PROCURE TO PAY PROCESS REVIEW
December 20th, 2019
ABC Inc.
ABC Inc.
TABLE OF CONTENTS
Executive Summary
3
Key Take-aways
4-5
Masters Updating Process
6-10
As-Is & To-Be Process Maps
7,8
Gaps & Suggestions
9
Gap Analysis
10
Generic Process Gaps
11-15
Gaps & Suggestions
12 -14
Gap Analysis
15
Direct & 3P Purchases
16-20
As-Is & To-Be Process Maps
17-18
Gaps & Suggestions
19
Gap Analysis
20
Indirect Purchases
21-24
As-Is & To-Be Process Maps
22
Gaps & Suggestions
23
Gap Analysis
24
Credit Card Purchases
25-27
As-Is & To-Be Process Maps
26
Gaps & Suggestions
27
Non-PO Based Purchases
28-30
As-Is & To-Be Process Maps
29
Gaps & Suggestions
30
Capital Asset Purchase
31-34
As-Is & To-Be Process Maps
32
Gaps & Suggestions
33
Gap Analysis : Capex, Non-PO and Credit Card
34
Payments
35-38
As-Is & To-Be Process Maps
36
Gaps & Suggestions
37
Gap Analysis
38
Next Steps
39
2
ABC Inc.
EXECUTIVE SUMMARY
SCOPE
OUR APPROACH
DESIRED OUTPUT
Review of P2P process was conducted with
1.
Workshops were conducted across various
Practus was engaged to review the As-Is
specific purpose of Identifying the control
divisions to get an insight on the ‘As-Is’
process of Procure to Pay (P2P) for ABC’s
gaps in sub-processes of Direct, Indirect,
processes. Interviews were conducted with
Contract Mfg. & Capex Procurement.
South Plainfield (CSP) Site. Existing SOP’s ,
member from :
Policies pertaining to the P2P Process were
Production & MRP Planning
These gaps were be reviewed with a lens of
examined with reference to involvement of
Sourcing
financial ramifications to ABC and
cross functional teams and their respective
Warehousing (Receiving)
streamlining the process for better checks
Accounts Payable
roles and responsibilities in execution of P2P
and balances.
MDM Team
Process to yield the below :
Requisitioners from R&D, QA.
The recommendations are made with key
Identify gaps and opportunities for
objective of mitigating risks and increasing
2.
Designing the ‘As-Is’ process flows and
streamlining with purpose of aiding in
process controls through automation
getting validation from the respective
Internal Audit being conducted.
(system-driven or external) actions.
divisions.
3.
Preparation of the preliminary gaps and
Deliver appropriate recommendations
Recommendation are provided for an ideal
high level suggested actions based on the
‘To-be’
state,
however
keeping
to bridge the gaps identified.
analysis of the current processes.
implementation
timelines
under
4.
Submission of the final report - ‘As-Is’
consideration
interim
stop
gap
process flows, gap analysis, ‘To-Be’ process
recommendations have also been made.
flows & recommendations.
3
ABC Inc.
KEY TAKEAWAYS
#
Gap
Type
Validation
Suggested Actions
$675K have been booked under
KPI's are not being measured for any of the Key suppliers
a. Creation of supplier score card to measure KPIs like OTIF .
GL 'Failure to Supply in' YTD Nov
for both direct and Indirect Material. In absence of such
b. Review existing agreement if any with key supplier to check the
1
Strategic
19. These shall be investigated to
tracking, costs are not being recovered from supplier where
recourse in case of delays resulting in financial / reputational
ascertain if they were due to
penalties are levied on ABC due to any failure by supplier.
damage to ABC.
failure on part of supplier.
Supplier and Material Master record can be updated,
Any change in masters must go through process of secondary approval
2
changed or deactivated in Oracle without any secondary
Strategic
in Oracle.
approval in system
46 users have super buyer rights
Review of rights given to different users in Oracle must be conducted
Conflicting roles creating control issues are assigned in
3
Operational
in Oracle system.
on periodic basis to revoke such incompatible access.
Oracle to multiple users.
User with Super Buyer rights oracle can make following
changes without any secondary approval in Oracle if existing
a. Any change to requisition/PO or tolerance of 10% if results in value
range of approval value is not exceeded:
exceeding 20% of original PO value such requisition / PO to go for
a. Change fully approved requisition for Indirect Purchases
re-approval in Oracle.
at time of converting it to PO.
