Control and Risks with SAP Functionalities PDF

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Sales/ Collection Process Risk Granting credit to non-creditworthy customers

Internal Control 1. Outsource credit granting to professional 3rd party services. 2. Establish formal credit-approval process, independent of sales function. Sales person must NOT be authorised to grant credit (segregation of duties), consider creating Credit Officer Role.

SAP Functionality 1. Nil 2. Right to granting of credit given to Specific Authority, like Sales Manager or Credit Officer. Changing of customer limit subjected to approval. 3.

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Late payments – low liquidity/ manual sending of reminder based on memory

Increasing incentives for early payments. Balance between earning lower profits & granting credit inappropriately.

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6. Bypassing credit limit via ordering through different subsidiaries

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Unwillingness to share information, afraid data will overwrite

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“Selling” products that are not available. Stockouts.

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Filling customer’s order incorrectly

Damaged goods in delivery process

Delivery – Late delivery

Implement IT system that enables collation of outstanding debts

Implement ERP system that allows salesperson to check inventory levels before completing a customer’s order – information transparency 8. Maintain adequate inventory through accurate forecasting, taking into account seasonal cycles. JIT system to keep costs low. 9. Incorporating independent order checking – independent check by another member of warehouse staff or shipping staff 10. Using IT to fill orders – computerized order-filling combined with human checking for accuracy of the order picked 11. Packing merchandise adequately prior to shipment – ensure proper packaging prior to shipment 12. Insure goods that are exceptionally valuable, does NOT prevent risk but mitigates financial risk (corrective measures) 13.

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Pricing Master and Inventory Master Files are separate, giving company the ability to customize discounts to encourage early payments. Accounts Receivable Aging Reports help determine overdue payments and Dunning Procedures for customers with outstanding invoices. SAP’s AR submodule in the FI module allows companies to set dunning procedures  automatically generate reminder letters to companies. Different texts can even be crafted for companies with different due dates (such that those who owe money for more days are given a letter with more insistent text). The system also allows organizations to print customer statements which compile the invoices owed by the customer for the month. Set up credit control area in Credit Management Master Record (which is part of Customer Master Record) and ensure that customer (with a unique ID) does not exceed its credit limit

SAP has a Customer Master File used by all company codes within the same enterprise that allows each company code and sales area to maintain their own data about the same customer. This way, each customer has a unique customer id, common across all subsidiaries in the enterprise, but each subsidiary and sales area within each subsidiary has the ability to record its own information (e.g. AR account, sales payment terms) about the customer, while the enterprise has an overall and combined view of the customer. 9. Access to Inventory Master File to see stock availability. 10. Real-time update of inventory to prevent overselling when there is not enough stocks. Sales clerk can give the customer a proposed date.

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11. Able to conduct Audit trails to track errors 12. Able to track and determine who is keying in the entries and 2nd level checking 13. Checks (eg Range, limit, reasonableness) 14. Nil.

15. SAP can also do Backward and Forward Scheduling, based on requested delivery date (from the SD module). System automatically calculates when picking and packing should take place, based on loading, scheduling and transport time of each item. Ensure timely picking and delivery. 16. Can also calculate if it is possible to meet customer expected date.

Delivery – Picking the wrong items of wrong quantity Delivery – Theft of Inventory

Delivery - Error Billing – Failure to bill

Billing – Billing Errors Posting errors in AR Invalid credit memos

14. Barcode and RFID technology

17. Generate Picking list and Reconcile to Sales Order

15. Restrict physical access to inventory, documentation of all inventory transfers, barcode and RFID technology; Conduct random, periodic stock checks, CCTV. Limit physical access 16. Reconcile shipping documents with sales order, picking lists and packing list 17. Matching documents prior to billing - match customer/ purchase order & bill of lading. Generate invoices through AIS/IT system to ensure numerical accuracy; reduce human error 18. System calculated prices 19. 20. Configure system to match credit memos to return of goods or specific authorization by management

18. Limit rights to edit the Inventory Master File. Quantities in the Master File will be used for reconciliation.

Periodic cost allocation is timeconsuming and process is not transparent

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AR balance in the GL and Customer Accounts at Billing do not match

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Physical passing of reports and papers. Slow down business process due to administrative delay between departments There is a chance of misplacing the financial statements when passing between departments. Customers are required to fax in their own financial statements for credit approval by company. There may be a chance of fraudulent financial

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27. Prevention: Credit officers can directly obtain the customers’ financial statements online, through a trusted government website, to ensure accuracy of financial statements.(www.bizfile.gov.sg, ACRA)

19. Configure system to prevent duplicate deliveries. Distribution Planner able to pool small orders together to minimize shipping costs. 20. Nil

