Auditing and Professional Practice Assignment: Binalong Club Report

This report provides an in-depth analysis of the invoicing and billing inefficiencies at the Binalong Community Club, identified during an internship. The report highlights key problems such as delayed receivables, invoicing errors, and manual accounting processes, which lead to increased costs and operational challenges. It proposes a series of recommendations, including the implementation of an automated billing system, segregation of duties, appointment of a CFO, and improved tracking and approval processes. A detailed cost-benefit analysis is presented, outlining the investment required for these improvements and the expected benefits in terms of standardized processes, improved cash flow, and better vendor relationships. The report emphasizes the importance of streamlining these processes to enhance the club's financial health and operational efficiency, offering a comprehensive approach to address the identified financial issues.

Auditing and
Professional Practice
Assignment

1
By student name
Professor
University
Date: 25 April 2018.
1 | P a g e

2
Executive Summary
A business plan report has been made on one of the clubs where I completed my internship
“Binalong community club”. There are a number of inefficiencies in the system, which were
highlighted in the previous task, and a number of measures and recommendations were
suggested to overcome the issues. However, each one of the issues which was pointed is
significant and critical and points to a different function altogether and therefore in the given
report, “invoicing and billing” has been chosen as one of the areas which needs a huge level of
improvement and a number of steps and the way forward has been suggested for the same. The
cost to the business because of the inefficiency and the cost benefit analysis in case the new
process is being implemented has all been captured in the report.
2 | P a g e

3
Contents
Introduction.................................................................................................................................................4
Problem Statement.....................................................................................................................................4
Cost to the company...................................................................................................................................5
Plans and recommendation.........................................................................................................................5
Cost benefit analysis....................................................................................................................................7
Other critical issues.....................................................................................................................................7
Conclusion...................................................................................................................................................8
References...................................................................................................................................................9
3 | P a g e

4
Introduction
Binalong Community Club is one of the clubs having an 18 holes sand green course for golf,
café and a licensed bar. It also has a clubhouse, which makes it even more attractive for an
outing with friends and family. It also has superior home style cooking to offer to the visitors but
off late, it has been facing a number of issues in the accounting and financial reporting due to
manual system and age-old processes and methods being used in the business (Arnott, et al.,
2017). Some of the major issues, which were being witnessed, includes positive and negative
cash flows in business, if the cash flows is equal to profits, the appropriate inventory that needs
to be held by the organization at a given point of time, the overdue invoices and the non-
utilization of the cash balance and therefore hurting the liquidity of the business. On close
examination, it was found that the major issues revolves round several things like that of delayed
recovery of receivables, delay in the payables, invoicing inefficiencies, manual system being
used for accounting and inadequate KPI’s for different teams coupled with inefficient decision
making (Alexander, 2016). Few of measures suggested were hiring of a full time chief financial
officer who would be having an overall visibility of the performance of the organization and who
can detect and resolve the pitfalls, implementation of automated accounting information system
instead of manual accounting system, automation of the billing process, tracking system for
accounting, receivables management, etc.
Problem Statement
Out of the diverse issues, one problem that has been selected for analysis and discussion is the
invoicing and the billing issue, which is one of the very critical activities to be focused upon
considering it, might lead to huge delay in sales and thus cash collection. In a way it impacts
most of the other activities including those of sales, receivables, cash flow management and the
accounting cycle a whole (Bailey, et al., 2017). As per the given case study, the company is not
being able to track the invoicing and the billing procedures and there are issues like
inconsiderable delay in billing, missing and mixing of invoices, the speed of billing, missing out
on correct timelines for payment of vendor bills, errors in accounting, unnecessary wastage of
paper and manual intervention. Given the size of the organization, a big, large and intensive
software such a SAP would not be a best fit as it is meant for the larger organization and above
all, it needs the expertise of the personnel to operate the same for business purposes. Therefore,
all the given problems and issues needs to be sorted in some other manner which has been
mentioned below.
4 | P a g e