4
Operational
b. Such changes shall be tracked and presented on a monthly basis to
b. Change an approved PO post it has been issued to
all relevant stakeholders
supplier.
c. Change threshold of 10% excess Qty over and above PO
Qty at the time of receiving material.
DMS - On Time In Full
4
ABC Inc.
KEY TAKEAWAYS
#
Gap
Type
Validation
Suggested Actions
System based Automated Process : Budgets should be built in the
Oracle at Cost Center and Line Item ( GL ) level. Any budget over-run at
time of raising requisition needs to have separate approval process flow
to be incorporated in Oracle.
Budget at line item (GL) and Department (Cost Center) level
5
Operational
does not exist in Oracle.
Stop-Gap Process:
Monthly report showing Budget vs Actual and year to go balance be
circulated with each CC owner and clarification be asked for in cased on
over-runs and action for course correction be taken accordingly.
a. P Cards be issued for Indirect Purchases purpose to specified users.
From Jan 19 to Nov 19
$~500K
Formal policy to be formed use of such P Cards.
have been spent on credit cards,
b. Each transaction to be pre-approved by department head by way of
of which spends other than T&E
Credit Cards issued for T&E being used for Indirect
6
Operational
for which PO should have been
an email.
Purchases.
raised is $~200K including
c. Transaction value threshold of each transaction be specified.
Subscriptions, Software License,
d. Monthly report of all transactions on P Cards be circulated to all
Permits, Consultant Costs etc.
stake holders
5
ABC Inc.
Supplier &
Material
Master
6
ABC Inc.
SUPPLIER MASTER - TEAM INTERVIEWS & PROCESS MAPS
As-Is Process
To-be Process
People
Jessica Puia
MDM Team
Frances Churik
Accounts Payable
Daniel Basaly
Sourcing Team
(enclosed separately as annexure)
(enclosed separately as annexure)
7
ABC Inc.
MATERIAL MASTER - TEAM INTERVIEWS & PROCESS MAPS
As-Is Process
To-be Process
People
Jessica Puia
MDM Team
(enclosed separately as annexure)
(enclosed separately as annexure)
8
ABC Inc.
MASTERS - GAPS & SUGGESTED ACTIONS
#
Gap
Type
Suggested Actions
Supplier can be created / Edited by
a. Procurement team (Super Buyer)
Supplier Master creation and change should be a centralized process.
b. Accounts Payable ( Non-PO based Purchases)
1
Operational
(Preferably in hands of a single team like MDM) to ensure DOA and
c. MDM team ( Direct Purchases)
Creation control.
i.e. there are multiple users with primary roles that can create control issue if
combined with ability to create new Suppliers
a. System based Automated Process: A process similar to CCR as used in
case of Direct Purchases supplier be instituted for other suppliers as
No systemic approval process for creation new supplier or to change existing
2
Operational
well.
Suppliers for Indirect Purchases.
b. Stop-Gap Process: Copy of Email Approval from Sourcing /
Procurement team must be attached to the Supplier Questionnaire.
Supplier& Material master can be created or changed without requiring any
Oracle based secondary check be instituted to update or add new supplier
3
Strategic
approval within Oracle.
in the master.
No standard process for periodic deactivation of old, unused , obsolete
Process for Quarterly review of masters should be instituted to de-
4
Operational
material / supplier codes
activate the obsolete codes.
Oracle has the facility of specifying the rates of material / services being
a. Contract based rate to be updated in Oracle via DMS and OCR.
5
procured to auto populate such rates on selection of particular material code
Operational
b. This would greatly reduce effort in terms of buyer dealing with supplier
& supplier which is not being used except in case of 3P Purchases.
for every single order individually.
Process of CCR followed in Trackwise for creating new master codes has no
Direct API interface between Oracle and Trackwise could serve as a
6
Operational
direct link to Oracles process.
necessary secondary check.
DMS - Document Management System | CCR - Change Control Request | OCR - Optical Character Recognition | API - Application Programming Interface
9
ABC Inc.
MASTERS - GAP ANALYSIS
Effort to
#
Gap
Impact
Risk
Remediate
There are multiple users in Oracle with ability to create
1
High
High
Low
1
3
new Suppliers
No systemic approval process for creation new supplier
2
Medium
Medium
High
or change existing Suppliers for Indirect Purchases.
5
Master can be created or changed without requiring any
3
High
High
Low
2
approval within Oracle.
