Question

InformationSystem - It is related to accounting information systems.

Extreme Sports Sdn Bhd manufactures sporting goods. You have been asked to evaluate the proposed redesign of Extreme's purchasing system. The new system will use a materials inventory master file, an open purchase order master file, and a supplier history file, all organized in a relational database system. System inputs will include materials inventory receipts and issue transactions, which will be keyed in as they occur from online terminals located in the appropriate departments. System outputs will include batches of purchase orders and periodic reports of overdue deliveries, supplier performance, and cash flow commitments. Programs that are separate from the main update program will generate these reports. Managers can also obtain this information by creating online queries. The main update program will begin by reading a transaction record and determining if it is a receipt or issue transaction. Then it will update the appropriate inventory master record. As each issue transaction is processed, the program will also check the quantity on hand in the master inventory record. If it falls below the reorder point, a reorder record will be written to a temporary file on a separate disk. This file will be processed at the end of each day to prepare purchase orders. For each inventory receipt transaction, the program will update not only the quantity on hand in the inventory master record but also the corresponding open purchase order and supplier history records. The purchase order preparation program will process the temporary reorder file by first sequencing it by supplier code number. All reorder records for the same supplier will be consolidated into one purchase order. When all reorder records for a supplier have been processed, EDI generate and transmit a purchase order. The order will also be added to the open purchase order file. At the end of each day, the open purchase order file will be processed to identify any purchase orders for which delivery is past due, and an overdue deliveries report will be generated. At the end of each month, the supplier history and open purchase order files will be processed to generate supplier performance and cash flow commitments reports.

Answer 1

Ways that IT could be used to further improve the efficiency of the proposed system -

Computers and technology allow for faster processing of data, easier retrieval of information . In addition to making processes quicker, technology also makes it easy to keep information up to date. Logistics is concerned with the movement of goods, sometimes both inbound and outbound, to the organization. Usually, it controls outbound only. The primary idea in the linkage between sourcing and logistics is that whoever does the sourcing should use professional purchasing practices. This is a growing area of opportunity for collaboration and cost-savings.

Procurement Costs – As a business, your continuous effort is to reduce your procurement costs. Your procurement costs may go down for number of reasons – cost of your raw materials is reduced, a new supplier is found with better rates, a less expensive substitute item is used, a cheaper transportation method is found or simply better negotiation. A lower cost will mean that you will be able to free up your cash, be more competitive in the market, and win better business compared ..
Administrative Costs – These costs are not related to the items being purchased, but rather related to the activities related to procurement or purchase of those items. In a way, it is a good measure of efficiency – if your purchasing costs are within the budget, then you are operating at a high frequency; if your purchasing costs are exceeding the budget, then you have a problem.
Inventory Turnover Ratio – Sometimes, we tend to think, that the price at which an item is purchased is a good measurement of procurement performance. However, price may fluctuate because of multiple factors – market conditions, availability of the item, demand for the item etc. Thus, a more logical way to look at purchase efficiency is to look at your inventory turnover ratio – which basically measures the number of times your company managed to liquidate your entire inventory.

Material Quality – Quality can mean multiple things to you, based on the segment you belong to. But overall, you can look at durability, consistent timelines of delivery and reduction in wasted resources, as a true measure of how the quality of your input materials or raw materials are contributing towards your purchase performance.

If we quickly summarise all the steps listed above, which can make your purchase process efficient, a common link that will emerge is – technology. Indeed, automating your purchase cycle is one of the fastest ways to increase efficiency and be successful. Most importantly, an optimized procurement process will positively affect your bottom line and increase your efficiency and profitability.

