Class 16/17 - Business Cycles

Revenue Cycle, Expenditure Cycle

Revenue Cycle

Set of business activities, information, and processing operations associated with creating and delivering goods/services to customers and collection of cash payments for those sales

Delivering value to our customers and being paid for it.

Provide the right product in the right place, at the right time for the right price

Key Activities in the Revenue Cycle

1. Sales order entry

   • Take customer order (document: sales order)

   • Approve customer credit

   • Check inventory availability

   • Respond to customer inquiries

2. Shipping

   • Pick and pack the order (document: picking ticket)

   • Ship the order (document: packing slip, bill of lading)

3. Billing

   • Invoicing the customer (document: sales invoice)

   • Updating accounts receivable (document: credit memo, monthly statements)

4. Cash collection

   • Process customer payments and update their account balance (remittance)

   • Deposit payments to the bank

General Threats and Controls to Revenue Cycle

Threats

• Inaccurate or invalid master data

• Unauthorized disclosure of sensitive information

• Loss or destruction

• Poor performance

Controls

• Rigorous controls regarding data processing integrity/restrict access to master data (review of all changes)

• Access control, encryption

• Backup and disaster recovery procedures

• Managerial reports

CRM

Customer Relationship Management

Involves managing customer relationships within the organization to increase customer loyalty retention and profitability.

For an AIS perspective, look at customer behaviour and preferences for better recommendations and service.

CRM (potentially) enables an organization to

• Provide better customer service

• Make call centers more efficient

• Cross sell products more effectively

• Help sales staff close deals faster

• Simplify marketing and sales processes

• Discover new customers

• Increase customer revenues

Threats and Controls of Sales Order Entry Processing

Threats

• Incomplete/inaccurate orders

• Invalid orders

• Uncollectible accounts

• Stockouts and excess inventory

Controls

• Data entry edit controls, restrict access to master data to maintain accuracy

• Digital signature to authorize sales

• credit limits checked and if sale exceeds limit, specific authorization needed, aging of accounts receivable

• RFID or bar code technology, physical inventory counts, sales forecasts and activity reports

Threats and Controls of Shipping process

Threats

• Picking wrong item or quantity to ship

• Theft

• Shipping errors (fail to ship the goods, wrong, quantities, wrong items, wrong address, duplication)

Controls

• Bar code technology, reconcile picking list to sales order

• Restrict physical access to inventory, document inventory transfers, inventory count, packaging slips, etc.

• Data entry edit controls

Threats and Controls of Billing Process

Threats:

• Failure to bill customer

• Billing errors

• Posting errors in accounts receivable

• Inaccurate or invalid credit memos

Controls

• Reconcile invoices with sales orders and shipping docs, separate shipping and billing functions

• Data entry edit controls, configure system for automatically enter price data

• Data entry edit controls; mail monthly statements to customers

• Segregation of authorization and recording function for credit memos

Threats and Controls of Cash Collection Process

Threats

• theft of cash

• Cash flow problems

Control

• Proper segregation of cash handling and posting to customer accounts, authorize credit memos, or reconcile bank account, use lockbox, etc.

• Discounts for early payment; cash flow budgeting

Expenditure Cycle

The set of business activities related to data processing operations associated with the purchase of and payment for goods and services

Minimize total costs of acquiring and maintaining inventories, supplies, and the various services the organization needs to function

Key Activities:

1. Order materials/supplies/services

   • Identify what, when, and how much to purchase (document: purchase requisition)

   • Choose a supplier (document: purchase order)

2. Receive materials/supplies/services

   • Verify goods received (document: receiving reports)

3. Approve vendor invoices

   • Match supplier invoice (purchase order, receiving report)

   • Approve supplier invoice for payment

4. Cash disbursements

   • Pay vendor

General Threats and Controls to Expenditure Cycle

Threats:

• Inaccurate or invalid master data

• Unauthorized disclosure of sensitive information

• Loss or destruction of data

• Poor performance

Controls:

• Data processing integrity controls, restriction of access to master data, review of all changes to master data

• Access controls, encryption

• Backup and disaster recovery procedures

• managerial reports

Threats and Controls to Ordering Goods/Services

Threats

• Stockouts, excess inventory

• Purchase unnecessary items

• Purchasing items at inflated prices

• Purchasing goods of poor quality

• Purchasing from unauthorized suppliers

Controls

• Bar-coding, RFID, periodic physical counts

• review and approval of purchase requisitions, centralized purchasing

• Price lists, competitive bids, review purchase orders

• Used approved suppliers, monitor product quality by supplier

• Purchase from an approved supplier, review approval from purchases of new suppliers

Threats and Controls of Receiving goods/services

Threats:

• Accepting unordered items

• Mistakes in counting

• Verifying receipts of services

• Inventory theft

Controls:

• Authorize purchase orders need before receiving goods

• Bar codes or RFID, receiving employees sign receiving report

• Budget controls and audits

• Restrict physical access to inventory, document all inventory transfers, segregate custody vs. receiving of inventory

Threats and Controls of Approve supplier invoice

Threats:

• Errors in supplier invoice

• Mistakes in posting to accounts payable

Controls

• Verify invoice accuracy, require detailed receipts for p-cards

• Data entry controls

Threats and Controls for Cash Disbursements

Threats

• Pay for items not received

• Duplicate payments

• Theft of cash

• Cheque alteration

Controls

• Match supplier invoices to support documents

• Pay only original invoices, cancel supporting document when payment is made

• Physical security, separation of duties

• Cheque protection machines special inks/papers