6
Process of CCR followed in Trackwise for creating new
4
Low
Low
High
master codes has no direct link to Oracles process.
4
5
Contracted rates of material not updated in masters.
Medium
Low
Medium
No standard process for periodic deactivation of old,
Low
Medium
High
6
Medium
Low
Medium
unused , obsolete material codes.
Risk
*Size of the bubble represents the
< Keys >
Impact level of gap
Risk due to gap
Effort to Remediate
High
Impact on IC#
Financial risk
#IC - Internal Controls
Medium
Financial Impact
Reputational Risk
CCR - Change Control Request
Low
Operational Impact
Operational risk
10
ABC Inc.
P2P Generic
Gaps
11
ABC Inc.
P2P PROCESS - GENERIC GAPS & SUGGESTED ACTIONS
#
Gap
Type
Validation
Suggested Actions
There is no consistency in Process of PO creation in Oracle
e.g.
7
Operational
For Direct Purchases Flow is : PR
PO
Approval
Standard process of PR creation and approval In Oracle followed by auto
For Indirect Purchases : : PR
Approval
PO
PO generation.
Buyer (for Direct) / Super Buyer (for Indirect) is required to
8
create the PO manually post requisition creation / Approval.
Operational
Current Schedule of PR & PO Approval Authority set up in
Oracle is only value based and does not specify checks to be
A checklist giving responsibility of each approver in Oracle be prepared
9
Strategic
performed by each approver.
and those check be performed at such approval level.
Rejection by any level of approver requires the requisition /
Rejection at any level shall send back requisition / PO to previous level of
PO process to re-start from first level approval extending the
10
Operational
approval for making necessary changes instead of fully starting the whole
time taken in PO approval.
process over.
a. Transport Cost shall be included as a separate line item in PO
especially in cases where supplier is arranging for the transport.
11
Transport & Tax Cost not included in PO value.
Operational
b. This can help track the cost charged by supplier separately vs cost of
self arranged transport and informed decision can be taken policy
formation on the same.
a. No Standard process for confirmation on transport cost
a. Estimate for the transport cost must be confirmed by buyer
that will be charged by supplier.
Transport Cost for Direct Material
from supplier.
12
b. Buyer does not have access to agreement with
Operational
processed directly (without PO) is
b. No PO should be issued without transport cost so confirmed added in
transporter and confirm rate basis cost charged in the
$159K on YTD Nov 19 basis.
separate line item.
past.
PR - Purchase Requisition | PO - Purchase Order
12
ABC Inc.
P2P PROCESS - GENERIC GAPS & SUGGESTED ACTIONS
#
Gap
Type
Validation
Suggested Actions
a. A threshold should be set up for materiality purpose to avoid
For any reason if the PO is required to be changed (e.g. change
excessive approval requirements post such changes.
in Qty or rate post PO approval) post issue to supplier, Super
b. Any change in approved PO must be re-approved beyond such
13
Buyer has right to make such change without approval as
Operational
threshold (e.g. beyond 20%)
long as the PO value stays in same approval range.
c. Monthly report of number of instances of such changes be
circulated.
As per PO report YTD Jun 19 , there are 2
Lack of standard review process to evaluate number of cases
suppliers consistently delivering excess
Periodic review of the PO vs Actual Qty received and Supplier with
14
and suppliers where 10% tolerance policy on Qty has been
Operational
Qty to the extent of precisely 10% for
consistent excess delivered be identified and sensitized.
applied.
Direct Purchases (total PO's 50).
Buyer (for Direct) / Super Buyer (for Indirect) can change the
a. Any change of threshold for qty to be received must be
tolerance of 10% at the time of receiving of goods to any level
approved in Oracle.
15
Operational
without approval as long as the PO value stays in same
b. Instances of such changes shall be tracked and reported on a
approval range.
monthly basis.
System based Automated Process : Budgets should be built in the
Oracle at Cost Center and Line Item ( GL ) level. Any budget over-run
at time of raising requisition needs to have separate approval process
No Budgetary Control at the time of approval of PO in Oracle
flow to be incorporated in Oracle.
16
resulting in spends in excess of budget to be found out only
Strategic
Stop-Gap Process:
post facto at the time of periodic analysis.
Monthly report showing Budget vs Actual and year to go balance be
circulated with each CC owner and clarification be asked for in cased
on over-runs and action for course correction be taken accordingly.
