS

Master of Forensic Accounting & Financial Criminology (MFAFC) Batch September 2012©

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MOHAMAD RIZAL AHMAD

AHMAD AZWADI AMERUDDIN

SYED AZHARUDDIN SYED ABDUL RAHMAN

ELRIAYU MUHAMAD NGISA

YUZAINI MOHD YUNUS

AIS 710 ACCOUNTING INFORMATION SYSTEM

6 April 2014

GROUP MASEY

CONTENTS2

Introduction Procurement cycle Fraud in Procurement, Government

Initiatives, Result & Scenario in Automating Procurement Perspective - KTSB Overview of SAP & QAD SAP’s procurement QAD’s procurement SAP vs QAD Conclusion

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Introduction

Introduction• Enterprise Resource Planning (ERP) system has been

recognized as a useful tool in the view of enterprise process integration mainly in the manufacturing fields since 1990s.

• Based in the development of IT and business reengineering, ERP system has been spotlighted as one of the most powerful tool among methodologies which set up and actualize enterprise future vision in the aspects of establish enterprise-wide management innovation.

• Garcia-Sanchez and Perez-Bernal (2007) defined ERP systems as an information system that combine organizational functions and distribute shared benefits to all departments.

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Introduction (con’t)• Kvaros Alves (2008) stated the history of ERP adoption:

• Stefanou, C.J. (2001) mentioned that an ERP life cycle consists of three major phases: (a) pre-implementation, (b) implementation, and (c) post implementation

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• focused on the integration of the various inner-processes and operations systems of the enterprise.In 1990’s

• focus expanded its range including CRM (Custom Relationship Management) and SCM (Supply Chain Management) related value chain, and pursued more advanced integration

In 2000’s

Introduction (con’t)

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What is purchasing system?• procedures, manual or computerized, followed by an organization to achieve

the following basic objectives: (1) to determine the quality and quantity needed and the time when an item

is needed; (2) to obtain the best possible price; and (3) to maintain information on sources of supply. The system should utilize

such concepts as Economic Order Quantity (EOQ) , optimal reorder point, quantity discount , and Material Requirement Planning (MRP) .

• Brandon Coleman, ‘Finding the right Accounting Software Package’ believes that an effective accounting software package can help make monitoring finances less cumbersome and help save money at the same time.

• Selecting effective accounting software can be one of the most difficult tasks a company may face. Thus, Coleman recommends taking into consideration the following things when selecting software:

a) organizational needs b) user friendliness of e-procurement vendor c) hardware requirements d) flexibility e) price.

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Procurement Cycle

Procurement cycle

• The procurement cycle normally consist of eight processes:

8. Payment

3. Requisition assigned to a Vendor

5. Order follow-up

2. Source determination

1. Requirements determination

4. Order processing

Purchase OrderPurchase Order

6. Goods receipt and inventory management

Purchase OrderPurchase Order

7. Invoice verification

Procurement cycle (con’t)• The main documents and transactions in the

Procurement process are:

Planning, Reporting, and Analysis

Purchase Requisition

Purchase Order

GoodsReceipt

InvoicePosting

Note: Payments to vendors are usually made at specified times (e.g. at the end of the month).

Payment amounts are determined according to the ‘open’ invoices posted on the system.

• Procurement business process uses the following organizational elements:

Company Code Plant Storage Location

Purchasing Organization Purchasing Group

Procurement cycle (con’t)

Source: Integrated Business Process with SAP ERP - Procurement

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COMPANY CODE• represents an independent accounting unit and legally required financial statements as well

as profit and loss statements are created. • is an organizational structure of accounting.

PLANT• is an organizational element within a company. Within a plant, goods are procured, services rendered,

or goods are prepared for delivery. Eg. Manufacturing facilities, warehouses & distribution centers• is the central organizational unit of logistics. One plant is assigned to one company code; company

codes can include multiple plants.

STORAGE LOCATION• is an organizational unit enabling local distinction of material stock within a plant. • Quantitative inventory management and inventory are conducted on storage location level .

PURCHASING ORGANIZATION• are structured to negotiate procurement terms and conditions regarding one or multiple

plants or companies. • Pricing conditions are set at purchasing organization level. Purchasing organizations are

assigned to the material management functional area.

PURCHASING GROUP• are keys for buyers or groups of buyers responsible for particular buying activities. They cannot

be assigned to a purchasing organization, since purchasing groups are assigned directly to procurement objects (e.g. particular materials).

• This is not limited to the borders of particular organizational units, e.g. company codes or purchasing organizations.

