Chapter 7

1. Chapter 7 The Acquisition / Payment Process

2. Chapter Objectives • Identify the characteristics of the traditional acquisition/payment process and related IT applications. • Describe the criticisms of the traditional acquisition/payment process and the IT application architecture. • Develop a REAL model of the acquisition/payment process. • Identify opportunities to improve the acquisition/payment process and IT applications.

3. Strategy and Scope • To provide needed resources for the organization’s conversion processes when they are needed. This can be broken into several sub-objectives: • Purchase items from reliable vendors. • Purchase high quality items, or at least items of the desired quality. • Obtain the desired items at the best possible price. • Purchase only those items that are properly authorized and are for legitimate company purposes. • Have resources available and in useful condition when they are needed by the company. • Receive only those items ordered, and receive all the items ordered. • Control items received so they are not lost, stolen, or broken. • Pay for the items received in a timely manner to the appropriate party.

4. Overview of Acquisition/Payment Process • Request for goods/services (monitor need) event • Authorize purchase event • Purchase good/service event • Receive goods/services event • Disburse cash event • Purchase return event

5. Traditional Automated Acquisition/Payment Process Flowchart - Part 1 Inventory master file May be done at time of updating Initiate purchases Step 1 - Extract data and print report Inventory reorder list Supplier reference & history file Supplier evaulation data display Select supplier & note on list Inventory reorder list Performed by purchasing department buyers Enter purchase order data A

6. Traditional Automated Acquisition/Payment Process Flowchart - Part 1 Exception and error display Step 2 - Edit purchase order data & store in file A Purchase transaction data Supplier master file Inventory master file Step 3 - Update files & print updates Open purchase order file Listing of purchase orders Purchase orders Inventory status report Printed at end of day Review and sign Performed by purchasing manager To purchasing manager To inventory manager To supplier

7. Traditional Automated Acquisition/Payment Process Flowchart - Part 2 Count & inspect received items; compare to packing slip Initiate supplier Packing slip Performed by receiving clerk Enter receipt on CRT terminal Open purchase order file Edit receipt data & prepare receiving report Exception and error display B

8. Traditional Automated Acquisition/Payment Process Flowchart - Part 2 B Receipt transaction Receiving report Inventory master file To stores & accounts payable Supplier history file Update master files Open purchase order file Receiving report file Back-order file To supplier

9. Traditional Automated Acquisition/Payment Process Flowchart - Part 3 Supplier’s invoice Receiving reports From suppliers Receiving report Batch total Performed by accounts payable clerk Verify check & prepare batch total Supplier’s invoice Exception and error display Enter invoiced amounts & total Open purchase order file Edit entered data Supplier’s invoice D Receiving report Unpaid vouchers Approve for payment C

10. Traditional Automated Acquisition/Payment Process Flowchart - Part 3 D Payables data from invoices Stored until end of day Supplier accounts payable master file Supplier history file Update payables & other files & prepare vouchers Open purchase orders file General Ledger Voucher registry & summary Open vouchers file Disbursement voucher Display of batch totals & errors C To cost control or other resource management department To accounts payable department To report preparation procedure To accounting clerk

11. Traditional Automated Acquisition/Payment Process Flowchart - Part 4 Disbursement vouchers From accounts payable procedure Batch total Prepare batch total Disbursement vouchers Vouchers file Exception & summary report Key-to-disk and edit Disbursement data A similar report is an output of each computer run Run 1 - Sort by supplier account number A

12. Traditional Automated Acquisition/Payment Process Flowchart - Part 4 Sorted disbursement data Open vouchers file A Run 1 - Update accounts payable file; print checks & other outputs Supplier disbursement payables master file Supplier history file Vouchers file Checks (with vouchers) Summary of cash disbursements Journal voucher transaction file Check number Review and sign Disbursement vouchers To cash disbursements To financial management To general ledger procedure To suppliers