13
PO - Purchase Order | GL - General Ledger | CC - Cost Center
ABC Inc.
P2P PROCESS - GENERIC GAPS & SUGGESTED ACTIONS
#
Gap
Type
Validation
Suggested Actions
a. System based Automated Process: Explore the option of
creating DMS within Oracle or a separate tool, which would
feed valid information into the masters via OCR mechanism
b. Stop-Gap Process:
Lack of centralized contract master for agreements with
Until implementation of such tool central repository of all the
17
Supplier for ready access to rates and other terms to all
Operational
contracts be created on Share Point.
stakeholders.
Separate Folders e.g. Supplier Contracts, Contract Mfg. etc. be
created.
Clear roles and responsibilities should be defined for Adding,
updating or deleting any contract along with read only access to
relevant users
A single user from procurement team is
has rights for
a. Review of rights given to different users in Oracle must be
Super User roles giving conflicting rights to a single user are
a. Creation of supplier
conducted to revoke such incompatible access.
18
observed in Oracle.
Operational
b. Creation of Requisition
b. Such review must be conducted on period basis.
c. Creation / Approval of PO
c. Standard policy / process be formed to change user rights as and
d. Change to existing PO
when role of the user changes.
e. Receive material against PO
No standard process for closure of Open PO's on periodic
Quarterly process for review of Open PO's by Buyer be instituted for
19
Operational
basis.
closure of PO's not required anymore.
DMS - Document Management System | OCR - Optical Character Recognition |
14
ABC Inc.
P2P PROCESS - GENERAL GAP ANALYSIS
Effort to
#
Gap
Impact
Risk
Remediate
13
18
No consistent process of PR to PO in Oracle.
19
7
Low
Low
Low
15
PO manually created post approval of the PR in Oracle.
8
Low
Low
Low
No checks to be performed are specified in Schedule of
9
Authority
Medium
Medium
Low
9
Rejection of PR /PO at any level requires initiation of approval
16/
10
12
10
process from beginning in Oracle.
Medium
Low
Medium
17
11
Transport & Tax Cost not included in PO value.
Medium
Medium
Medium
11
14
a. Transport Cost not known at time of placing order.
19
b. No secondary check from accounts payable on validity
12
of transport cost quoted in Invoice.
Medium
Medium
Medium
c. Buyer do not have access to contracts with transporter
7
8
and assumes cost to be same as last shipment.
PO can be changed post issue to supplier by Super Buyer or
13
Buyer ( In case of direct purchases).
High
High
Low
No periodic review of cases where material is consistently
14
Medium
Medium
Low
received using 10% tolerance in system.
Tolerance of 10% can be changed by Super Buyer / Buyer (In
Low
Medium
High
15
High
High
Low
case of Direct Purchases)
16
No Budgetary Controls in PR / PO approvals
Medium
Medium
High
Risk
17
No Centralized Contract Master with access control
Medium
Medium
High
*Size of the bubble represents the
< Keys >
Impact level of gap
Risk due to gap
Super User roles giving multiple non compatible rights to a
Effort to Remediate
18
single user are observed in Oracle.
High
High
Medium
High
Impact on IC
Financial risk
IC - Internal Control
No standard process for review and closure of open PO's in
Medium
Financial Impact
Reputational Risk
19
Medium
Medium
Low
Oracle
Low
Operational Impact
Operational risk
PR - Purchase Requisition | PO - Purchase Order
15
ABC Inc.
Direct & 3P
Purchases
16
ABC Inc.
DIRECT PURCHASES - TEAM INTERVIEWS & PROCESS MAPS
As-Is Process
To-be Process
People
Sarah Grabowski
Supply Chain
Michelle Mercado & Louis Rebeco
MRP Planner
Finbarr Kirby
Production Planning
Raj Joshi
Sourcing
Govind Pandey
(enclosed separately as annexure)
(enclosed separately as annexure)
Warehousing
17
ABC Inc.
3P PURCHASES - TEAM INTERVIEWS & PROCESS MAPS
As-Is Process
To-be Process
People
Sarah Grabowski
Supply Chain
Michelle Mercado & Louis Rebeco
MRP Planner
Finbarr Kirby
Production Planning
Raj Joshi
Sourcing
Govind Pandey
(enclosed separately as annexure)
(enclosed separately as annexure)
Warehousing
18
ABC Inc.
