Overview:

This assignment is designed to reinforce the following skills and areas of knowledge:

  • Analyse a description of a business process
  • Prepare a BPMN diagram to illustrate the operation of a business process
  • Prepare a UML class diagram
  • Critically assess the effectiveness of internal controls within a business process
  • Apply internal control and business process knowledge to suggest process design improvements.

 

Mapping Assessment Task to Course Objectives:

 Understand the use of information systems for business and analyse and make recommendations on the utilisation and design of such systems  YES Requires analysis of an AIS design and suggestions for improvement in a business context
 Interpret business process documentation including flowcharts and data flow diagrams  YES Requires preparation and analysis of documentation (BPMN, UML Class Diagram)
 Communicate with database professionals about the design of databases

YES

Requires preparation of a database structure model (UML Class Diagram), REA format, and linking to business rules and process design
 Critique computerised and manual business processes in terms of their exposure to risk, and suggest internal controls that address the risks  YES Requires assessment and critique of current process design and typical operational risks
 Apply critical thinking and problem solving to activities dealing with accounting information systems.  YES Requires critical assessment of process design and the synthesis and integration of information from multiple sources

ACF5904                                            Individual Assignment                                                         2

Required:

The following pages (pp. 5-8) contain a description of a business process. Based on the process description you are required to:

  1. BPMN PREPARATION (10 + 10 = 20 marks)

Prepare a BPMN diagram for each of the following processes a. In store sales

  1. Wholesale sales
  2. UML CLASS DIAGRAM (7 ½ + 2 ½ = 10 marks)
    1. Prepare a UML Class Diagram for the purchase and payment for inventory process.

The diagram should be set out in the REA format.

  1. Based on your understanding of the purchase and payment process
  2. identify one (1) weakness in its current design and operation,
  3. briefly explain why you believe this is a problem and provide a possible negative consequence of the problem.
  1. PROCESS ANALYSIS AND CRITIQUE ( 2 x (4 x 2 ½) = 20 marks)

During your interviews with the people at Z Cheddr, you recall how there were several mentions of the business growing over recent years. Your notes from the interview with Mr Z mentioned that he:

is a good business man and knows a lot about selling wine and cheese. Unfortunately, Z’s accounting knowledge is marginal. His systems did not keep

up with the growth of his business. (notes from meeting with Mr. Z)

Based on these observations, you have suggested that Z Cheddr’s business processes could benefit from an analysis and assessment of their operational effectiveness. Mr Z liked this idea and has asked you to assess the overall ability of the process to adequately address the following process risks

Instore sales and Wholesale sales

  1. Selling to customers who cannot pay for goods
  2. Selling inventory that is not in stock / not available
  • Sending incorrect goods to the customer
  1. Cash Receipts from sales being stolen

 

For each of the risks you should (i) briefly assess (High/Medium/Low) how well the current process design addresses the risk and (ii) explain the reasoning for your assessment. If your assessment is High (i.e. the risk is well addressed) you should explain why you think this is so. If the assessment is medium/low you should explain your concerns and suggest improvements that would improve the assessment.

 

The table on page 4 can be used to present your analysis.

 

Semester 1, 2021

Mark Allocations:

 

Question Component Marks
1 A 10
B 10
2 10
3 20
TOTAL MARKS 50

 

Assignment Requirements:

 

Question Criteria
1 •       Diagram correctly uses BPMN symbols

•       Pools and lanes are correctly applied

•       All relevant parties in a process are identified

•       Diagram shows the allocation of responsibilities across different people in the organisation

•       Diagram is consistent with the details in the case interview notes

•       Boundary/scope of a process is correctly identified/represented

•       Diagram is logically presented and easy to follow

2 •       Relevant classes identified

•       Relationships correctly specified and consistent with current business rules / operations

•       Multiplicities correctly specified and consistent with current business rules and operations

