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2II95 Seminar Information Systems

2II95 Seminar Information Systems. Revenue Cycle Diana Ahogado Melike Bozkaya Eva Ploum. Agenda. Short presentation of the model General Auditing Objectives General Assumptions Key Performance Indicators Organizational Structure Details of model’s sub-processes Sales Order Entry

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2II95 Seminar Information Systems

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  1. 2II95Seminar Information Systems Revenue Cycle Diana Ahogado Melike Bozkaya Eva Ploum

  2. Agenda • Short presentation of the model • General Auditing Objectives • General Assumptions • Key Performance Indicators • Organizational Structure • Details of model’s sub-processes • Sales Order Entry • Shipping • Billing and Cash Collections • Cancellation • Conclusions

  3. Model of Revenue Cycle

  4. Definition of Auditing Risk • When is something a risk because of a human? In the end the system was constructed by humans. Auditing Risk: a risk for the company that is introduced by the abuse of a correct information system or the usage of a corrupt information system

  5. General Auditing Objectives • All transactions are properly authorised • All recorded transactions are valid (actually occurred) • All valid, authorised transactions are recorded • All transactions are recorded accurately • Assets (cash, inventory and data) are safeguarded from loss or theft

  6. General Assumptions • Data is persistent and backed up properly • System stores data according to integrity constraints • System is secure, available and maintainable • Information provided by the customer is correct, complete and reliable • Transactions between the bank and the company are safe • Delivery is in-house and done by truck • Only complete orders can be delivered

  7. Key Performance Indicators for Revenue Cycle • Number of orders that is handled per day • Average duration between order entry and delivery • Percentage of returned orders • Percentage of damaged goods • Total amount of past-due balances • Customer/complaints ratio • Customer/return ratio • Percentage of noticed errors in ordering, picking and packing inventory

  8. Organizational Structure

  9. Basic Business Activities

  10. Sales Order Entry Assumption: • Regardless of how the order is received, all data required to process the order is collected and accurately recorded in the system.

  11. Check Information Business Rule: • All checks must be OK in order for the process to be able to proceed

  12. Credit Approval Business Rules: • Immediate Approval requires an existing customer account with a credit limit such that: order amount + current balance < credit limit • Specific authorization is needed for • new customers • known customers with past-due balances • Known customers with an order exceeding the credit limit • Credit Approval must occur prior to release of the goods from the inventory

  13. Check Inventory Business Rules: • The inventory master file can only be updated and the picking ticket can only be created if there is enough inventory to fulfill the order • If there is not enough inventory to fulfill an order a backorder is created • Create back orders: • Manufacturing company: notify Production Department • Retail company : notify Purchase Department

  14. Auditing Risks of Sales Order Entry • Correctness: • Inaccurate or incomplete Customer OrdersCheck data entry, validity, completeness and reasonableness; automatically lookup reference data (e.g. addresses) • Credit Sales to Customers with Poor CreditMaintaining accurate records of customer account balances and credit limits, segregation of duties (e.g. sales order clerks have read-only access to credit limit information); apply 4-eyes principle • Completeness • Incomplete Customer OrdersCompleteness check on data entry; automatically lookup reference data • Timeliness • Stockouts-Excess Inventory Accurate inventory master file, periodical physical counts • Authorization • Legitimacy of OrdersDemand a signed purchase order (digital signatures and digital certificates) from the customer

  15. Basic Business Activities

  16. Shipping Business Rule: • Picking Ticket (prepared by Sales Order Department) is required to start the picking/packing process.

  17. Ship Order • Note: • 1BoL+1PS → accompany shipment • 1BoL+1PS → send to Billing Department (triggers the preparation of the Invoice) • 1BoL → stays at Shipping Department • 1BoL → is given to the carriers for their record Business Rule: • If customer is to pay the shipping charges, a copy of the Bill of Lading serves as the Freight Bill.