DIRECT & 3P PURCHASES - GAPS & SUGGESTED ACTIONS
#
Gap
Type
Validation
Suggested Actions
a. Explore the capabilities of Oracle ERP to get the production
Capacity Constraint (MPS) and No of
Production & Buying planning process is mostly manual
planning in System.
days of supply (Product specific) not
20
and done basis excel files (Product Specific, MPS files)
Operational
b. External tools for the same can be evaluated.
being available in Oracle is the
hence time consuming and risk of manual error is high.
c. This process will need further evaluation once majority of
reason for manual excels.
production activity moves to Lincolnton site.
a. Production planner to get inputs from buyer before creating
Production plan is required to be revised on account of
work order in Oracle in terms of material availability ,
21
issues or changes identified at the time of purchase
Operational
revisions etc.
planning by the buyer .
b. Buyer to be informed of any change in BOM validity by
Production planning team along with MDM.
No standard process for validation of rates / Quotes from
All contracts to be saved in Oracle or external DMS and Contract
22
supplier at the time of ordering goods.
Operational
master to be updated via OCR technology.
A. While substantial costs, time and efforts are involved in
developing an alternate supplier / manufacturer At least 2
suppliers shall be available for any material used in production
as a back up.
B. Meanwhile following measure should be taken w.r.t. existing
Low negotiating power with suppliers since Most of
key suppliers
material are sourced from single supplier / manufacturer
23
Strategic
a. Creation of supplier score card to measure KPIs like OTIF .
also resulting in limited recourse in case of supplier caused
b. Review existing agreement if any with key suppliers to check
delays or losses.
the recourse in case of delays resulting in financial / reputational
damage to ABC.
c. Buyer to be sensitized to the key terms of the agreement to
negotiate with supplier keeping cognizance of consequences if
terms so agreed are not met.
MPS - Master Production Schedule | MDM - Master Data Management | BOM - Bill of Material | OCR - Optical Character Recognition | DMS - Data Management System |
OTIF - On Time In Full | w.r.t. - With Respect To |
19
ABC Inc.
DIRECT & 3P PURCHASES - GAP ANALYSIS
Effort to
#
Gap
Impact
Risk
Remediate
23
20
Manual process for production and Buying Planning
Medium
Medium
High
21
20
22
Revisions to Production Plan as a result of buying
21
Medium
Medium
Medium
planning process.
No central contract master for agreements with
22
suppliers
Medium
Medium
Low
23
Most critical components / APIs are single sourced.
High
High
High
Low
Medium
High
Risk
*Size of the bubble represents the
< Keys >
Impact level of gap
Risk due to gap
Effort to Remediate
High
Impact on IC
Financial risk
IC - Internal Controls
Medium
Financial Impact
Reputational Risk
Low
Operational Impact
Operational risk
API - Active Pharmaceutical Ingredient |
20
ABC Inc.
Indirect
Purchases
21
INDIRECT PURCHASES - TEAM INTERVIEWS & PROCESS MABC Inc.
As-Is Process
To-be Process
People
Mina Hanna
QA Requisitioner
Daniel Basaly
Sourcing
Raj Joshi
Sourcing
Fran Churik
Accounts Payable
(enclosed separately as annexure)
(enclosed separately as annexure)
22
ABC Inc.
INDIRECT PURCHASES - GAPS & SUGGESTED ACTIONS
#
Gap
Type
Validation
Suggested Actions
24
There is no standard procedure to Initiate requisition
Operational
Following are the payment made from Jan to Nov 19 under heads
Standard form capturing all essential (Qty, Rate,
in Oracle.
"SG&A Non-HC" and" R&D and regulatory Non-HC":
Budgeted or not, Supplier, Delivery date etc.) to
1.SG&A Non-HC: ~$ 7.9 Mn of which Non-PO based is ~ 7.4 Mn
be made mandatory for any request by the buyer
under Cost Ctr.
for raising PRs in Oracle by requisitioner.
25
No rate contracts with any suppliers except for few.
Strategic
a. Accounting : Total Spends ~$2.84 Mn of which Non-PO based
Majority of suppliers should be brought under
~2.82 Mn under GL:
long-term contract with back-up suppliers for
i. Professional Fees ~$2.4 Mn
critical requirements.
26
Manual Update of details in Oracle requisition while
Transactional
ii. Consultant Fees ~$ 0.26 Mn
At least for suppliers with long term contracts
creating PO.
b. IT : Total Spends : ~$1.3 Mn of which Non-PO based ~$1.2 Mn
details such as GL, Cost Center etc. to auto
under GL:
populated in Oracle requisition.
