Executive Summary
The purpose of this report is to investigate the current invoice handling process of the accounts department – logistics accounting of our company – BAX Global Hong Kong Limited; in particular, to analyse the existing problems and procedure in our accounts department and provide valuable, efficiency suggestions in monitoring invoices from various trucking companies. This study was conducted since the beginning of this course, and there were five trucking companies and over twenty logistic client accounts included in this study. Since the beginning of the study, our statistics shows that the accounts department has received on average more than one thousand invoices from a single trucking company every month. Approximately, it requires more than one-third of a full time responsible staff’s total working time to handle the corresponding tasks. Such tedious task to handle so much invoices greatly affects the productivity and efficiency of our staff in the accounts department. On the other hand, this leads to another problem that might directly affect the monthly revenue of our company if correct while entering so much invoices . As During data input into the FAMS (BAX Global accounting system), human error will increase as the number of invoices handled by each person increases. The problem is being enlarged as staff from the accounts department will handle an increasing amount of invoices from the trucking companies each day. From time to time, input error will affect the cost accuracy presented in the profit and loss account of our company. Due to the above reasons, it is recommended that trucking company to issue invoices to our company covering on a weekly basis for each account. It will then passed to our account department each week for each account during the first three weeks, and per delivery order for the last week of each month. If all of above problems to be solved, it is expected that the invoice handling time will be decreased by half of the existing handling time and the cost estimation to our company will be more accurate.
Introduction
I am currently working as an Assistant Accountant at the Accounts Department, monitoring daily accounting for the Logistics department. In our department, two persons take turn to monitor the trucking invoices of the major logistics accounts, which include high-tech, health care, aerospace and retail customers such as Intel, Cisco, Samsung and Intersil, AMO and Allergan. In general, invoices, especially trucking invoices, are to be issued at a defined month end during every month – trucking company will pass invoices to our department as per occurred transaction. The goal of this study is to find out ways to maximize productivity of the staff in our department by decreasing our daily workload and thus in getting an accurate estimation to the profit and loss statement.
I will use the knowledge I have learned from this course to study the potential changes that could be done to improve the current logistics operation. I have learnt many new skills in this course; for example, through direct contact with different parties, I have improved my communication skills during negotiation with other parties from my learnt. Bringing these new skills and what I learnt to my workplace, I have improved the current communication channel and better negotiation between the trucking companies and our department by re-engineering the current operation and better procedure in managing the flow of vendor invoices between the two parties.
Current Situation
The trucking companies are mainly responsible for distributing goods together with the corresponding document and goods to our customers. In order to have a smooth delivery arrangement process between our trucking companies and our company, the trucking companies will send us a blank pre-printed delivery order and keep it in our operations department for delivery arrangement. By then will have a good control and can check out if there is any omission on the vendor invoices .
Our operation colleagues will complete the delivery order and send it to the trucking companies for delivery case by case every time on a daily basis. After the delivery jobs is done, the trucking companies will return the delivery order and other relevant document back to our operations department, then our operations colleagues will sign and stamp the delivery order as delivery confirmation with the assigned invoice number, but operation always forget to pass/return back this delivery order note to trucking companies for invoicing us accordingly. The trucking companies will pass the signed delivery order together with the invoice to our account department for payment settlement. Account department receives separate billing for each delivery job done. The current situation to the invoice handling process is described in Figure 1.1.
Figure 1.1 – Current Situation – Invoice Handling Procedure
Once trucking companies has handed over the invoice to account department, they will accumulate the invoices and pass its to our colleagues in account department at the end of each month.
Problem Statement
Reconsidering the above process for the delivery arrangement with trucking companies, the total number of invoice received by account department is more than a thousand billing from a single trucking company each month. It is due to trucking companies will issue the invoice job by job that a particular invoice is only cover a particular delivery order – for example one job number as per occurrence of each delivery order as illustrated on Figure 1.2. It is estimated that the time allocated to handle such huge volume of invoices from trucking companies is around one-third of the total working time of the responsible staff in account department. And our accounts department needs to spend much time to input the invoice one by one, just as a data entry person.
Figure 1.2 – Before implementation – Delivery Order, Invoice and job number issue process
The above process leads to a serious problem – there is no control on the number of invoices to be passed to the accounts department each month. In practice, the trucking companies will accumulate the invoices and pass its to our colleagues in the account department at the end of each month. It will definitely affect the cost booking and the cost accuracy presented in the profit and loss account. Since it is very important to have an accurate profit and loss account, the responsible staff is trying to ask the trucking companies for early submission of the invoice and the trucking companies also agree to pass its to our account colleagues as soon as possible. But we also found out that our operations may forget to pass back Delivery Order to Trucking Companies, by then, it will be missed some cost for the current month. Nevertheless, the problem is not totally solved and our account department is still facing the cost variation due to this problem – there is a need to find ways to reduce administrative cost while maximizing the efficiency. By the way, when accounts department get the invoices from Trucking companies, accounts department also need to pass back to operations to give back the related job reference, in this circumstance, it will be brought quite a long time to send and wait back the invoices, also it may be too late after the month end closing, this mean, the current cost will be in the next month, therefore, it is effects the accuracy on the cost and profit and loss trading statement.