  18. Auditing Risks of Shipping • Correctness • Shipping Errors Comparing the sales order data and the shipment data that is entered before the goods are shipped; the use of barcode and RFID (Radio Frequency Identification) tags also eliminate these errors. • Theft of Inventory Physical control procedures and physical access restrictions are needed. All inventory transfers should be documented. Recorded amounts of inventory should periodically be checked with physical counts of inventory on hand. Employees responsible for inventory custody should be held accountable for any shortages. • Incorrect update of Inventory Master fileCompare inventory update with sales order • Unsigned or lost bill of lading and customer claims that the goods were not delivered (but they are)Automate bill of lading, and show the next customer to the truck driver only if the bill of lading of the previous customer is signed; hold the truck driver accountable for the missing bill of lading • In case of PDA-use for delivery: crash of PDA or out of battery powerForward updates to server immediately, or use the PDA only as a client

  19. Auditing Risks of Shipping (continued) • Completeness • More or less items in the package than that are mentioned on the packaging slip.Double check the package and the packaging slip • Timeliness • Backorders that take too long, thus violating customer’s quality of service requirements Offer the possibility to deliver partial orders. • Authorization • Sales order clerk that creates the picking ticket updating the inventory master file as well (e.g. because the inventory clerk is ill)Require segregation of duties. • Inventory clerk that picks and packs the order updates the inventory master file as wellRequire segregation of duties. • Inventory clerk that compares the sales order, picking ticket and physical order updates the inventory master file as well Require segregation of duties.

  20. Basic Business Activities

  21. Billing and Cash Collection • Business Rules: • Company must select between Open-invoice or Balance-forward methods to maintain accounts receivable. • The company uses billing cycle to send invoices to their customers. • Assumption: • The company uses the balance-forward method to maintain accounts receivable.

  22. Billing and Cash Collection Business Rule: • Sales invoices are created from information of sales and shipping activities. Assumption: • Sales invoices are send to customers using EDI.

  23. Billing and Cash Collection Assumptions: • Customers pay invoices and send remittances using FEDI (it is fast, saves costs and reduces the risk of theft). • After 4 times the invoice has been resent due to failure in payment, a credit memo is created to write-off the customer’s account.

  24. Auditing risks • Correctness: • Billing errors: Produce sales invoices that do not contain accurate information: prices, customer’s data, due date or number of items sold. All the information about customers and orders must be correctly stored in the IS, and the sales invoices be produced based on that data. • Errors maintaining customers accounts. The IS should perform a verification of the amounts debited or credited from the customer’s account, by checking these data on the electronic documents that indicate those amounts (the invoice and remittance). • Completeness: • Failure to bill customers: Shipping merchandise to customers without billing it All the information about customers and orders must be completely stored in the IS, and the sales invoice be produced based on that data. Segregate the shipping and billing functions. • Not including all the information necessary when debiting or crediting customer’s account. The IS must perform checks to ensure that the customer’s data and the amounts are complete when a credit or debit transaction is going to be realized.

  25. Auditing risks • Timeliness: • Produce sales invoices too late. The IS must comply with the business rules that indicate the moment in the process when the sales invoice is created and sent. • A possible failure in the EDI application used to send the sales invoices or receive payment (information of invoices, deliveries or remittances is not received on time). When designing the IS, contingency plans must be taken into account for possible failures on it or the EDI application. Also mechanisms for rapid failure recovery. • Authorization: • Theft of cash. Procedures for handling received cash, issuing credit memos and and crediting customer’s account should be performed by different persons. • Non-authorized personnel has access to customer’s account data. The IS must be designed taking into account security policies which ensure that only authorized personnel have access to the customer’s account information.

  26. Cancellation

  27. Business Rules • Payment → Invoice received • Returning goods that are not damaged → Money - fee is refunded • Damaged order → Discount or free retour • Returned goods must be received before re-updating the inventory master file is possible • Returned goods must be received before refund is possible • Cancellation of a cancellation is impossible

  28. Assumptions • The ‘Handle documents’-task does whatever is needed to properly handle all paperwork of a sales order that is in the system at the time of the cancellation. • If the cancellation procedure requires to collect a fee, this is handled the same way as billing and collecting money of a normal order.