21. SAP can be configured to calculate price and sales discount automatically 22. Reconciliation of subsidiary accounts to GL 23. SAP allows Credit or Debit memos to specific accounts, prevents employee from pocketing excess payments. 22. Cost Centre Accounting allows organizations to preset distribution and assessment cycles for each period, assigning a specific cost to a set of cost centers. The costs assigned can be both primary and secondary costs. (Statistical key) With the distribution of primary costs, receiving cost centers will know what cost they had been allocated – e.g. rent, utilities. With the assessment of secondary costs, receiving cost centers will know which departments’ costs they have been allocated. This gives the receiving center greater transparency as to the costs they had been allocated. The preset cycles can also be automatically run every period, saving the time of the management accounting division from that needed for manual calculations. 24. SAP has a system that integrates the billing function to the accounting function. Firstly, when a Customer Master File is set up, the system will request for the AR reconciliation account that the customer is linked to. Subsequently, any invoices, credit or debit notes made to this customer will automatically create an associated debit/credit to the customer subsidiary account and the AR reconciliation account. The system also prevents any journal entry from directly debiting/crediting the AR reconciliation account without having an associated entry into a customer subsidiary account. This ensures that the total subsidiary accounts always match the AR reconciliation account. 26. Create a file in the Central Database System to store all the financial statements so that it is easily accessed by all departments and reduces the chance of misplacing the documents.

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reporting. Customers may engage in creative accounting to make their financial statements more favourable which increases their chances of passing the credit assessment. Mailing the purchase order is a slow process which may take up to 2-3 days which slow down business process in receiving orders. The mails and faxed orders may also be lost in the process as well

Online order system which inputs orders immediately into Central Database System that can be assessed by the all departments, which improves the business efficiency.

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Exam Questions Spotting Key Differences between SAP and the rest of the ERP and AIS software SAP Implementation has to be conducted over long periods of time as in involves many business units and across many different geographic and products. This causes it to be extremely complex process with a need for change management and dedicated training. The complexities of implementation leads to a high cost. An integrated system with customizable modules that can cover an enterprise from end to end. Contains production planning, distribution, sales area view and can even manage inventory. This integrated system enables users to view all information on a common user interface and information that is entered into the system is available in real-time. SAP enables the company to define an enterprise structure. This enterprise structure enables information to flow from various subsidiaries to a parent company for consolidation and viewing. Controlling area. By grouping into the various controlling area, the management can do complex analysis on the business. Furthermore, it allows allocation and distribution thus enables more accurate analysis.

Others (AIS) Easy implementation because it involves only a few employees and usually within a small company. The costs of implementation is thus relatively lower than SAP.

Only enables users to use for financial reporting. Unintegrated system so inputs have to be compiled. This may cause reconciliation issues and financial information may not be available real time as it requires update by the finance department. AIS is unintegrated and only available for each individual company.

There is usually no managerial accounting function and in order to do the analysis, there is a need to keep a separate set of books, leading to difficulties in reconciliation.

Inventory Master file and Pricing Master file; this allows users of SAP to come Because the price of the products is included in the Inventory Master File, the range of discounts is limited to sales discount up with customized discounts such as bundling instead of the traditional sales discount. As the company is small, there is usually few staff and thus there is little segregation of duties. As the company is small, there is also less need to keep documentation. The audit trail is weaker. SAP Implementation Theories

Manifestation in Case Studies

For effective ERP implementation, the top management needs to communicate the importance, relevance and vision. This enables all staff to know the reason why there is a change and thus, there will be less resistance.

NIBCO – Formation of an effective communication channel (Tiger Triad) Tektronix – Sending out a global business model

Need for a “Champion”. This will be the project leader and will manage the entire strategy of implementing the project. The Champion should be of a senior role and be able to remove any road blocks.

NIBCO- Led by Rex Matin who ensures that top executives support the project. Tektronix – The CFO was the Champion of the project team as the main reason for change was relating to the finance growth of the company.

Company should not leave the entire implementation to consultants. This ensures that the staff are involved in the process and that knowledge is retained in the company after the consultants leave. This also ensures that the project will be meaningful as the users know what is require of the system better than the consultants.

NIBCO- IBM consultants assign to project teams to give their technological expertise. Ultimate decision based on users. “Show us how” approach. Tektronix – Complex project team structure involved power users as well as consultants.

Support from top management is important as it removes political roadblocks and shows that management believes that this implantation will yield positive results. One most pertinent show of support is to release “key” employees into the implementation teach and ensure that the employees can balance both commitments.

NIBCO – Willing to give extra special incentive pay bonus to employees if certain conditions are met. Tektronix – CEO gave Nuen ultimate authority over decisions, showing his faith and belief that project will yield positive results.

Understand employees concerns and feedback. By listening to the users, current process can be review and inefficiencies can be re-engineered to be more efficient. Also, the company should involve the users to make decisions. This gives them “ownership” of the project and leads to less resistance.

NIBCO- Internal Communication plans and monthly tiger talks. Tektronix – Channels to communication across project teams.

“Big Bang” vs Phased in. Depends on the organization. Should the company be complex with many Divisions and product line, should use a phased in approach (for pros and con of both approach, refer to cheatsheet)

NIBCO- Simple organization that manufactures only valves and pipe fittings. Only implemented to America. Tektronix – 3 Business Divisions that are present across many countries.

REA Models Investment in information technology have delivered disappointing results because companies tend to use technology to mechanize old ways of doing business Processes are INTACT...