Question

Marilyn Edwards is the CEO of a mid-sized proprietary limited company. This company operates its business both online and at physical outlets. The business has been enjoying consecutive growth both in sales and profit for the last seven years. However, compared to the growth of sales net, operating profit growth seems lower. Marilyn appointed an analyst to explore the reasons for this inconsistency. The analyst came up with many interesting findings including:

• the business has been suffering from chronic physical inventory theft which has not been properly recorded and reported in a timely manner,
• preparation of management reports is taking a longer time,
• response time to customers’ queries is too high,
• information systems have been facing tremendous security threat, etc.

In addition, the present accounting systems are both inefficient and expensive. Due to these reasons, operating costs of the business are too high. This has contributed to making the difference between the growth of sales and net operating profit. The analyst has suggested redesigning the whole accounting process with a contemporary integrated accounting solution for the business.

Marilyn Edwards has taken the issue to the board and has decided to appoint you to implement an efficient automated accounting information systems. As you have technical knowledge, you need to give a detailed plan about the new efficient information system including its possible cost and benefits. In addition, if the project plan is approved you need to implement this information system as project in-charge for the business.

Assessment Tasks:

Answer all questions below:

1. Discuss the potential advantages, both tangible and intangible, the business can enjoy from implementing this system. Also give an analysis on the potential costs to implement the systems. How will you measure those relevant costs and benefits?

2. In doing a preliminary survey for the proposed automation of a new system you reached the tentative conclusion that some of the popular accounts and finance people with more than ten years of company service, will be displaced and perhaps asked to consider early retirement. Discuss how this scenario relates to the concept of “operational feasibility”. Discuss the potential impact on the success of the new system.                                                                                                                              

3. In implementing the automation systems, you are thinking to establish an in-house data centre. You need to submit a proposal comparing and contrasting the efficiency and effectiveness of an in-house data centre with an arrangement with an outsourcing vendor to own and operate a data centre for you, a service bureau, an applications service provider (ASP), Business Process Outsourcing (BPO), and software as a service (SaaS).                                                                                                                              

4. Upon completion of the system, how might you be involved in system testing? In answering this part, you assume that you are the manager of an accounts receivable department. Discuss in detail.
                                                                                                                                             

5. What mechanism do you want from the system developer so that efficient internal control is ensured? Also give your suggestions to ensure the cyber security of the business transaction.                                                                                                   

6. What implementation strategy should the company adopt to bring new information systems in practice? Explain with potential risk and benefits.                           

Answer 1

I.Computerized accounting software programs have made many advancements over the years. These programs tout making life easier for business owners when it comes to tracking expenses, preparing taxes and looking at revenue growth. Accounting software programs have become common, there are both advantages and disadvantages to relying on a computer for all accounting.

Advantage: Simplicity

Most business owners are not accountants or bookkeepers by trade and find it challenging to do most accounting tasks. This is where accounting software programs give a business owner advantages. A wide variety of accounting software programs are consumer friendly. Business owners can shop around to find a program that is easy to install, learn and use. Many programs provide prompts for the type of data that should be entered in each section. Once the system is established with bank accounts, debts and vendors, the business owner only needs to update information as it comes in.

Advantage: Reliability

Most of the major software programs make using the program simple. The math is accurate and reliable, so a business owner can accurately determine available funds at any time.

Advantage: Cost-Effectiveness

Hiring an in-house bookkeeper or outsourcing the work to a bookkeeper or accounting firm can be costly. The software program has an upfront cost and might require contracting a bookkeeper to set up the accounts and coach the business owner on using the program, but it quickly becomes cost-effective. The owner doesn't need to pay for anything beyond the software purchase and setup. Most programs work with operating systems for years and only occasionally require an inexpensive upgrade.

Advantage: Ability to Collaborate

Many software programs allow business owners to set permissions that give an outside bookkeeper or accountant access to the data. Business owners can sync information with bank and credit accounts and import data with a click of a mouse. This allows business owners to quickly reconcile accounts and import the correct information that needs to be reviewed by key advisors.

