Mountain Exchange Co-op (MEC ) with over 4 million members and headquartered in Vancouver BC has been operating since 1971 and has 14 locations across Canada as well as a strong online shopping presence. Much like credit unions, the entity sells memberships to those who wish to be part of the ownership of MEC. Annual “dividends” are paid out to members after the net income has been determined. The majority of their products are intended for outdoor enthusiasts who recognize the importance and value of purchasing a $450 two person tent as opposed to the $45 two person tent from a mass retailer. Sales have increased nationally by 20% over the past year as Canadians have adopted a “vacation in Canada” approach. As such, the importance of being properly stocked to meet customer demand and being able to process sales orders promptly and accurately and if shipping is required, to ensure that the products are shipped in a timely and accurate manner. Proper cash flow management also requires that the monies owed to MEC are paid promptly and fully to maximize the “cash in” part of cash flow management. There is no cash discount available to MEC customers. MEC encourages cash, debit and Interac payments and discourages its customers from paying by credit card as they explain that by doing so that MEC can keep their prices down to their customers. The preferred payment methods allow MEC to benefit from the IRT (in real time) aspect of cash deposits, unlike credit cards where the net amount is deposited at a later date. In terms of the Accounts Payable (AP) function, the department is fully staffed with experienced AP staff and has a Director of AP position which oversees the department. The Director, Gene Yus is a former Odette grad who has career aspirations to become VP of AP in a larger business some day. As demand for their products has grown, so have the amounts paid by the AP function on a per payment basis but so has the volume of payments to worldwide suppliers. Fortunately, the payroll function is no longer part of the AP function as this was out-sourced to ADP Payroll services last year and the AP staff is now able to focus on external payments without the nuisance of payroll payments. The purchasing department for MEC is based in the Canmore Alberta office of MEC. Whenever the purchasing department issues a Purchase Order (PO) a copy of the PO is generated and forwarded to the AP staff in Vancouver. AP staff then retain the PO until a signed receiving order is sent to them by whichever one of the locations has received the goods/services specified on the PO. While all inventory items are shipped to the Flin Flon Manitoba warehouse, each location may have non-inventory items such as office supplies, PPE, shipped to their location. As well services such as office cleaning are completed on-site at the location specified in the PO. Once the invoice has been forwarded to MEC, it is compared with and matched up with the receiving order and PO. Once verified for accuracy and completeness the details are input into the FastBooks accounting system with the relevant information including the due date of payment, HST paid amount, location and type of expense. Some of the suppliers do offer prompt payment discounts ranging up to 3% which MEC tries to take advantage of as this saves MEC money but is also a performance measurement by the membership and is a requirement of the Director of AP to maximize.

Given the sheer volume, when not all 3 source documents match up, the AP staff must resolve any of the variances. This is done on a manual basis with the suppliers each assigned a specific AP specialist for review. The variance is initially forwarded to an AP Team Leader (APTL) for review and assignment. MEC divided the suppliers up alphabetically among the AP staff so that the AP staff can focus on specific suppliers and this reduces any redundant efforts where there are multiple variances with one supplier. Where there are multiple variances, the AP person can deal with the supplier on all of them at once. Resolved variances are returned to the APTL who provides the final approval and records this as a “cleared variance”. Outstanding variances are aged daily and reviewed by the APTL daily using Excel. For the payments, both the cleared variances as well as those which did not require further follow up are filed by the appropriate date for the cheque to be processed and mailed to the supplier. MEC practice is to issue the cheque 1 week in advance of the due date, for those payments where they qualify for a prompt payment discount, the date on the cheque is the last date that MEC would qualify for the prompt payment discount, but the cheques are still sent out a week in advance of that date. After the cheques have been printed, there is a copy of the cheque in the form of a cheque voucher that is placed on the front of the 3 documents (PO, receiving order, invoice). This “package” is scanned into pdf files on a daily batch basis and the paper copies are retained in the basement of the Vancouver head office. The “FastBooks” AIS provides a number of AP function reports on a demand basis. The reports include a master supplier list, numerical cheque listing, amounts due by date as well as weekly and monthly totals to be disbursed to assist in the cash flow management. These reports are available at both the APTL and Director of AP level.

Required

Prepare and present separately, a Context Diagram and a Level 0 Data Flow Diagram of MEC’s AP process as described above.

Provide in memo format to Mr. Yus, any suggestions you feel may help improve the FastBooks Accounting Information System in the area of the Accounts Payable function.