Methodology
Five trucking and around twenty logistics accounts were selected into this study. This study was conducted four months ago – since the beginning of this course. Initially, several face-to-face meetings with some of the representatives from the accounts department, the trucking companies and operation teams were conducted to discuss possible changes before the actual implementation could be done. In this circumstance, I also bring out what my learnt on the communication and negotiation for the course and use the knowledge to explain what the issue at our end and try to make them to allow my suggestions.
The responsible personnel for implementation includes the manager of account department, the staff in account department responsible for handling invoices from trucking companies, and the manager of operations department. The responsible personnel have periodically reviewed and evaluated the results on a weekly basis.
Solution Overview
The suggested solution is illustrated in Figure1.3. Operation department will issue a job number ( which Job No.is the billing no. to our client) for each client at the beginning of each month and pass back the Delivery Order with the mark of Job No. to the trucking company for any job done. Based on the assigned job number, trucking companies will accumulate delivery orders and combine them as one separate invoice for each client’s account. On a weekly basis, trucking companies will pass invoices – each with a unique job number – to the accounts department. Such process will greatly reduce the number of invoices to be passed to accounts department.
Figure 1.3 – After implementation – number of invoice handled reduced as it is handled week by week
Results and Discussion
Several recommendations are to be discussed in the below paragraphs:
Recommendation 1 – Efficiency Improvements
To minimise the accounts department’s handling time of the huge amount of invoices from trucking companies, it is recommended that trucking companies should issue the invoices, which will cover all the delivery order transactions within a pre-defined period, on a weekly basis. Besides, the invoice should be separated into different account such as Intel, Cisco, etc. for easy tracing. Also, each invoice should cover the weekly transactions of a particular account. It is expecting that the handling time will be decreased by half of the existing handling time in this area.
By the way, it is to request operations also assign the job no. for each client at the beginning of each month , and mark on the delivery order once issued to trucking company. By then, also request trucking company to type the job no. and client name on their invoices to us, that, accounts department will not spend the time to pass back operation and wait them to provide more details.
Recommendation 2 – Reporting accuracy
To improve the cost accuracy shown in profit and loss account, it is suggested that trucking companies to hand over the invoices to accounts department for each account on a weekly basis for the first three weeks of each month. For the last week of each month, it is recommended to request trucking companies to pass the invoices for each delivery order to the accounts department as soon as it occurs. Due to this change, it is expected that the problem of cost variation that affect the cost accuracy presented in the profit and loss account will be solved and fixed.
By the way, it is also request operation manager to monitor if the staff have pass back the done delivery note to trucking companies to avoid any missing cost.
Recommendation 3 – Process accuracy
To avoid the omission the vendor invoices, it is suggested that the trucking company to pass some delivery order in number and thus trucking companies can trace back how many order to be done within the month when trucking companies have the cross checking with our operations. By then, accounts department will not spend so much time to ask and chase operations and trucking companies if there are still the cost invoices which still not yet been passed to accounts department at the end of each month. It is also forecasted the problem of cost variation that affect the cost accuracy presented in the profit and loss account will be solved.
Conclusion Through extensive research of the said topic several issues and process gaps were identified that requires immediate attention to streamline existing accounting and reporting processes with the focus on reduced manual processing efforts and improved accuracy level. This exercise is also imperative in an internal control prospective in order to comply with existing internal mother company Brinks audit, external KPMG audit and Sarbanes Oxley act provisions. With the rapid growth of Logistics businesses within Hong Kong and Southern China and exponential growth in revenue dollar terms implies an increasing number of suppliers and clients demanding services from the Logistics accounting department, we have devised existing problem statements identifying less efficient suppliers. Existing supplier invoice processes is also depicted in a workflow diagram compared against a modified-improved work process flow. The impact of inefficiencies involves increased number of accounting jobs and inaccurate month end accruals and reporting of financial status for each account. The focus is to shift administrative workloads and responsibility from Bax internal accounting department towards the suppliers. This approach would become necessary where large amount of information is being processed and it would make much more sense if these information and consolidation work is provided from the source. The invoice interval is also reduced to weekly basis to promote efficiency and accuracy. In an implementation prospective staffs from different departments have had face to face meetings with suppliers and accounting department staffs rolling out the changes. Several recommendations where devised including three improvement areas. Efficiency improvements is required to translate efforts from posting invoices into verifying each line cost items, accuracy of said charges as per contracted rates and volume transactions as per services provided, in order to strengthen the last line of data verification and cost approval process. This is fundamentally imperative especially in such cases where total amounts are significantly material in total logistics department operations. The second recommendation suggests the need to promote reporting accuracy especially at busy periods during month end and year ends, supplier costs should be accurately received in such a way to reflect true picture of profit and loss of each accounts, the said recommendation promotes accuracy while avoiding the need of material cost accruals which requires significant justification to internal management and auditors and attention of reverse entries the following month. The last recommendation focuses on controlling the accuracy of data supplied from the source.
Today’s logistics industry, especially in the Hong Kong and Southern China region is experiencing intense competitions and competitors are willing to give away margin for market share. A lot of services and activities conducted for our clients are mostly pass thru costs with minimal margin and thus the proposed changes are absolutely essential to ensure costs are properly verified and reported to secure the contracted margin.
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