5
Cost to the company
The problems and issues pointed out above can cost to be detrimental to the interests of the
company and can significantly result in missing the revenue. These are some of the operational
measures and the system where the agility is warranted or else the customer may switch on to the
competitors. Some of the consequences, which the company may face because of above-
mentioned issues, are shown below:
1. The delay in billing and invoicing may lead to increase in receivable days and elongating
the cash cycle for the organization (Cheatham & Cheatham, 1996).
2. This may also hamper the liquidity of the company big time and the receivables days may
increase considerably.
3. Delayed processing of the bills and therefore delayed payment to the vendors or missing
the timelines for payment may lead to deterioration of the relationship with the vendors
and may lead to payment terms being changed to advance.
4. Such complications in the invoicing processes may also be leading to wrong accounting
and thereby may lead to reconciliation issues in the future for both the vendors as well as
customers (Choy, 2018).
5. Furthermore, since there is manual accounting processes, it may lead to manipulations
and several audit issues as there is no internal control about the same.
6. Finally, since there is no tracking or MIS on the same and no reviewed process of the
same, this might lead to further operational efficiencies, which may have a material
impact on the performance of the company.
Plans and recommendation
There are a number of recommendations and plans in place by which the inefficiencies in the
invoicing and billing mechanism can be sorted and the processes in the organization can be
streamlined, some of which are mentioned below. However, before mentioning the steps, there
should be a flowchart built in the organization, which will help the personnel and the staff to
understand the flow of activities and thereby make each one of them responsible for the same.
1. At the very first place, the manual billing system needs to be replaced by the automated
billing and invoicing system, which would be capable enough to post the correct entries
in the system and would thereby reduce the chances of errors and material misstatements.
The other benefit of implementing such a system is that it leads to accurate and quick
outputs thus avoiding the delay in the processes. Less human intervention would also
ensure mismanagement of the invoices and thus unwanted errors (Vieira, et al., 2017).
2. There should be segregation of duties in the organization whereby different teams and
members would be allocated to the different duties, there would be no confusion
regarding the roles and responsibilities, and it would help in avoiding the unnecessary
delays and overlapping of the activities. With the segregation of duties, the speed of the
5 | P a g e

6
work can be fastened and the accuracy of the operations can be strengthened.
Furthermore, it will also lead to fixing of the responsibility on the individuals for the
different work areas and therefore progress and delays can be tracked (Werner, 2017).
3. There must also be a full time appointment of the chief financial officer who will oversee
all the activities in the organization and monitor the performance of the teams. This
would be in the benefit of the organization, as it would help in overall supervision where
the CFO can set out the individual KPIs and can also identify the pitfalls in the financial
process and suggest the way out.
4. For the invoicing process to be quick and agile the company should be having a scanning
team which will scan all the given invoices from vendors and feed in the requisite details
to the system, post which the individual creditors ledger will be fed in with the requisite
details and the accounting entry would be passed in the system. Besides this, there should
also be a present scheduling of payment of invoices once the credit period is over
(Sithole, et al., 2017). If this is done, there would be a reminder for the payment of the
overdue invoices in advance and the chances of missing the payment on time would be
minimised.
5. About billing to the customers, there should be an online system whereby the bill would
be automatically generated once the sales is effected and would be sent to the mail ids of
the dealers and customers. There would be no need of the paper invoices and in this way
the unnecessary usage, wastage of the paper can be minimised, and everything can be
made online. Besides the above measure, the repository of the data should be maintained
automatically on the cloud. There would be multiple benefits out of it such that there
would be no space constraint in terms of memory and the data would be backed up
electronically on cloud for future references and back up, if any.
6. As part of the internal control process, there should also be an approval matrix in place
whereby the permission and authorisation would be required from the managers and the
Chief Financial Officer of the company in case the payment is to be made on immediate
basis or it is a huge amount. This would put a visibility in the entire value chain and help
in keeping a track on the payments. In case there is any fraud, then the same can be
detected if the value based approval matrix is in place (Belton, 2017).
7. For all the accounting entries, which goes into the system while invoicing, billing and
payment accounting, there should be a dual review in place such that there is a reviewer
and checker concept and no errors and frauds are there. This would ensure that there is a
four-eye principle being followed and this will serve as the audit trail.
8. Besides the above measures, there should also be a monthly meeting and the flow of the
MIS. This will help in pointing out and figuring out the inefficiencies and thereby
removing the same through appropriate measures in time (Farmer, 2018).
6 | P a g e

7
Cost benefit analysis
For the above measures to be implemented and practiced in the given organization, the club
would have to invest in the processes and method. Some of which are as follows:
1. Setting up an automated system of invoicing which will require a software to be installed
such as Zero where the general accounting can be done as well as the financial statements
can be prepared – the same will cost around $10000-$12000 per year.
2. Training of the personnel and the staff – This will be a onetime activity which will be
costing nearly $ 3500-4000
3. The space in cloud would be required so that the storage can be used and can be backed
up in future if required which would cost at around $ 4000 (Goldmann, 2016).
4. The maintenance of the system and the IT charges would be on monthly basis and would
be costing at around $ 2500-3000 per month.
5. Furthermore, depending on the requirement the full time employee and the part time
employees would be hired for the different departments. In case the same is assumed to
be 10 and 5 respectively in the given case, then the same would cost at around $ 5000 and
$ 3000 per employee respectively (Marques, 2018).
6. The CFO also needs to be hired in the given case for the overall supervision who salary
can be estimated to be around $ 12000-13000 per month.
7. Besides this, there would be several other operating charges, which would be incurred in
the day-to-day affair like those of printing charges, stationary, etc. for which a separate
budget of $ 1000-1500 can be allocated.
Therefore, all together there will be expenses of $ 700000-750000 including all the operational
expenditure and the salaries of the staff and the CEO. The benefits it would be reaping will be in
the form of standardised processes, real time invoicing, lower receivable days, positive cash
flow, non-loss of sales revenue, good relationship management with the customer as well as the
vendors, better negotiation ability with the vendors, less wastage of paper, availability of backup
and recovery of the data in the case of a mishap and it would also serve as the audit trail
(Jefferson, 2017).
Other critical issues
There are several other issues which needs to be addressed in the Binalong community club like
those of non-recovery of the receivables on time which can be improved by sending a
customized tracker to the customer on the overdoes and the outstanding amount (amount pending
to be received) after the credit period automatically through the computerised system. This will
help in reminding them of the dues and that in case the same is not paid on time, the penal
interest would be charged. The computerised system can also be helpful in tracking of the
inventory and thus can help in the proper management of the same (Kew & Stredwick, 2017). It
can help the management in knowing what are the levels of inventory on a real time basis and in
7 | P a g e