Business owners should review the best options for the business. Consider backups either on the cloud or on separate hard drives to maintain accurate records should problems arise.

Disadvantage: Potential Fraud

Dependence on computers sometimes leads to bigger problems. With more software data being housed in the cloud, there are more opportunities for hackers to get your business's financial data and use it. This puts assets at risk and creates potential liability if hackers use employer tax identification to open credit cards and business loans. There is also the risk of someone within the business accessing the information, perhaps pilfering money from daily deposits and altering the data in the program. Business owners must diligently protect financial information.

Disadvantage: Technical Issues

When dealing with computers, issues can arise. You may be completing year-end data for your accountant and experience a power outage. Computers might acquire a virus and fail. There is also the potential of users incorrectly performing software tasks that they are not familiar with. If a user tries to do one thing but inadvertently does something else, it might take some work to undo the error.

Disadvantage: Incorrect Information

Bookkeeping records are only as good as the data put into the system. Business owners that don't take the time to establish account categories properly may enter data and generate reports that are not accurate.

Business owners can do a lot to mitigate the disadvantages and potential problems associated with computerized accounting with proper planning and software integration. Taking the time to establish it correctly is easier and cheaper than trying to backtrack because when a problem occurs.

Among the reasons organizations decide whether or not to purchase and implement accounting software is whether or not the software can reduce costs.

Finance Team Salary

There are obviously a number of factors at play when it comes to evaluating a business’s accounting costs, but the largest and most obvious is salary. Expenses for accounting salary can add up quickly. Here’s a rundown of the average salary for accountants across a number of levels, according to Salary.com.

Of course, accounting software won’t remove the need for an accounting department entirely, but it has been proven to provide the following benefits: allow a company to avoid adding staff to the finance team despite double digit growth; switch one employee from finance into a revenue generating sales role; and cut close time from nine days down to two hours. Those are just a handful of examples, but given the salaries demanded today by top accounting professionals as listed above, the automation that accounting software provides starts to pay for itself pretty quickly either by eliminating the need for existing finance team positions or eliminating the need to add more as a company grows. For example, if accounting software eliminates the need for just one Tax Accountant II, in just three years a company will have saved on average $245,715. That in and of itself can go a long way towards paying for itself. However, while the elimination of salaried finance positions is the most obvious and one of the most effective ways of reducing costs for a business, it is by no means the only one.

Identifying Wasteful Spending

With automation freeing up time spent on manual data entry, reconciling different sets of numbers in multiple Excel spreadsheets and other tedious tasks, the finance department can spend more time on evaluating business performance. And because finance and the business side typically have more faith in the numbers once they’re entered into a central general ledger, they are more willing to make critical decisions on that data. For example, accounting software can help to identify which employees are producing the most value relative to their salary. Alternatively, accounting software can help to identify the most profitable customers and ensure that the business isn’t devoting the most time and resources to the customers that are the least profitable.

Better Invoicing

For many small and growing businesses, invoicing the customer can be an expensive proposition. Invoicing encompasses maintaining master customer and product files, generating customer billing data, transmitting billing data to customers, posting receivables entries and resolving billing inquiries. One survey of 896 organizations found that the worst performing organizations spend on average $9 to invoice a customer, the best performing spend $2 per invoice and the median is $3.94. Accounting software that is fully integrated with other departments can reduce this cost significantly as it can automatically generate and send invoices to customers and recognize payments. Business growth typically involves more invoicing, meaning greater costs for those still stuck with manual processes. Additionally, automated invoicing and billing with accounting software means fewer errors, which can improve relationships with valued customers.

Greater Business Visibility

With a centralized system of record that everyone in the organization can agree to, the business is better positioned to hit margin goals and improve the bottom line.

Less Reliance on Excel

Early stage businesses that do not have modern accounting software installed, typically rely on Microsoft Excel spreadsheets to manage finances. While a useful tool, Excel spreadsheets can create hidden costs that many organizations fail to take into account.