27
Services in many instances are received against PO in
Operational
i. Service Contracts : $~1.2 Mn
Training to be given to all teams responsible for
oracle by buyer even before actually receiving them
c. CC HR: Total Spends : ~$ 900K of which Non-PO based ~$ 900K
raising requisitions in Oracle.
in full from supplier.
under GL:
28
No standard process to Identify and follow-up with
Operational
i. Recruitment : ~$ 585K
a.Standard Process for tracking the delay in
the supplier in case of late deliveries beyond date
ii. Consultants : ~ 185 K
delivery and follow up with the supplier be
committed in sales order confirmation from supplier.
must be formalized.
2. R&D and Regulatory Non-HC grouping : ~$2.9 Mn of which Non-
b. Any losses or costs incurred by ABC on
PO based is around ~$ 1.5 Mn. under Cost Ctr
account of such delays should recovered from
a. Clinical Mgt : ~$ 1.03 Mn of which Non-PO based is ~$ 0.55 Mn
Supplier.
under GL:
29
Super Buyer has the right to change requisition post
Operational
a.PO shall get generated automatically once
i. New Product Dvpt : ~$0.5 Mn.
all approvals at the time of conversion to PO without
requisition is approved by all concerned.
any additional approval unless value range of
b. Regulatory: ~$ 930 K of which Non-PO based is ~ 930 K under GL:
b.In case of exception secondary approval for
approval as per Oracle is not exceeded.
i. Consultants : ~$350K
such change must be incorporated in Oracle.
ii. Outside Temps : ~$ 300K.
MPS - Master Production Schedule | MDM - Master Data Management | BOM - Bill of Material | OCR - Optical Character Recognition | DMS - Data Management System |
OTIF - On Time In Full | w.r.t. - With Respect To |
23
ABC Inc.
INDIRECT PURCHASES - GAP ANALYSIS
Effort to
#
Gap
Impact
Risk
Remediate
25
24
There is no standard procedure to Initiate requisition in
29
Oracle.
Low
Low
Medium
25
No rate contracts with any suppliers except for few.
High
High
High
27
28
26
Manual Update of details in Oracle fields while creating
Low
Low
Medium
requisition.
27
Services in many instances are received in oracle by
buyer even before actually receiving them in full, from
High
High
Medium
24
26
supplier.
28
No standard process to Identify and follow-up with the
supplier in case of late deliveries beyond date committed
Medium
Medium
Medium
in sales order confirmation from supplier.
Low
Medium
High
29
Super Buyer has the right to change requisition post all
approvals at the time of conversion to PO without any
Risk
High
High
Medium
additional approval unless value range of approval as per
Oracle is not exceeded.
*Size of the bubble represents the
< Keys >
Impact level of gap
Risk due to gap
Effort to Remediate
High
Impact on IC
Financial risk
IC - Internal Controls
Medium
Financial Impact
Reputational Risk
Low
Operational Impact
Operational risk
API - Active Pharmaceutical Ingredient |
24
ABC Inc.
Credit Card
Purchases
25
ABC Inc.
CREDIT CARD PURCHASES - TEAM INTERVIEWS & PROCESS MAPS
As-Is Process
To-be Process
People
Mina Hanna
QA Requisitioner
Daniel Basaly
Sourcing
Raj Joshi
Sourcing
Fran Churik
Accounts Payable
(enclosed separately as annexure)
(enclosed separately as annexure)
26
ABC Inc.
CREDIT CARD PURCHASES - GAPS & SUGGESTED ACTIONS
#
Gap
Type
Validation
Suggested Actions
a. Credit Cards are currently issued are for specific
purpose of T&E but are being used for Indirect
purchases .
b. There is no standard process for procurement of
Indirect procurements using CC. Request for
purchase can be via email or even an informal call.
a.
P cards be issued to specified user to cover the
emergency purchase requirement for which
c. It circumvents all the controls and approvals
currently AMEX CC have been used.
otherwise required for procurement as set up in
From Jan 19 to Nov 19
$~500K have been
b.
Standard process of getting the approval for
Oracle for Indirect Procurement.
spent on credit cards, of which spends
purchases using P Cards shall be formalized.
other than T&E for which PO should have
d. All CC purchase amounts to advance payment to
30
Operational
c.
