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P B S N in Action - Case Study Specialist Metal Supplier and Stockholder (Time Period: 5 Months) Assignment in the Finance Department of A Specialist Metal Supplier and Stockholder (Turnover £30m : 74 Employees : Based in Preston, UK)
1. Assignment Overview Initially contracted to guide the Finance Team through their first year-end using a recently implemented SAP/R3 system. The assignment brief was to ensure that a robust, and complete, set of year-end statements were produced for 15 Months ended 31 December 2000. Whilst undertaking the initial brief it became apparent that there were a number of other more important issues which also needed to be addressed within the department. At the start of January 2001 the Finance Director left the organisation (due to illness). As a result the assignment was broadened to cover full responsibility for the day to day running of the Finance Department. The Finance team consisted of 6 staff, 5 of which were temporary workers. The year-end financial statements were produced and underwent a rigorous audit without qualification. With the year end successfully complete, the assignment then encompassed the smooth transfer of accounting activity to the Birmingham 'Head Office'. This was completed by the end of April 2001. During the assignment the following Key Issues were identified and addressed: Inappropriate use of SAP system :- The financial system used within the business was SAP/R3. Whilst the SAP system was functionally fit for purpose, it was being inappropriately used. SAP was not recognised as the integrated system it is. There was an acceptance of the need to make manual adjustments in order to compensate for inappropriate or incomplete business process transactions. Poor Financial Controls :- Financial Controls within the department were poor. Reconciliation's were not fully documented and issues were not resolved. Inadequate staff management :- Staff were inadequately managed with an over reliance on temporary workers. This had resulted in poor quality and loss of overall control within the department.
2. Detailed description of key issues identified and corrective action taken. 1. Inappropriate use of SAP system a) Poor understanding of SAP. The SAP accounting system was not being used appropriately. There was a tendency to assume that shortcomings in the business process could be fixed by manual intervention. Corrective Action:
b) Inappropriate use of General Ledger Accounts There appeared little control or consistency in the posting of accounting journals. e.g. Accruals being posted to accounts other than Balance Sheet accounts. Some accounts were used as suspense accounts but were never reconciled. Other accounts were posted to in error e.g. Cost of sales adjustments to a Group Loan account. Corrective Action:
c) Errors in posting accruals Some accrual items were not posted as Reversing Journals. This resulted in some items being accrued twice. Accruals were not being methodically reversed. Corrective Action:
d) No procedures / SAP documentation in evidence. Formal SAP procedures were not in evidence. Those who in their tern had been informally taught, taught new starters without reference to formal documentation. Corrective Action:
2. Poor Financial Controls. a) Supplier reconciliation's inadequate Both Group and 3rd Party purchase ledger balances were not adequately reconciled. If they were reconciled there was inadequate follow through e.g. accruals were not made or agreed actions completed. Corrective Action:
b) Balance sheet Accounts not reconciled / documented. There was no obvious attempt at reconciling all balance sheet accounts e.g. Loan account between related companies did not match. Holding accounts were not reconciled etc. Corrective Action:
c) Management accounts did not reflect SAP and were not reconciled. Management accounts did not reflect SAP. Management were not aware of this. No reconciliation with flash reporting was conducted. Sales were not reconciled to despatch information. Cut off procedures were not well documented and communicated. Management adjustments were not reflected in SAP. Corrective Action:
d) Key reconciliation issues left loo long. Key Accounts Payable reconciliation's were complex. It took far to long to reconcile with issues from 1999 still being resolved in December 2000. The organisation as a whole was not focused on the issue. Inadequate resource was allocated to resolving the issues. Purchasing procedures did not follow the SAP business process. Corrective Action:
3. Inadequate staff management a) Over reliance on temporary staff. Within a department of 6, 5 were temporary employees. This resulted in high staff turnover, loss of continuity, poor relations with suppliers, loss of corporate knowledge and poor quality. Direction of temporary staff was inadequate. Procedural documentation was also poor. Temporary clerical staff had little interest in managing the resolution of long standing and drawn out issues. Corrective Action:
b) Staff were not managed and directed appropriately. The overall management of the finance department was very poor. Temporary staff were relied on to perform without supervision. Duties were poorly defined without any overall review of competency or quality. Key activities were left unmanaged e.g. Accounts Payable for three weeks. Corrective Action:
c) Too many side issues being ignored. The finance department was aware of a number of minor and major business critical issues. However due to poor management (temporary staff etc.) they were not managed through to resolution, internally or externally. Corrective Action:
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