Instructions Please take time to read the following case facts and prepare to discuss the questions below. Case Study Various departments within CPP Investments incur expenses as part of executing on their duties. All operating expenses are submitted to the Corporate Accounting team, who is responsible for processing and paying the corresponding expenses. This process primarily involves two sub-teams within Corporate Accounting; the Accounts Payable and the Cash Management team. The Accounts Payable team is primarily responsible for preparing and reviewing the invoice payments in the GL Payment System where was the Cash Management team is responsible for paying the vendor invoice. There are a variety of payment methods that can be used in order to process payments. All payment transactions are recorded in the GL Payment System and subsequently and automatically transferred into the Main General Ledger. As a new Rotational Analyst in Corporate Accounting team, you have been asked to document the operational risks and control deficiencies/gaps. You have been told that Corporate Accounting executes around 150 invoices processes a day and the number of invaices have almost doubled compared to the same period last year. As a starting point to your review, you have a short conversation with one of the Associates on your team who used to oversee the accounts payable process. The following comments were made; \"It has been several months since | have been involved with the A/P process, feel free to stop me if you have any guestions. From what | recall, vendor invoices can originate in the form of Operating Expenses, Investment Expenses, and through expenses paid with CPP Investments' American Express. Typically, the analysts in the Business Units will send us the invoice that needs to be paid via email to our group's shared email account. Sometimes the invoices will be signed by the groups Managing Director (MD), however since the MD's are really busy, we usually accept the analyst's email as approval as well. There is some mandatory information that we need such as invoice coding from the businesses such as invoice number, vendor, and GL coding. We have set up an automated AP mailbox in Outlook which will automatically sort invoices and put in different processing folders based on currency. This process works due to the invoices being emailed with a standard formatting in the subject line. If invoices emailed without the standard formatting in the subject line, it will be put in a general mailbox and requires Corporate Accounting to manually allocate the email to the corresponding folder. After the Corporate Accounting finishes processing all payment requests, the analyst will manually move the email to the \"Done\" folder. Corporate Accounting aims to process all invoices within 10 business days. For the AP Analyst to actually process the invoice, they visually inspect the invoice to ensure that it has been properly allocated to the current AP Invoice mailbox. Then the AP Analysts will manually search in the GL Payment System for the vendor's name and tax ID. If it is an existing vendor, it should show up in the GL Payment System, however if it is a new vendor it must be setup in system. The AP Analyst will have to coordinate with the Tax Team to have them calculate the taxes for each line item based on the region the invoice originated from. Once Corporate Accounting receives the tax numbers, they are entered into the GL Payment System. In addition, l1|Page details from the invoice such as invoice number, vendor, and GL coding are manually inputted into the GL Payment System. Once the invoice transactions are posted in the GL Payment System, the AP Analyst will attach supporting documents (e.q. the invoice, payment request from the Business Unit, etc.). The GL Payment System is not able to identify any errors in the invoice; therefore, the AP Analyst will have to ensure that everything is inputted correctly. If the AP Analyst identifies any issues, they are to contact the Business Unit for further investigation before proceeding. Once the upload in the GL Payment System is successfully completed, the AP Analyst will perform a final review to verify that the following information is correct: invoice date, accounting date, legal entity, bank account, pay group, payment method, and tax amount. When all supporting documents have been uploaded and the journal entry(ies) is created by the AP Analyst, they will submit the entry in the GL Payment System and prepare an email to notify the AP Manager to review the invoice. In addition, the GL Payment System prompts the AP Manager to review a pending approval required for an invoice. As part of this review, the AP Manager will verify that the information per invoices matches the supporting documents and approves the invoice entry in the GL Payment System. The GL Payment System is not configured to restrict individuals from both preparing and reviewing their own invoices, however it is well communicated to the AP Analyst not to prepare and approve their own invoice. On a weekly basis, payments are prepared on Thursdays. The AP Manager confirms to the Cash Manager via Microsoft Teams chat that all invoices have been approved. The Cash Manager proceeds to manually generate the Payment Summary Report from the GL Payments System detailing a list of unpaid invoices and inspects that the currency and payment method. The corresponding invoices and Payment Summary Report are emailed to the Manager of Corporate Accounting with a request for review and approval of the invoices to be processed for payment. As part of this review, the Manager of Corporate Accounting verifies the reasonability of the payment method. Once approval is received, the Cash Manager creates the payment run for transfer of funds from the respective operating bank account. Finally, we are on the last step! There are a variety of methods from which payments can be processed. All payments are initiated in the GL Payment System. The default payment method for all invoices is EFT, unless it is an oversea payment (where the payment currency is in a currency different from the legal entity's bank currency) in which case it is designated as a Wire payment. For EFT, the Cash Manager selects EFT as the payment method from the system, selects the legal entity from which payment is to be processed, generates a payment file that is configured to automatically pick up all approved invoices coded to that entity and processes payment. The system is configured to automatically transmit payment to the bank who receives the payment files. Once the payment file is received by the bank, the Cash Manager receives on email acknowledgement. If the payment method is designated as Wire, the Cash Manager selects Wire as the payment from the system. The payment is received by the vendor usually within the same day. Therefore, it is often selected as the alternative payment method when there is a requirement to expedite a payment for CAD or USD invoices. So, that is pretty much it. As far as | know, the process works pretty well, although from time to time | hear the AP Analyst complaining that they don't have enough time for other work due to the volume of invoices they have to process or they have to reprocess the EFT as the bank didn't receive it. Luckily, they have you to help now!\" Questions for Discussion: 1. Identify the key operational risks and any control deficiencies/gaps within the process that exist in the current process. 2. Provide recommendations to address those control deficiencies/gaps. 3. On another note, as part of the CPA program, you have been asked by your CPA mentor to review/analyze a set of financial statements of a company that CPP Investments is targeting as a potential investment (refer to Appendix A) and comment on the following: i. What does the Company's debt-equity ratio imply about the Company's long-term financing? ii. How were new property & equipment funded throughout the year? What does this mean for Company in terms of being able to generate financing for expanding their business going forward? iii. What observations can you make about the Company's revenue and EBITDA? iv. Is the Company in a strong position based on their current ratio? Appendix A Pinkman Energy Corp. CONSOLIDATED BALANCE SHEET in CAD thousands 2021 2020 Assets Current assets 372 294 Cash and cash equivalents 184 194 Accounts receivable 48 24 604 512 Property, plant and equipment, at fair value 17,770 15,702 Other long-term assets 210 254 Total Assets 18,584 16,468 Liabilities and Stockholder's Equity Current liabilities Accounts payable and accrued liabilities 209 207 Current portion of long-term debt - - 209 207 Long-term debt and credit facilities 7,800 6,300 Deferred income tax liabilities 2,265 2,349 Other long-term liabilities 163 188 10,437 9,044 Stockholder's Equity Common equity 6,800 6,300 Retained earnings 1,347 1,124 Total Liabilities and Stockholder's Equity 18,584 16,468 CONSOLIDATED INCOME STATEMENT in CAD thousands 2021 2020 2019 Revenues 1,806 1,309 1,169 Other income 11 16 19 Direct operating costs 530 486 407 Gross Profit 1,287 839 781 Management Services costs 11 36 1 Operating Income 1,246 803 780 Interest expense 495 411 411 Depreciation 535 483 468 Income before income taxes 216 (91) (99) Income taxes B0 - - Net Income 156 (91) (99)