Input application controls --

• Ensure the input data is complete, accurate and valid
• Ensure the internal processing produces the expected results
• Ensure the processing accomplishes the desired tasks
• Ensure output reports are protected from disclosure

For input -

• Input Authorization
• Batch Controls and Balancing
• Error Reporting and Handling
• Batch Integrity in Online or Database systems

Authorization of input is just that, the data has been properly authorized to be input into the application system.   There are a number of different things to look for here, primarily things like signatures on batch forms; online access controls; unique passwords; workstation identification and source documents. In batch controls and balancing we might look at total monetary amount; total items; total documents and hash totals. And specifically with batch balancing when some of the input might be manually we want to make sure the manual totals are in agreement with the computer totals. In error reporting and handling, we want to look for controls that determine what happens to a batch that has an error, do we reject only the transaction; do we reject the whole batch; do we hold the batch in suspense pending correction or do we just process the batch and flag the error? Some of the input control techniques include things like a transaction log; reconciliation of data; documentation; error correction procedures; anticipating; transmittal log; and cancellation of source documents.

Potential threats and internal control procedures--

Inadequate Needs Analysis.

Without knowing what you need, when you need it, or who will deliver it on time and at the best price, your supply chain might look more like a tangle of fairy lights with a few bulbs missing.
You may end up purchasing too much, not enough, or the wrong goods and services altogether, at sub-optimal prices and without the benefit of discounts and economies of scale offered by well-negotiated contracts. Rogue spending will likely be a major concern; both financial planning and procurement strategy will take a serious hit to accuracy. Connecting budgets to actual purchasing behavior will be difficult, and create an incomplete audit trail, exposing you to significant financial risk. This could damage both your profitability and your ability to achieve competitive advantage, as well as your reputation with your target audience if the quality and availability of the goods and services you offer are affected.

Reducing the Risk: Big Data and the ever-growing importance of information technology has transformed the way we look at everything from our own personal shopping habits to the procurement processes of Fortune 500 companies. A robust procurement software package will give you the tools you need to collect and analyze transaction data for everything you buy, and allow you to identify usage patterns and other information that make it easier both to develop smarter purchasing strategies and negotiate mutually beneficial contracts with your best suppliers.

Poor Supply Chain Management.

This problem goes hand in glove with inadequate needs analysis. If you don’t have a centralized, transparent, and easy-to-use vendor evaluation method, along with an equally accessible but fully-vetted method for requests, approvals, purchases, and payments, managing your supply chain will be tough. Rogue spending will be a given; you’ll be exposed to significant risk of false invoices and other malfeasance by unscrupulous vendors, too. Your staff will likely spend too much of their valuable time chasing invoices or searching for terms & conditions, exposing you to the risk of late or duplicate payments.

Reducing the Risk: Artificial intelligence and a cloud-based, centralized software procurement solution makes it a lot easier to set up a vendor portal and fully automate vendor evaluation and management. You can track vendor performance and issues, identify negotiation opportunities if your needs change, and cut costs significantly by outsourcing part of your purchasing to trusted partners with limited access to the system.

Inefficient Contract Management

Modern procurement practitioners regard contracts as much more than a simple agreement to buy. Contracts are a strategic opportunity to form mutually beneficial partnerships with vendors who share the ideals and goals of your organization—and without an effective way to manage them, you’re sacrificing both cost savings and opening your business to compliance issues.

Reducing the Risk: A centralized document library, with terms automatically linked to approved vendors and rich transactional data that can be turned into reports for finance, marketing, and upper management makes negotiations much simpler. Review and approval by your legal team means contract information is always accurate and up-to-date, and staff can create new contracts from pre-approved templates for easy review and approval.

Data analysis can provide insight into new opportunities for sourcing, and help ensure both you and your suppliers adhere to the terms and conditions of existing contracts while helping you plan for more favorable terms and conditions when it’s time to renew.

Fraud and Corruption

While some risks are created by a lack of available data or unintentional inefficiencies, others are both intentional and malicious. The specific risks include invoice fraud, embezzlement, and theft via false record keeping.

A decentralized and opaque procurement function robs hinders your ability to spot red flags that might otherwise pop up during risk analysis. Out of sight, out of mind—and out of your pocket!

Reducing the Risk: Clear and automated procurement functions, limited catalogs from approved and preferred vendors, and complete transactional information with document cross-checking make it very hard for potential fraudsters to submit a fake invoice or conceal corruption. In addition, the full audit trail available for every transaction and a fully documented approval process increases your protection while making it easier to nip illegal behavior in the bud.