  29. Auditing Risks • Dishonest people, i.e. consciously creating incorrectness • Abuse of the system by employees • Unfaithful customers • Sabotaging the cancellation process • Administrative errors • System errors

  30. Auditing RisksDishonest people: Abuse of the system Create money surplus and steal it • Impose a fee on the return of damaged goods as well, that is, omit to record that the returned goods were damaged.Include a reason for the return on a return-registration form and let someone double check the forms with the inventory master file • Incorrectly updating customer account (increase amount on invoice)Compare invoice or credit memo with customer account; segregation of duties: invoice creator != customer account updater • Goods are damaged, customer returns the goods, but instead a discount is given to the customer and the goods disappearRequire registration of damage even if the customer wants to keep the goods, and register whether the customer returns the goods • Smaller fee is invoiced to the customer than that is recordedDo not let the same person decide the fee and update the customer account, instead apply 4-eyes principle • Give customer a smaller discount than that is recorded Do not let the same person decide the discount and update the customer account, apply 4-eyes principle again

  31. Auditing Risks (continued) Dishonest people: Abuse of the system Disappearance of goods • Incorrectly re-updating the inventory master file with the returned goodsComparison of the registration-form of the returned goods with the inventory master file update; apply 4-eyes principle Favour a customer • Give discount of 100% or close to itProhibit the system from giving discounts bigger than a certain percentage or decide on a standard discount that is automatically processed by the system • Give a fee of 0,- euro or close to itDecide on a standard fee that is automatically processed by the system • Incorrectly updating customer account (decrease amount on invoice)Compare invoice or credit memo with customer account; segregation of duties: invoice creator != customer account updater

  32. Auditing RisksDishonest people:unfaithful customers • Customer does not return the goods that are registered for returnHold the truck driver accountable for the correspondence between returned goods and return-registration forms • Customer claims damage, but there is no damageHold the truck driver accountable for goods being registered as damaged being truly damaged indeed; check the registered damage with the physical damage at the company and impose a fee on dishonesty • Customers deliberately imposing damage to the goods after delivery and then claim they did not notice the damage at the time of deliveryHave the customer check the goods on delivery and require him/her to sign a statement that the goods were undamaged

  33. Auditing RisksDishonest people:sabotaging cancellation process Disappearance of goods • Fail to re-update the inventory master fileComparison of the registration-form of the returned goods with the inventory master file update; apply 4-eyes principle • Not (immediately) communicating order cancellation to shipping departmentIn case of online cancellation: automate communication, otherwise no solution • Fail to rollback backordersRemind people to rollback backorders; in case of online cancellation: automate rollback Create money surplus and steal it • Fail to update customer accountCompare invoice or credit memo with customer account; segregation of duties: invoice creator != customer account updater

  34. Auditing Risks Administrative errors • Damaged goods being returned into the inventory, thus being delivered and returned againRequire registration of damage • Loss of a cancellation requestIn case of online system: automate cancellation • Uncancelled approvalIn case of online cancellation: automatically make the (digital) approval invalid If applicable: • Unsigned or lost return-registration formDigitalizeforms needed for delivery and use PDA’s; forward updates immediately to the server • Unsigned or lost (no-)damage-registration form • Digitalizeforms needed for delivery and use PDA’s; forward updates immediately to the server

  35. System errors • Someone else than the customer itself cancels the customer’s orderIn case of online system: use a security mechanism that handles authorization, otherwise ask for customer identification like a customer account number

  36. Conclusions • Digital administration is better for authorisation purposes • Digital administration saves work by automatically checking and thus can partially relieve from 4-eyes principle constructions • In case of a digital administration good backups and accurate processing are vital • Online cancellation may prevent that a cancellation is not propagated, that a backorder is not rolled back or that a valid approval remains in the system • It is easy to keep track of a document’s status, e.g. no new paper or stamp that makes the approval invalid is needed, just set a private variable to false

  37. Thanks for your attention! Questions?

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