Procurement cycle (con’t)

Source: Integrated Business Process with SAP ERP - Procurement

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Material Management (MM) function area

Procurement cycle (con’t)

Source: Integrated Business Process with SAP ERP - Procurement

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Material Management (MM) function area

Financial function area

Procurement cycle (con’t)

Source: Integrated Business Process with SAP ERP - Procurement

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Fraud in Procurement, Government Initiatives,

Result & Scenario in Automating

Fraud in ProcurementProcurement fraud can be defined as dishonestly obtaining an advantage, avoiding an obligation or causing a loss to public property or various means during procurement process by public servants, contractors or any other person involved in the procurement.

Types of Procurement fraud :Kickback, whereby a dishonest agent of the supplier pays a dishonest agent of

the purchaser to select the supplier's bid, often at an inflated price.Collusion among bidders to reduce competition.Providing bidders with advance "inside" information. Submission of false or inflated invoices for services and products that are

not delivered or work that is never done. "Shadow vendors", shell companies that are set up and used for billing, may be used in such schemes.

Intentional substitution of substandard materials without the customer's agreement.

Use of "sole source" contracts without proper justification.Use of prequalification standards in specifications to unnecessarily exclude

otherwise qualified contractors.Dividing requirements to qualify for small-purchase procedures to avoid

scrutiny for contract review procedures of larger purchases.

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Government Initiative

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Government Initiative (con’t)

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Government Initiative (con’t)

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Government Initiative (con’t)

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Government Initiative (con’t)

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Result of Government Initiative

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http://myprocurement.treasury.gov.my/

Result of Government Initiative (con’t)

Scenario in Automating Good Governance: Government Procurement Anti-Corruption

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Source: Free Balance – Governance Scenario: GRP Impact for Anti-Corruption in Procurement

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There are universal governance tools operating at every stage in the procurement lifecycle including:

• Controls

a) Chart of Accounts that aligns all government financial activity to budgets, users, purpose, organizational structure and accounting types to reduce accounting manipulation

b) Segregation of Duties to ensure that multiple individuals are involved in the procurement cycle making manipulation more difficult.

c) Integration to ensure that the commitment rules in use in the commitment accounting system are respected in the procurement system

d) Procedure Workflow that articulates the proper processes and prevents system user from changing rules such as the length of time that vendors have to respond to the RFP

• Decision-making

a) Workflow Alerts that notify interested parties such as internal audit or the Minister of Finance about milestones in the tendering process, thus providing more oversight

b) Dashboards that provide exception reporting to managers about the process

Scenario in Automating Good Governance: Government Procurement Anti-Corruption (con’t)

Source: Free Balance – Governance Scenario: GRP Impact for Anti-Corruption in Procurement

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Some governance tools augment specific parts of procurement lifecycle: • Secure infrastructure is augmented by control tools such as data integrity that

prevents manipulation in underlying databases, encryption that prevents people from accessing certain types of data, and general IT security such as virtual private networks to reduce ICT manipulation

• User group controls is augmented by user management such as password controls • Budget preparation is enabled through structured multiple year planning decision-

making such as MTEF that leverages historical data to ensure that the planned hospital budget is realistic

• Commitment accounting is enabled through budget and commitment controls that ensure that obligations do not exceed commitments and that items not part of the hospital procurement are acquired

• Procurement is enhanced through e-procurement transparency that enables comparing contracts over time to expose potential manipulation

• Payment management is enhanced through secure payment controls such as Electronic Funds Transfer (EFT) that reduces the opportunity for the fungibility of cash and ensures traceability

• Auditing is enhanced through decision-making tools that trace every function, transaction and approval in the system from payments back to the original plan through the audit trail

Scenario in Automating Good Governance: Government Procurement Anti-Corruption (con’t)

Source: Free Balance – Governance Scenario: GRP Impact for Anti-Corruption in Procurement

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Institutional governance enablers that are critical across the procurement lifecycle include: • Capacity of stakeholders including businesses, civil

society, legislature, anti-corruption organizations and the civil service for management and oversight

• Political Will by stakeholders such as the executive to support anti-corruption activities

• Standards used in public financials that provides better information to stakeholders

• Compliance processes and norms within the government

Scenario in Automating Good Governance: Government Procurement Anti-Corruption (con’t)

Source: Free Balance – Governance Scenario: GRP Impact for Anti-Corruption in Procurement

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Procurement Perspective in Kejuruteraan Samudra Timur

Berhad (KSTB)

Procurement Perspective in KSTBCombination process: Manual and System (Auto Count)

8. Payment

3. Requisition assigned to a Vendor

5. Order follow-up

2. Source determination

1. Requirements determination

4. Order processing

Purchase OrderPurchase Order

6. Goods receipt and inventory management

Purchase OrderPurchase Order

7. Invoice verification

MANUAL FORM

MANUAL SEARCH. NO DATA BEEN

STORED IN THE SYSTEM

MANUAL REQUEST VIA

EMAIL/FAX

SYSTEM.