•       Diagram is in REA format

•       Understanding of purchases-payments process

3 •       Risk assessment is consistent with process design

•       Explanation is consistent with risk assessment

•       Explanation demonstrates awareness of process design issues

•       Explanation shows an application of process objectives when considering risks

•       Clarity of expression and discussion is relevant to case material and question

 

 

 

 

 

 

ANALYSIS OF PROCESS DESIGN AND RISKS – SALES PROCESS
Process Operational Risk Assessment* Explanation
Instore Sales Selling to customers who

cannot pay for goods

 

H / M / L
Selling inventory that is not in stock / not available

 

H / M / L
Sending incorrect goods to the

customer

 

H / M / L
Cash Receipts from customers

being stolen

 

H / M / L
Wholesale Sales Selling to customers who

cannot pay for goods

 

H / M / L
Taking orders for inventory

that is not in stock /

unavailable

 

H / M / L
Sending incorrect goods to the

customer

 

H / M / L
Cash Receipts from customers
                             being stolen                                    H / M / L

 

*H – HIGH – There are controls in place that address the risk and there is a high degree of confidence that controls are operating effectively

M – MEDIUM – Small deficiencies / missing controls or controls are present but their design and execution means they may not be reliable  L – LOW – There are minimal to no controls in place to deal with the specified risk

Semester 1, 2021

 

Overview

The following interviews were conducted prior to the start of the project to explore specific aspects of Z Cheddr’s business processes. The interviews with employees provide information that is representative of activities performed by all employees with the same titles. For example, the interview with Gordon, manager of the Bend store, provides information about the activities that all store managers perform. It is not suggested that these interviews provide complete information about all of Z Cheddr’s business processes. They are meant to provide an initial overview of the business.

Summary of Interview with Mr. Z

Western Oregon’s mild climate and abundant rainfall contribute to the state’s allure for dairy farmers. Mr. Z routinely said, “We have more green grass longer than any state in the country.” What’s more, land prices and living costs are relatively low in Oregon, luring a number of cheesemakers from neighboring California. Many new cheesemakers are also attracted by the crossmarketing potential of locating in Oregon wine country. Those were some of the reasons that he started Z Cheddr just over 10 years ago. His business quickly grew from one store to 10 stores plus an internet presence. Recently, he also started selling some cheeses on a wholesale basis to small groceries and other cheese and wine shops on the west coast.

Mr. Z is the sole owner of Z Cheddr and operates his business as a limited liability corporation. He has a small board of directors, including his daughter and her husband, but they are seldom involved in any real business decisions. Mr. Z is a good businessman and knows a lot about selling wine and cheese. Unfortunately, Z’s accounting knowledge is marginal. His systems did not keep up with the growth of his business. He currently relies heavily on manual processes, and his data is spread among several different systems and EXCEL spreadsheets. He plans to expand his business to other west coast states to take advantage of the rapid growth in artisan cheese, wine, and beer makers. So, in addition to providing financial information about his current performance, he wants advice on the risks his business faces and cloud based accounting system where each store submits transactions daily via the internet.

He also sells cheeses and cheese and wine gift baskets over the internet. His website looks good, but the backend processes require heavy manual intervention. After a customer places an order and pays by credit card, his employees must print the orders and move to another system to update inventory, prepare shipping documents, and record the sales. He knows that this can be streamlined, so he also wants an overall evaluation of how he can use information technology to streamline his online process. Of course, he also wants to know how those changes would affect his internal control system.

Summary of interview with Gordon Lightfoot, manager of the Bend store

Gordon has been the manager of the Bend, Oregon store since it opened in 2005. He has made a number of friends among the regular customers that visit the store. Gordon is known in the area for his knowledge of cheeses and especially his knowledge of which wines to pair with which cheeses. Each morning, Gordon opens the store, checking to make sure that the display cases are at the right temperature, the cash drawers are ready, and the signs are set up to display the daily specials (in no particular order). Then, Gordon or his clerks spend the day selling wine and cheese.