13. Traditional, Manual Acquisition/Payment Process Flowchart Cashier / Inventory General Accounts Controller Ledger Control Purchasing Receiving Payable G F A D B 1 Purchase Requisition Receiving Report 2 3 3 Purchase Order Purchase Requisition 2 Purch. Order 3 P/O Blind Copy 2 Receiv. Report 3 Goods Vendor’s Invoice Dr/Cr to G/L Vendor’s Invoice Check Prepare Purchase Orders C Compare & Post Purchases Journal Prepare Receiving Report Post to General Ledger 5 Cash Disburs. Journal Review, sign ck, post 4 3 E F Dr/Cr to G/L C 4 2 General Ledger 3 Purchase Order 1 2 Update Inv. Records When Payment Is Due Receiving Report 1 E B 3 Purch. Order To vendor Check I 3 Receiv. Report Pull and Prepare Check D Vendor’s Invoice N A G Inventory Ledger Dr/Cr to G/L C To vendor C H C H A= Alphabetical C= Chronological N= Numerical Post to General Ledger Acct. Pay Ledger Dr/Cr to G/L General Ledger A Prepared with the assistance of Dr. William Hillison, Arthur Andersen Alumni Professor, Florida State University. I

14. Traditional Reimbursement Process

15. IBM’s NEDS (National Employee Disbursement Solution) Reporting Facility Business- Event Processor (business and information process rules) Business Data Repository Management approvals EFT Employee deposit Travel information Impact: 393 headcount reduction $291 million savings (10 years) Decreased processing time Increased controls Better management information New role for the accountant

16. Christopher, Inc. Aquisition/Payment REAL Model Authorizing Agent (1,1) Order Request & Review (0,*) (0,*) Inventory Clerk (0,*) (1,1) (1,1) (0,*) Purchasing Clerk (1,1) (0,*) Order Goods from Vendor (0,*) (1,*) (0,*) (1,1) (1,*) (1,1) Inventory Vendor (1,*) (1,1) (0,*) (1,1) (1,*) (0,*) Receiving Clerk (1,1) (0,*) (0,*) Receive Goods (0,*) (0,*) (1,1) Warehouse Clerk (0,*) (1,*) (1,1) (0,*) Accounts Payable Clerk (1,1) (1,1) (0,*) (0,*) Disburse Payment (1,1) Bank Cash (0,*) (0,*) (1,1) (0,*) Cashier

17. Purchase Order Customer Order Sales Order Shipping Documents Receiving Report Goods Vendor’s Invoice Sales Invoice Check or EFT Check or EFT EDI ELECTRONIC DATA FLOWS CUSTOMER (PURCHASES CYCLE) SELLER (REVENUE CYCLE) Internal Data Flows External Data Flows External Data Flows Internal Data Flows

18. Acquisitions/Payment Process Sample Information Customers Top Management Purchasing Personnel Receiving Clerks Accounting Treasury and Finance Vendors

19. Event Logical Structures: (used to store documentation data about events) PURCHASE REQUEST Purchase Request # , [Inventory Control Clerk Employee #], [Reviewing Supervisor Employee #], Date, Time, Special requests or comments PURCHASE ORDER Purchase order # , [Vendor #], [Purchasing Clerk Employee #], [Purchase Request #], Date, Time, Shipping instructions, Cancel by date, Location of order (e.g., phone, fax, or mail), Shipping expenses, Sales tax, Order confirmation number RECEIVE GOODS Receipt # , Vendor's Invoice # , [Employee # of Accounts payable clerk who compares vendor's invoice and receipt information], [Purchase Order #], [Receiving Clerk Employee #], [Vendor #], [Warehousing Employee #], Date, Time received, Shipping cost, Sales tax, Time transferred to Warehousing DISBURSE PAYMENT Check # , [Cash account #], [Cashier employee #], [Vendor #], [Accounts Payable Clerk Employee #], Date, Time, Amount disbursed REQUEST/INVENTORY [ Purchase Request # ], [ Inventory Item # ], Quantity requested, Product specifications ORDER/INVENTORY [ Purchase Order # ], [ Inventory Item # ], Quantity ordered, Negotiated Cost each RECEIVE/INVENTORY [ Receipt # ], [ Vendor's Invoice # ], [ Inventory Item # ], Quantity received, Cost each, Condition comments RECEIVE/PAYMENT [ Receipt # ], [ Vendor's Invoice # ], [ Check # ], Amount applied to this invoice, purchase discounts applicable, purchase discounts taken Christopher, Inc. Acquisition/Payment Process

20. Christopher, Inc. Acquisition/Payment Process