Introduction

You are a consultant in a business consulting firm. You are assigned to a client, Home Hygiene

Goods (HHG), a manufacturer of household cleaning products. In the first meeting with HHG you

find that HHG uses old in-house developed software to record transactions in its following functions:

Sales Department, Accounting Department, Purchasing Department, Warehouse and the Factory.

The software used in each function is not integrated, requiring manual processes to link one function

to another. HHG is a listed company that is run like a family business. It has a low employee turnover

and a company culture that highly trusts employees' integrity. However, HHG realises that as a listed

company it needs to have better corporate governance especially as it is planning to expand to the

international market. One of HHG's main problem is dealing with the document used in the manual

processes. HHG often loses the document, although each document type is properly stored in a

separate tray and in numerical order. In addition, HHG realises that the design of its system results

in document output that provides an insufficient audit trail. The latter is exacerbated by the fact that

the system does not have proper user profile management; it segregates users per roles but not per

person. Therefore, personnel with the same roles, for example, sales staff, must share the same

user ID.

HHG current system is being built in-house, one department at a time throughout many years, and

intended to be integrated. However, until now they have not yet integrated their system. Currently,

they need IT to help them integrate the end-of-month data from each department when they want to

compile the data and produce financial statement.

HHG realises that the current system suffers from some critical issues. In view of those deficiencies,

HHP wants to know whether they need to spend more time and money to integrate the current

departmental systems that they have OR to adopt an ERP available in the market.

Note: Before adopting an ERP, an organisation has to identify whether they really need an ERP or

not and if yes, which ERP is the best fit for them. Therefore, HHP needs consultants to assess their

business process and current system.

Business Process

The following is the narration that you received from HHG Internal Audit Department. This narration

is created by the HHG internal audit department after interviewing relevant employees.

Every day HHG receives purchase orders from its customers that are filed into a tray after

processing. HHG makes goods based on monthly production plan and thus keeps certain level of

stocks of finished goods (FG) in the Warehouse. For every customer order received via phone, a

sales staff in the Sales Department creates a sales order in the sales system. During this process,

a sales staff inputs the customer details based on the customer master data and item details based

on a product list database stored in the sales system. HHG customers are distributors/wholesalers

and large retailers only. Therefore, all customers have previously been verified and are listed in the

customer master data. The customer master data is maintained by a sales analyst and lists the

customer name, address for billing and delivery, credit limit and terms of payment as well as other

permanent details. Since HHG only deals with limited and largely long-time customers, credit check

is not done for every order. It is only reviewed every end of the month by the sales managerwho

remembers the credit limit of all customersonce the customer account balance report is received

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from the Accounting Department. After all sales order data have been entered and saved in the sales

order database, the sales system prints three copies of the sales order to the printer at the sales

manager's room. The printed sales order is then reviewed and signed by the sales manager. A sales

staff then puts sales order copy 1 in the sales order tray and then copy 2 and copy 3 are sent to,

respectively, the Warehouse and the Accounting Department. A sales staff then makes a phone call

to the customers' purchasing staff to advise sales confirmation and estimated delivery date.

Upon receiving sales order copy 2, the warehouse manager on duty creates a picking list for that

order. Then two copies picking list is printed and given to warehouse staff. When picking list is

printed, the warehouse system updates the level of finished goods in stock. Since HHG

manufactures based on production plan, if there is no enough stock to fulfil an order, they will put

the unfulfilled order in backlog and will be fulfilled once the stock becomes available. Once all the

goods have been picked, a warehouse staff files away picking list copy 1 and then delivers the goods

and picking list copy 2 to the shipping dock. A shipping staff then packs the goods and arrange the

delivery via courier, a third-party logistic company. Shipping staff inputs shipping details in the

warehouse system based on the picking list copy 2 and prints packing slip and two copies shipping

slips. Then shipping supervisor reviews them, attaches packing slip on the packed goods and signs

the shipping slips. Once the courier reviews and signs shipping slips, the courier takes the second

copy and shipping supervisor sends the first copy to Accounting Department.

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Every day, the factory manager on duty creates production notice in the production system based

on the monthly production plan and prints two copies and distribute copy 1 to relevant sections

producing different types of household cleaning products and copy 2 to the Warehouse. The

production notice lists the required raw materials.

Upon receiving the production notice copy 2, a warehouse staff picks all the required materials. The

warehouse manager on duty then reviews it and confirms picking. Upon confirmation, the warehouse

system updates the level of raw material in stock. The raw materials are sent to the Factory and the

production notice copy 2 is filed away into a tray.

Once the Factory receives the raw materials from the Warehouse, the production commences. The

production process is sequential. Accordingly, the production notice goes along the process until the

last section where a staff stamps "COMPLETED" on the production notice. Then the finished goods

are put away in the Warehouse1.