 

A few times a week, Gordon hosts cheese and wine tasting promotions for his customers. These tastings have been very successful. Customers come from all over town to attend, and most leave purchasing both the cheese and wine that they tasted. To determine which wine and cheese to promote, Gordon checks his inventory to be sure that he has plenty on hand so that customers will be able to buy the product after the promotion. Using the Z Cheddr promotions form, he carefully records the amount of cheese and wine pulled from inventory for the promotion, so those items are no longer counted as cost of goods (but rather as administrative (marketing) expense). After the promotion, he files the promotion form until he can send it to Chad, the Z Cheddr accountant, with the van driver.

At the end of the day, Gordon closes out the cash registers and collects the various cash drawers. He does a final check of the display cases, making sure that all cheeses are appropriately refrigerated overnight. He puts the drawers and the cash register tapes in the safe for the bookkeeper.

Summary of interview with Joan Baez, bookkeeper for the Bend store

Joan is the part time bookkeeper for the store. The job is perfect for her, because she just comes in after the store closes, summarizes the daily sales for each inventory item (cheese or wine) in a spreadsheet. She emails the spreadsheet to Chad, the Z Cheddr accountant. Then, she prepares the cash drawers for the next morning, prepares the deposit slips, and takes the daily receipts to the bank for deposit. All this usually takes two or three hours. She files the deposit slips until she can send them to Chad with the van driver.

Summary of interview with Bob Dylan, cheese and wine buyer

Bob recently graduated from Oregon State University, where he worked with other food science students at the O.S Creamery. They learned about cheese making by making and selling cheese, especially their famous Beaver Classic cheese. He uses his knowledge of artisan cheese making and his connections with other cheese makers to select the best cheeses to sell at Z Cheddr. Bob negotiated contracts with each of the cheese, so all he has to do is call them to place an order.

Each day, Bob reviews the Z Cheddr inventory records to determine what to order. He considers recent sales trends and potential seasonal demand for particular products. He sometimes checks the physical warehouse inventory and calls stores to verify inventory levels, since he is not completely confident in the electronic records. He then calls the suppliers to place the orders. The suppliers deliver their products to the Z Cheddr central warehouse in Eugene Oregon. Occasionally, Bob will arrange for a van to pick up the order if it looks like shipment might be delayed. After the products are received and accepted in Eugene, Bob authorizes the payment and sends a copy of the supplier’s invoice to Chad. Chad pays each cheese maker at the end of the month in which the cheese is received. Sometimes, he will combine payments if there is more than one shipment from the same cheese maker during the month.

Recently, Bob has also assumed the duties of wine buyer. The wine buying process is identical to the cheese buying process. It requires a good relationship with the suppliers and knowledge of the products offered by each supplier. Bob has a good rapport with his suppliers, but he makes them compete for our business. This helps keep costs down and allows Z Cheddr to provide high quality wines for reasonable prices to our customers.

Summary of interview with Chad Mitchell, accountant

Chad has been with Josh (Mr. Z) since the beginning. He used to work in the Bend store while he finished school, but when Mr. Z needed someone to do the accounting, Chad volunteered. Chad’s job is to pay the bills, update the inventory records, put together the financial records, make sure Z Cheddr pays its taxes on time, and keep Mr. Z informed about company performance. Chad gets the sales and promotions information from the stores via the van drivers. He gets transfers, wholesale and internet sales information from shipping and receiving. That way, he can maintain up to date inventory counts and record sales daily. Z Cheddr conducts physical inventory counts each quarter, and Chad uses those counts to update or correct the electronic inventory records. Chad uses average inventory cost to value transfers, promotions, and ending inventory. The beginning inventory is valued at the average cost for the previous quarter (beginning inventory cost).

Chad also pays all the bills. His clerk assembles the invoices and recurring payment information for both inventory purchases and administrative purchases and prepares the checks. The administrative purchases include recurring payments for rent of Z Cheddr retail stores, all of which are rented through one broker, Oregon Commercial Real Estate. Then Chad reviews the support material, corrects any errors, and signs the checks.