There shall be limit on value per transaction to
been raised is $~200K including
supplier even before material or service
avoid excessive use since same is for exceptional
is received.
Subscriptions, Software License, Permits,
cases rather than regular use.
Consultant Costs etc. .
e. Only check / approval for CC purchases happens
d.
Report shall be generated and circulated to all
through "I expense" in Oracle which is not
stakeholders giving details of Purchases made
adequate since such approval is taken post expense
using P cards every month.
has already been incurred.
f. CC holder is required to put details of purchases in
"I expense" in Oracle. However in absence of
proper training the cost can get booked in wrong
GL and Cost Center.
CC - Credit Card |
27
ABC Inc.
Non-PO
Purchases
28
ABC Inc.
NON-PO PURCHASES - TEAM INTERVIEWS & PROCESS MAPS
As-Is Process
To-be Process
People
Daniel Basaly
Sourcing
Raj Joshi
Sourcing
Fran Churik
Accounts Payable
(enclosed separately as annexure)
(enclosed separately as annexure)
29
ABC Inc.
NON-PO PURCHASES - GAPS & SUGGESTED ACTIONS
#
Gap
Type
Validation
Suggested Actions
a. Clear policy be framed on expense items for
From Jan 19 to Nov 19 , Non-PO based standard
which PO is mandatory irrespective of the
Invoices Paid includes
a. Service / Material is ordered without raising PO in Oracle hence
amount.
Operational
a. Professional fees under "SG&A non
all checks and control built into the system are circumvented.
HC costs " $3.3 Mn
b. Exception to the policy shall also be specific
b. Validation of spend is done via email to accounts payable which
b. Outside Temps $1.3 Mn
31
e.g. Utility , telephone bills and cases where
is offline and relatively easy to manipulate.
c. Consultants :
MSA /SoW is defined.
Under SG&A Non-HC : $ 851 K
c. There is larger issue since due lack of systemic controls process
Under Regulatory & R&D: $ 379K
may become vulnerable in terms of unauthorized payments.
c. Any exception beyond 'b' above shall be
d. Recruitment / Hiring : $583 K
required to go through offline approval
e. New Product Dvpt : $509 K
process (via email) similar to the one required
f. Freight In on Direct Mat : 159K
in Oracle.
Theses big ticket spends totaling to
d. Even in cases like 'd' , post facto PO be
$ ~7.0 Mn indicates high control risk
created in system for the same.
30
ABC Inc.
Capital Asset
Purchases
ABC Inc.
CAPITAL ASSET PURCHASES - TEAM INTERVIEWS & PROCESS MAP
As-Is Process
To-be Process
People
Daniel Basaly
Sourcing
Raj Joshi
Sourcing
(enclosed separately as annexure)
(enclosed separately as annexure)
32
ABC Inc.
CAPITAL ASSET PURCHASES - GAPS & SUGGESTED ACTIONS
#
Gap
Type
Validation
Suggested Actions
32
Duplication of approvals first on Physical copy of CAR
Operational
Physical copy of CAR is being approved by a set of
and then in Oracle.
approver via signature. Hence replicating same approver
flow in Oracle seems redundant and can be restricted up
to Function Head.
33
Capex is being incurred without generating Oracle PO for
Strategic
There are capex spends worth $~700K
PO for capex shall be generated irrespective of nature of
the same.
till Nov 2019 for which there no Oracle
asset and amount involved or the amount being
PO generated.
incurred for the same.
34
Physical copies are CAR's once approved are not
Strategic
DMS / OCR shall be used for keeping scanned copies of
mainintained on an organized manner
CAR at a centralized Location
35
Process of getting 3 Quotes for any purchase is not being
Strategic
Process shall be made mandatory for Capex Purchases.
followed in all cases
33
ABC Inc.
CAPEX, CREDIT CARD& NON-PO PURCHASES - GAP ANALYSIS
Effort to
Remediate
33
#
Gap
Impact
Risk
30
Indirect Purchases via credit card is exception to
Low
Low
Medium
standard process.
31
Non - PO based Purchases circumvent the controlls set in
Low
Low
Medium
system for Indirect Purchases
32
Duplication of approvals first on Physical copy of CAR and
35
Low
Low
Medium
then in Oracle.
33
Capex is being incurred without generating Oracle PO for
High
High
Low
the same.