8
suggesting when to procure the inventory and when to stop. Thus, it would be helpful in savings
the inventory losses and the inventory carrying costs (Fukukawa & Mock, 2011). It was also
being learnt in the given exercise that the profit of the entity is not equal to the flow of cash.
There might be several items which are non-cash based but still do find a place in the profit and
loss account or the income statement of the entity like those of depreciation, accrued interest,
outstanding payment on account of rent or salaries, the dividend proposed or the income tax
liability, all these items are based on the accrual principle and do not actually result in the inflow
or outflow of cash but do contribute the profit and loss of the entity (Linden & Freeman, 2017).
It is for this reason that the profit and loss account of the entity and the cash flow statement is
being prepared separately.
Conclusion
From the above discussion and the analysis on the ins and outs of Binalong community club, we
can see that there are a number of system constraints in the organization, which may lead to huge
losses in the future. These operational inefficiencies may lead to lose of customers for the
organization and depletion of the relationships with the vendors. Furthermore, there might be a
huge financial loss for the entity and therefore several ways have been suggested and
recommended for one of the most important processes in the organization, i.e., billing and
invoicing. The major outcomes of the study include implementation of the automated billing and
invoicing software, training of the personnel, segregation of the duties, hiring of the skilled staff
and the CFO for the company and the use of cloud services. The cost benefit analysis has also
been done to give an assurance and to prove that the long-term benefits and gains that they
would accrue to the organization would be more than the short-term costs and expenses. Overall,
in case the recommended process is implemented it would also lead to improvement in the
internal control processes of the organization.
8 | P a g e

9
References
Alexander, F., 2016. The Changing Face of Accountability. The Journal of Higher Education, 71(4), pp.
411-431.
Arnott, D., Lizama, F. & Song, Y., 2017. Patterns of business intelligence systems use in organizations.
Decision Support Systems, Volume 97, pp. 58-68.
Bailey, C., Collins, D. & Abbott, L., 2017. The Impact of Enterprise Risk Management on the Audit
Process: Evidence from Audit Fees and Audit Delay. Auditing: A Journal of Practice & Theory, 37(3), pp.
25-46.
Belton, P., 2017. Competitive Strategy: Creating and Sustaining Superior Performance. London: Macat
International ltd.
Cheatham, C. & Cheatham, L., 1996. Redesigning cost systems: Is standard costing obsolete?.
Accounting Horizons, 10(4), p. 23.
Choy, Y. K., 2018. Cost-benefit Analysis, Values, Wellbeing and Ethics: An Indigenous Worldview Analysis.
Ecological Economics, p. 145.
Farmer, Y., 2018. Ethical Decision Making and Reputation Management in Public Relations. Journal of
Media Ethics, 33(1), pp. 1-12.
Fukukawa, H. & Mock, T., 2011. Audit risk assessments using belief versus probability. Auditing: A
Journal of Practice & Theory, 30(1), pp. 75-99.
Goldmann, K., 2016. Financial Liquidity and Profitability Management in Practice of Polish Business.
Financial Environment and Business Development, 4(3), pp. 103-112.
Jefferson, M., 2017. Energy, Complexity and Wealth Maximization, R. Ayres. Springer, Switzerland.
Technological Forecasting and Social Change, pp. 353-354.
Kew, J. & Stredwick, J., 2017. Business Environment: Managing in a Strategic Context. second ed.
London: Chartered Institute of Personnel and Development.
9 | P a g e

10
Linden, B. & Freeman, R., 2017. Profit and Other Values: Thick Evaluation in Decision Making. Business
Ethics Quarterly, 27(3), pp. 353-379.
Marques, R. P. F., 2018. Continuous Assurance and the Use of Technology for Business Compliance.
Encyclopedia of Information Science and Technology, pp. 820-830.
Sithole, S., Chandler, P., Abeysekera, I. & Paas, F., 2017. Benefits of guided self-management of attention
on learning accounting. Journal of Educational Psychology, 109(2), p. 220.
Vieira, R., O’Dwyer, B. & Schneider, R., 2017. Aligning Strategy and Performance Management Systems.
SAGE Journals, 30(1).
Werner, M., 2017. Financial process mining - Accounting data structure dependent control flow
inference. International Journal of Accounting Information Systems, 25(1), pp. 57-80.
10 | P a g e