Chad also gets the timesheets from each store at the end of the month and with his assistant enters that payroll information on the payroll services’ website. Each employee then receives a monthly check from the payroll service. Chad transfers money from the main operating account to the payroll account to cover the payroll each month. Chad sends checks for federal and state payroll taxes, social security (FICA) and Medicare (MC) withholding, including the matching employer amounts for FICA and MC, to appropriate tax authorities each quarter. Oregon has no sales tax, so he doesn’t have to make those tax payments.

Chad and his assistant are also responsible for bank reconciliations each month. They use the deposit slips received from the stores to confirm deposits. Additionally, deposits include the internet credit card receipts and payments from the wholesale customers. Z Cheddr uses their bank’s merchant services to process customers’ credit card payments. Credit card payment information is transferred electronically from the website to the bank’s site. The bank takes their cut, which can range from 3 to 6% of the sale amounts, depending on the credit card the customer uses. It then electronically deposits the rest of the payment in the Z Cheddr account and sends an email to Chad to confirm the deposit. Of course, Chad uses the Z Cheddr check book (and any transfer vouchers for transfers to the payroll account) to confirm payments.

Lately, Mr. Z has been more and more frustrated because Chad is too busy to give him any timely information on how the business is really doing. Chad barely has time to put together quarterly financials, let alone monthly comparisons to the budget. He is stretched way too thin and needs a better accounting system to take some of the load.

Summary of interview with Judy Collins, Shipping and Receiving clerk at Central Warehouse

Judy’s job is not easy, although she has help from several part time clerks. She records the incoming shipments from our cheese and wine suppliers in Oregon. She checks each shipment for damage, and in those rare situations where there is damage, she returns damaged items to the suppliers. She updates the invoices/delivery slips and sends those to Bob (the buyer), so Bob knows what has been received and can check that against what he ordered. Judy also updates the inventory records based on the items received and accepted. She and her clerks then store the items in the warehouse.

Each day, Judy also prints the list of internet orders and pulls those items from inventory. She packs the products for delivery sets them aside for pickup by UPS. UPS handles all the outgoing shipments for our internet sales. UPS bills Z Cheddr monthly for shipping costs, but so far, the flat rate $9.95 shipping charges that the customers pay have covered the shipping costs.

Additionally, she packs the Z Cheddr vans that deliver to our ten stores around the state. Sometimes, she even drives the vans. She prepares the transfer lists for each store, and a clerk at the store confirms the deliveries. Then, she or one of the other van drivers brings the transfer sheets, along with any promotion forms and deposit slips sent from the stores, back to Chad, so he can update the inventory and accounting records. She also uses the company credit card to get gasoline for the vans or pay for repairs and maintenance. She sends the credit card slips to Chad so he can confirm the bills from the credit card company.

Finally, Judy also takes orders from the wholesale customers, small grocers located in Oregon.  After taking the order, she helps packs the vans and prepares an invoice. She sends the invoice with the delivery and the wholesale customers typically pay at the end of the month.

Summary of interview with Bobby Darin, Van Driver at Central Warehouse

Bobby is on the road most of the week. He helps Judy pack his van and then hits the road to deliver cheese and wine to the retail stores as well as to wholesale customers. He helps prepare the transfer list for the transfers to the retail stores. Then, he gets the manager or an employee at the retail store to confirm the transfer. When he gets back to the warehouse, he gives all the transfer forms to Chad (or puts them in his mailbox when he is not available).

Bobby also delivers to the wholesale customers. He usually combines trips to avoid unnecessary driving. The wholesale customers confirm receipt on a copy of the delivery document, and he gives them an invoice at that time. He brings those confirmed delivery documents back to the warehouse and again gives them to Chad.

Summary of interview with Cameron Cody, Vice President

Cameron is an old friend of Mr. Z. He was recently hired to run the business while Mr. Z pursued expansion plans. While familiarizing himself with the business, he became concerned about inadequate systems and lax internal controls. So, his focus is on selecting a new system and improving controls.