MANUAL. DATA ALREADY IN SYSTEM BUT IT UNABLE TO

ALERT USER ON PENDING PO

LIST.

SYSTEM. GOOD RECEIVED NOTES ISSUED

SYSTEM. MATCHING WITH

PO AND GRN

SYSTEM. CLOSE OF

CREDITORS AGEING

50 % PROCESS

VIA SYSTEM

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Overview of SAP & QAD

Overview of SAP and QAD30

Country of Origin Germany USA

Implementation Date Aug 2010 17 February 2014

Consultant Vantage Point Magnus Consulting

Modules implemented Accounts, Material Management, Human Resources

Financial Mgmt, supply chain & distribution, manufacturing, inventory, project accounting

Implementation Cost

: Software Total RM3m RM850,000/-

: Hardware RM250,000/-

No of User Licenses 70 21

Cost per license RM1,000/user/month USD2,920

Yearly Maintenance cost USD10,011

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SAP’s PROCUREMENT

SAP’s procurement• HeiTech Padu (HTP) SAP Procurement starts off with its raider

program outside SAP, known as Employee Self Service (ESS) where Personal Assistants (PA) will key in SSF (purchase request) inputs for Purchase Order (PO) pending approval, scans and upload quotations

• Procurement will verify and sends for appropriate approvals (via email notification) of the PR, once approved, the PO will be cut and send for approval in accordance to Limits of Authority (LOA)

• PO will be printed and signed off before sending it to the vendor (via email, fax and snail mail)

• Once vendor delivers, the GRN will be posted in SAP, Invoice sent will go MIGO (matching of invoice and PO) once verified complete documentation will be sent to Finance Department for MIRO (invoice process)

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• HTP practices all goods and services, PO will be cut.• Fast track PO will be dealt with when the Procurement

Committee Meeting (PCM) approve the purchase, by pass the PO process only Project Manager will have to approve the PO

• HTP practices all goods and services items, PO will be cut.

• In summary is short but the process comes a long way of thoughts before it could be summarised.

• ERP must be carefully thought and planned out before it could be deployed into implementation.

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SAP’s procurement (con’t)

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QAD ’s PROCUREMENT

QAD’s procurement35

60%20%

10% 10%

Types of Procurement in Rafulin

Construction ManufacturingAdmin. ItemsOthers

QAD’s procurement (con’t)

•

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Fully integrated with planning that provides sophisticated pricing across contracts & individual and blanket order

QAD’s procurement (con’t)• Key Features of Purchasing• Manage entire purchasing process from requisition entry, PO entry, PO print,

to part receipt process• Supports repetitive deliveries with supplier schedules, and discrete purchases• Accurate, reliable requirements sent to suppliers allowing them to order raw

materials, plan production, and arrange on-time deliveries• Provides purchase order processing for blanket POs, contract POs, discrete

POs• Supports repetitive deliveries with supplier schedules, and discrete purchases• Requisitioning process includes the creation, maintenance and routing of

discrete multiple-line purchase requisitions through the approval process• Requisitions can be accessed, approved, denied or rerouted on mobile

devices (iPhone and Android) while away from your desk. QAD Mobile GRS application is optimized for mobile access, and available to QAD customers free of charge

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QAD’s procurement (con’t)

QAD’s procurement (con’t)

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QAD’s procurement (con’t)

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QAD’s procurement (con’t)

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QAD’s procurement (con’t)

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CONCLUSION : SAP VS QAD

Contents

Caring | Credible | Committed

Century Software (M) Sdn Bhd

Functional Comparison

Functional Comparison SAP QAD

Import/Export function of data transfer

Flexible chart of accounts

Multiple printing options – Output to PDF, Excel, HTML, Text

User Definable Fields Option

Online user manual and training docs

Report Writer function

Polished Document Formatting

Supports multi currency transactions

Supports multiple languages

Supports accrual basis

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ISSUES SAP QAD

Procurement Process Suites to HiTech Pade Requirement

Suites to Rafulin Requirement

Generic system YES YES

Customization Costly – RM1500 per man day

Costly – RM1500 per man day

User Friendly YES – with training YES – modular concept

Integration with other system

Allow Allow

Process Flow Must be determined in advance

User can create and modify

Cost Nuclear Bomb 1/3 of SAP

WHAKAWHETAI KI A KOUTOU (TQ in Maori)

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