Data Entry Errors

The costs of incorrect data entry in an Excel spreadsheet can lead to millions of dollars in losses. In 2003, TransAlta cost the firm $24 million when the power generator purchased too much in transmission contracts. CEO Steve Snyder said in a conference call that the error was "literally a cut-and-paste error in an Excel spreadsheet that we did not detect when we did our final sorting and ranking bids prior to submission."

In other cases, Fanie Mae discovered a $1.1 billion error in shareholder equity due to a miscalculation and RedEnvelope lost a quarter of its value after it reported a fourth quarter loss because of overestimation of margins based on a spreadsheet error.

While data entry errors won’t reach into the millions for most businesses, the evidence is there that a reliance on spreadsheets can be costly.

A modern accounting software solution can quickly pay for itself in reducing costs as listed here, but it also can create the confidence in financials and impact the kind of decisions that drive business growth as well.

2. OPERATIONAL FEASIBILITY

Operational feasibility is dependent on human resources available for the project and involves projecting whether the system will be used if it is developed and implemented.

Operational feasibility is a measure of how well a proposed system solves the problems, and takes advantage of the opportunities identified during scope definition and how it satisfies the requirements identified in the requirements analysis phase of system development.

Operational feasibility reviews the willingness of the organization to support the proposed system. This is probably the most difficult of the feasibilities to gauge. In order to determine this feasibility, it is important to understand the management commitment to the proposed project. If the request was initiated by management, it is likely that there is management support and the system will be accepted and used. However, it is also important that the employee base will be accepting of the change.

The essential questions that help in testing the operational feasibility of a system include the following:

·        Does current mode of operation provide adequate throughput and response time?

·        Does current mode provide end users and managers with timely, pertinent, accurate and useful formatted information?

·        Does current mode of operation provide cost-effective information services to the business?

·        Could there be a reduction in cost and or an increase in benefits?

·        Does current mode of operation offer effective controls to protect against fraud and to guarantee accuracy and security of data and information?

·        Does current mode of operation make maximum use of available resources, including people, time, and flow of forms?

·        Does current mode of operation provide reliable services

·        Are the services flexible and expandable?

·        Are the current work practices and procedures adequate to support the new system?

·        If the system is developed, will it be used?

·        Manpower problems

·        Labour objections

·        Manager resistance

·        Organizational conflicts and policies

·        Social acceptability

·        Government regulations

3.The Benefits of an In-House Data Center

There are many reasons that companies maintain their servers within their own in-house data center. However, one of the main reasons is that it allows for complete control. Although renting or leasing a data center space offsite may be more economical, in the long run the benefits of an in-house data center may warrant the added expense. Controlling data is not only a matter of security, it can also factor into compliance issues depending on the nature of the business. If your company’s servers are currently far from home, then here is why you should consider bringing them in-house right now.

Total Control

The facilities you create to house your servers are now under your total control. You can modify your systems at your convenience without traveling to a remote location to perform hardware, software upgrades/repairs or without relying on third party services to perform those functions. The ability to be versatile allows for customization, which can be very useful if your systems are large, complicated, or if they run diverse or specialized applications. Versatility enables you to adapt to any shifting business or market demands

Added Security Equals Peace of Mind

In today’s business environment securing company and customer data is a high priority. Shifting the data storage to an internal server room ultimately shifts the control of any associated risk back to the company. This level of security is not only a risk management benefit for the company, but can also be used as a key selling feature. The added security benefit of an in-house data center may provide confidence to potential vendors and prospects when considering a business relationship with your company, in contrast to a competitor who outsources data storage.

Flexibility

Surprisingly many companies believe that they “just don’t have the room” for an onsite data center of any size. In actuality, the only space a company needs is an area that can accommodate the racks and allows for ease of access to these racks. Approximately 24″ between a wall and the back or front of the rack is the minimum amount of space needed.

Using upgraded equipment provides an added benefit to the overall layout. The newer the servers, the more clients you can handle, which streamlines your operation and enables you do more with your current rack space. In addition, the buildup of an onsite data center is typically vertical, which helps to consolidate space.