34
No organized system for mainintaing record of physical
Low
Low
Low
34
copies of CAR once approved
30/
35
Process of getting 3 Quotes for any purchase is not being
31/
Medium
Medium
Low
followed in all cases
32
Low
Medium
High
Risk
*Size of the bubble represents the
< Keys >
Impact level of gap
Risk due to gap
Effort to Remediate
High
Impact on IC
Financial risk
IC - Internal Controls
Medium
Financial Impact
Reputational Risk
Low
Operational Impact
Operational risk
34
ABC Inc.
Payment
Process
35
ABC Inc.
PAYMENT PROCESS - TEAM INTERVIEWS & PROCESS MAPS
As-Is Process
To-be Process
People
Fran Churik
Accounts Payable
Rick Antoniewicz
Plant Finance Controller
(enclosed separately as annexure)
(enclosed separately as annexure)
36
ABC Inc.
PAYMENT PROCESS - GAPS & SUGGESTED ACTIONS
#
Gap
Type
Validation
Suggested Actions
As per accounts
As a standard Process PO is not amended in case
payable team 5-6 cases
Any significant difference between PO and Invoice even though
35
it has any difference compared to Invoice, but
Operational
of such instance occur
approved off-line shall be tracible in system via amendment to
difference is directly booked in appropriate GL.
in a year.
PO with appropriate approvals.
Physical copy of receiving report asked for Direct
36
Purchases at time of Invoice booking is
Operational
Invoice to be booked basis receiving done in Oracle against PO.
redundant.
37
ABC Inc.
PAYMENT PROCESS - GAP ANALYSIS
Effort to
#
Gap
Impact
Risk
Remediate
As a standard Process PO is not amended in case
36
it has any difference compared to Invoice, but
Medium
Low
Medium
36
difference is directly booked in appropriate GL.
Physical copy of receiving report asked for Direct
37
Purchases at time of Invoice booking in
Low
Low
Low
redundant.
37
Low
Medium
High
Risk
*Size of the bubble represents the
< Keys >
Impact level of gap
Risk due to gap
Effort to Remediate
High
Impact on IC
Financial risk
IC - Internal Controls
Medium
Financial Impact
Reputational Risk
Low
Operational Impact
Operational risk
38
ABC Inc.
NEXT STEPS
Thoughts on Future Engagement with ABC:
1.
As mentioned in the executive summary , Scope of this project was restricted to South Plainfield Site. In order for this exercise to be more effective, similar exercise
should be conducted keeping in mind the planned changes to business operations in near future e.g. Migration of production facility to Lincolnton and planned
acquisitions.
2.
Given the combinations of new P2P scenarios possible (Centralized, Decentralised or a combination thereof w.r.t. Sourcing, Procurement, and Payment) that will be
caused with ‘1’ above, a wholistic P2P process shall be drafted which is capable of handling multi-unit operation and is scalable as per requirements post new
acquisitions.
3.
Focus of current engagement was to analyse the P2P process from Internal Audit requirement point of view rather than business operations and efficiency. If a similar
approach was to be taken following points may be considered for process reorganisation :
Process of P2P is cross functional in nature and has specific challenges / requirements from business stand point for each individual function e.g.
R&D Costs though very critical for the organization are currently getting clubbed under Indirect Purchases sub-process of P2P
To recommend any changes specific to R&D a detailed review of its current processes not only for P2P but for the Function as a whole should be , e.g. Process
of New Product development can be looked at
a.
From Planning angle in terms of initial plan, feasibility study, actual product development
b.
From Procurement angle in terms of Supplier Identification, Terms negotiation, logistics arrangements.
c.
From Finance angel in terms of initial profitability vs final expected profitability of the Business Case and Post Launch Analysis.
Similar analysis specific to Quality (QA / QC / QO), Capex Spends can be done.
Hence streamlining these process is critical if P2P as an Individual process is to be effective.
Practus will be happy to assist you in implementation of the above suggestions. The understanding we were able to gain as a result of our involvement in the
current project will be instrumental for us in successful execution of these future engagements.
39
Thank You
CONTACT US
USA
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New York City,
NY 10001
UK
2, Wollaton Vale,
Nottingham,
NG8 2NR
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Dubai World Trade Centre District,
Sheikh Zayed Road,
Dubai
India
18th Floor, The Ruby,
Senapati Bapat Marg, Dadar (West),
Mumbai
Contact
Ateet Mathur
[email protected]