The production plan is designed based on seasonal trend derived from historical data and a minimum

level of finished goods is maintained. Therefore, HHG generally have sufficient level of finished

goods to meet customer orders. Typically, only in extraordinary cases HHG runs out of stock. For

example, unexpected anticipation of new products or natural disasters. However recently HHG

experiences production issues due to inefficiency in its purchase to payment processes and this

increases the risks of out of stock (i.e., not being able to meet customers demand).

In order to ensure that HHG production follows the plan, HHG must have the required raw materials

in stock. The warehouse system is designed to automatically create a purchase requisition (PR)

1 The Warehouse consists of two sections, the Raw Materials section and the Finished Goods section. For ease of

presenting the solution, Warehouse is considered as one entity.

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The Australian National University | 5

when the level of raw material stock reaches the reorder point after picking confirmation. The

warehouse system then immediately prints PR to the printer at Purchasing Department.

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Upon receiving printed PRs, the purchasing staff creates PO in the purchasing system for each PR.

When creating the PO, purchasing staff selects the relevant supplier from a list of approved

suppliers. The purchasing staff then saves and prints two copies purchase order for each PR. The

purchasing manager reviews, approves and sends PO copy 1 to the supplier and PO copy 2 to the

warehouse staff.

The supplier then sends the raw materials via a courier to the warehouse. A warehouse staff, who

is responsible for receiving the raw materials, retrieves the relevant PO copy 2 from Incoming PO

tray and uses it to ensure that the goods received is as ordered. This warehouse staff checks and

counts the physical goods and compared it to the PO. Then both warehouse staff and courier sign

off the two copies delivery slip from the courier. Any discrepancies, for example due to

damaged/missing, is noted in handwriting on the delivery slip before signing. Delivery slip copy 1 is

given to warehouse staff and copy 2 is taken by the Courier. The warehouse staff then inputs the

goods received details based on delivery notes into the warehouse system and creates two copies

of receiving report or goods receipt (GR) document, prints them, files away delivery slip copy 1

together with receiving report copy 1 into GR Tray and sends receiving report copy 2 to the accounts

payable clerk at the Accounting Department. The PO copy 2 is stamped 'COMPLETED' and filed in

the completed PO tray. Accounts payable clerk stores receiving report copy into temporary tray until

the relevant invoices are received from suppliers.

Every morning, accounts payable clerk creates an account payable (AP) in the accounting system

for every purchase based on invoices from suppliers and receiving report copy 2. Once each AP is

saved and printed, accounts payable clerk then sends printed APs along with invoices to the

accounting manager who then reviews and approves it. AP clerk then files away invoices together

with relevant receiving report copy 2 into processed AP tray, and files approved APs into outstanding

AP tray.

Every morning, a cashier in the accounting department reviews outstanding APs due in a week and

creates payment voucher for batch payment in the accounting system (i.e., to instruct bank for

making multiple payments to different suppliers). When the voucher is saved, the accounting system

updates the AP database. The cashier then prints and sends the voucher to the accounting manager

who then reviews and approves it. Cashier makes a copy of the approved payment voucher, files

away the copy and sends the original to the bank. Cashier sends remittance advice to suppliers via

e-mail to immediately update each supplier that payment has been processed. At the end of the day,

cashier changes the status of batch payment in the system from 'awaiting payment' to 'paid' and the

accounting system then updates the AP database. The bank sends receipts of transfer for each

supplier about two days after for both successful and unsuccessful transfers. At the end of the

month, cashier reconciles payment recorded to these receipts and bank statement and makes

necessary adjustments.

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Finally, the IT department processes end of month closing based on relevant data from all

department and produces the trial balance.

Required Tasks

As an Accounting Information System specialist, you are asked to assess the HHG business

process. Due to limited time and the need to quickly address inefficiencies in HHG purchase to

payment processes, you are asked to review all processes within the expenditure cycle only.

You will review the current relevant business process (referred to below as the current HHG system)

and then assess existing internal controls to allow you to suggest improvements required. As a final

step, you will determine whether HHG needs to adopt an ERP or not. In doing so, you will have to

do the following:

PART 1

Task 1 (7 of 25 marks for this assessment item)Create the Structured Narration Table (1 mark), Context Diagram (1 mark), Physical DFD (2 marks),Annotated Structured Narration Table (1 mark) and Logical DFD (2 marks) of the current HHGsystem that you are asked to review.

Task 2 (4 of 25 marks for this assessment)Create the flowchart of the current HHG system you are asked to review.If you need more information on systems documentation, please refer to the lecture recording(Lectures 3 and 4) and the textbook Parkes et al. Chapter 7 (5th Ed.).