Cost Effective

Although the financial burden involved with infrastructure and maintenance for an onsite server is often thought to be significant, the “upfront” costs for moving to an offsite data center can be surprisingly high as well. Especially if you opt for collocation in a data center, where you provide the hardware and the software, as both of those components alone can result in major spending.

Bringing your data center in house may result in long term savings. When selecting either a soft wall enclosure that may contain any number of racks and allow for sound and temperature control in a small space or corner of your office, or a hard wall system with swing or sliding doors in a separate room, the cost is significantly less than the upfront offsite data center costs and often are a onetime purchase. The ability to resize and reconfigure as needed based on your growth, provides added flexibility and value with only minimal additional cost.

Pros and cons of an in-house data centre

Pros:

• Greatest control over the infrastructure. Data is most likely collected in the same premises as where the company is based. Naturally, this generates more trust in people who are used to having everything "in house". Many small businesses still perceive the distance from the physical data collection site as a risk. However, the risks related to the location of the infrastructure are more an illusion than a real problem.
• A company that has data as its core business, or need large volumes for storage, may find it more advantageous to build the infrastructure themselves, especially if they can exploit the economies of scale on their own, without needing third parties.

Cons:

• Building such an infrastructure from scratch means incurring a long-term investment, with significant impacts on capital expenditure, and will be paid over decades.
• Ensuring business continuity isn’t simple. There will be technological, personnel management and security matters that shouldn’t be managed solely, especially for smaller infrastructures and organisations.
• Extreme rigidity of the infrastructure; increasing storage space will require new costs that can be easily afforded by at least a medium-sized company.

Pros and cons of an outsourced data centre

Pros:

• Outsourcing your data centre means relying on qualified professionals, that offer the same services to many customers. As a result, all operating costs, from the technology required to the cost of energy, from human resource costs to video surveillance costs, will be shared among several companies and will be significantly reduced. This is the magic brought by economies of scale.
• Capital expenditures will be significantly smaller: it will no longer be a matter of planning an investment with a 20-25 year horizon but of renting a storage space.
• Qualified IT staff, often difficult to find especially in small and medium-sized companies, will be "freed" from the task of managing the infrastructure and will be able to further dedicate their time to daily support of the business.
• Though not mandatory, if we consider the best colocators on the market, they will certainly be certified in compliance with security regulations and standards (such as ISO 27001 Information Security Management) - a plus which ensures the security of your data and provides a better guarantee of reliability for customers.

Cons:

• Your choice of a supplier is obviously crucial. Relying on the wrong company can cause significant damages. What should you keep in mind then when going through the selection process? Certainly the credibility of the supplier as well as their technical capabilities and characteristics such as vendor neutrality and the ability to ensure business continuity. In this regard, there are four levels (Tiers) of infrastructures. Look out for at least Tier III which guarantees 99.98% continuity within a year.

Furthermore, in the case of multi-site solutions, data centre security can be further increased by making use of geographically-distanced, redundancy solutions. In this sector, redundancy means duplicate and distributed systems that will help you avoid the risk of data loss when they’re all located in one place.

4.What is System Testing?

SYSTEM TESTING is a level of testing that validates the complete and fully integrated software product. The purpose of a system test is to evaluate the end-to-end system specifications. Usually, the software is only one element of a larger computer-based system. Ultimately, the software is interfaced with other software/hardware systems. System Testing is actually a series of different tests whose sole purpose is to exercise the full computer-based system.

4.System Testing Process:
System Testing is performed in the following steps:

• Test Environment Setup:
  Create testing environment for the better quality testing.
• Create Test Case:
  Generate test case for the testing process.
• Create Test Data:
  Generate the data that is to be tested.
• Execute Test Case:
  After the generation of the test case and the test data, test cases are executed.
• Defect Reporting:
  Defects in the system are detected.
• Regression Testing:
  It is carried out to test the side effects of the testing process.
• Log Defects:
  Defects are fixed in this step.
• Retest:
  If the test is not successful then again test is performed.

Types of System Testing:

• Performance Testing:
  Performance Testing is a type of software testing that is carried out to test the speed, scalability, stability and reliability of the software product or application.
• Load Testing:
  Load Testing is a type of software Testing which is carried out to determine the behavior of a system or software product under extreme load.
• Stress Testing:
  Stress Testing is a type of software testing performed to check the robustness of the system under the varying loads.
• Scalability Testing:
  Scalability Testing is a type of software testing which is carried out to check the performance of a software application or system in terms of its capability to scale up or scale down the number of user request load.

5.What are internal controls for effecient system operation
Internal controls are policies and procedures a business follows in its operations to protect themselves. Administrative controls within your Accounting and ERP software include determining the segregation of duties among departments and employees, deciding which employees are authorized to conduct particular activities, and developing independent verification systems.

Internal Controls Checklist
When it comes to managing your internal controls, starting with a checklist is a great way to ensure there are no oversights. These checklists should be tailored to the needs of your business and the specific software you have in place. They could include:

• Sharing accounting duties and processes – requiring critical tasks to be reviewed by others
• Requiring specific people to take ownership of specific parts of transactions can add a layer of responsibility
• Limiting and controlling access to the accounting system
• Updating passwords and reviewing user access privileges regularly
• Utilizing standardized documents for all financial records to maintain consistency over time
• Calculating daily or weekly trial balances
• Investigating discrepancies as early as possible
• Tracking physical assets in the accounting system
• Consistent checks to ensure data entry is accurate
• Consistent reporting cycles and review
• Regular accounting reconciliations to ensure balances match where necessary
• Reviewing CPA requirements and matching them to current controls
• Regular training with your software provider
• Regular software updates

Cybersecurity tips

“The key thing about processes is making sure they’re effective,” said Peter, who went on to summarise his cybersecurity mitigation advice as follows:

• Patch systems in a timely fashion
• Restrict user access
• Change passwords regularly
• Segment networks
• Upgrade software to the current version – or at worst the last-but-one release
• Remove data you don’t need

6.How to implement information system

Choose your new accounting system carefully. You may choose to hire an outside accountant to review your financial procedures and suggest changes that could help the company. Review the advantages of each change with your accounting or bookkeeping department, since they will have to work with it on a day-to-day basis.

1.Ensure that you have the support of management and the accounting department before making the switch. It is difficult to make company-wide changes without endorsement of the people who will be training others.

2.Identify a project manager to head the implementation process. This person should have extensive experience in company-wide projects. Knowledge of the bookkeeping and accounting departments will allow them to understand the budget, resources and support that is needed.

3.Create a budget and timeline. Changing accounting systems requires you to invest in a manager, employee time, training materials and more. Set a realistic timeline with your project manager and accounting department.

4.Design the new accounting system.[4] Once you have chosen what accounting system you will use, you will need to take time to customize it to your needs. Consult with the designers at the company where you buy it to choose the features you need.

5.Build a training program. Examine your current infrastructure and create a different training plan for each department that works with the accounting software. If the accounting program does not provide you with a training manual, consult with a technical writing company to provide you with an accurate manual.

6.Build a pilot accounting system. Your staff will be able to test out this system, but you should still be able to suggest changes for more successful procedures. Some businesses set up small modules and employees send feedback early on in the process.

7. Train your employees on the use of the system. If many people need to be trained, you may want to do this in separate waves. Use the pilot system to train them.

8. Make changes and accept the accounting system. Once the system is set up by the software or financial company, you can begin on your final timeline for implementation. Migrate the data from your old accounting system to the new system.

Set up procedures in case of problems with historical data migration. This is an extremely important part of your implementation, and the accounting system provider should be on hand to ensure that the system is fully operational.

9. Begin the transition. Start with the financial departments and go live for the entire company. Build in some extra time for learning the new system during your employees' work day.

10.Set up support procedures - Have a company contact where you purchased the accounting software and create refresher training courses for anyone who needs more help.

Many companies provide webinars or group sessions for ongoing support. Consider this valuable feature when you choose your new accounting system.

Hope the information helped. Expecting a postive reply from you.