This paper examines how Company B, a homeowners association (HOA) management firm, can transition from manual payment processes to an automated accounting system in response to a new client's requirements. The paper outlines the system requirements for automation — including input, output, and control specifications for collection and payment functions — and evaluates QuickBooks as the most suitable platform for a small-business context. It also considers proposed outsourcing functions, discusses the advantages and limitations of the selected system, and identifies the key challenges Company B will face when implementing automated accounts payable procedures.
Company B has maintained its own payment arrangements for years. However, a new client wants to switch to a new payment method — one that relies on automation. The challenge is that Company B must adopt this automated payment procedure if it wants to retain this client. While this new payment plan has both disadvantages and advantages, Company B needs to make a quick decision that will be beneficial not just to the company but to all parties involved.
Company B needs to begin organizing its affairs in order to implement this new program. The system selected for the automated payment process is QuickBooks. This new automation does not come without challenges. Some of those challenges reside in the tedious, manual steps of invoice capture, while others involve review, coding, and approval processes. Below is a brief summary of the difficulties faced by accounts payable (AP) specialists at each step of the process.
Several of these challenges relate to multi-format and decentralized receipt handling. The company must deal with collating invoices that arrive from dissimilar suppliers or cost centers in numerous layouts and delivery formats — such as email, mail, EDI, and fax. The company will also need to address errors associated with manual data entry in accounting systems. To ensure success, the company must recognize that labor-intensive processes become even more complicated when linked to different cost centers and potentially involving currency conversion.
Each month, Company B's system generates an itemized bill for each landowner. Dues typically range from $100 to $200 per month, based on the location of each home and the type of home (townhouse or single-family). Company B's policy imposes late fees of 20% per month on any unpaid balance. Bills are mailed on the 25th of each month, with payment due by the 10th of the following month.
A new client now wants to transition to an automated payment method. Company B must accept this automation in order to retain the client. However, Company B is not yet fully familiar with this new payment approach. At present, it appears that two of the four HOAs, as well as the new client, are already using automated accounting systems (Dormhel, 2015). These systems are Sage and QuickBooks, while the remaining parties use Microsoft Excel for accounting purposes. As the owner, it is understandable why the client would want to consolidate to a single system (Engineering, 2014). The new client is currently using QuickBooks but remains open to another system if necessary.
As the owner of Company B, there is a significant advantage in switching to an automated system. It provides the organization an opportunity to expand its practice — though the unfamiliarity with the new system is an acknowledged drawback. After discussion with the lead CPA, a document has been prepared to help the company determine whether to proceed with the transition. It is evident that an automated or computerized accounting system could benefit Company B in numerous ways. The use of computers saves time and helps keep financial data well-organized.
Invoices will be created so that they are automatically recorded in the customer's account. This data will enable the system to flag late payments and send overdue reminders, helping the company get paid faster. Purchasing forms will also be required. These forms allow purchase applications to be submitted, routed for approval through a workflow, and authorized against an available financial plan. Route invoices will be created through a workflow process and matched to the corresponding purchase order. Key data fields on these forms include the exact purchase amounts, customer name, telephone number, and address.
Financial reporting will be developed as part of the output requirements. A schedule of reports will be configured to run automatically, and email distribution to a list of recipients will be established. This is intended to give decision-makers 360-degree visibility into operational information so they can remain agile and responsive to business opportunities (Ward, 2015). The system will also automatically generate, submit, approve, track, and settle expense reports — while providing insight into customer activity and project performance.
One method the firm will use to secure and control the process is Segregation of Duties (SOD). Traditional systems of internal control depend on assigning specific responsibilities to different individuals, thereby separating incompatible functions. The general principle of SOD for Company B is to prevent any single individual from having both access to assets and responsibility for maintaining the accountability of those assets.
Another control mechanism is the System Development Life Cycle (SDLC). For effective automated control implementation, Company B must follow SDLC principles. To validate an automated control from its foundation, Company B must demonstrate that the control was applied properly and that there is a clear, documented history of change management.
The final control requirement is ensuring that Company B's delegation of authority policy is followed. The main accounting system will contain a routine that, based on pre-defined limits, permits individuals with the necessary authority to approve specific transactions.
Company B will need to ensure that the core financial system provides the capability to recognize legal and administrative limitations on funds in operating and economic strategies. Budget plans based on future dates or retrieval functions will be needed as part of the process. Other required forms include those for recording revenues, expenditure reductions, or other appropriate offsets linked to collections. Credit card and cash forms will also be needed. Key data on these budget plans will reflect the overall plan to be executed month to month, listing expenses such as equipment and travel costs.
The reports that will need to be generated from the collection process include the monthly deposit record and the debit voucher. Other required reports include those from the treasury and banking system for comparison against the agency's general ledger. The capability to include both the TAS/TAFS(s) and their related amounts will also need to be reported. Additionally, the accumulation of nonfinancial data relating to cost objects — such as output units — will be necessary to allow computation of both total and unit prices.
Several controls will be used to secure the collection process. Segregation of Duties is especially important here because it reduces the risk of both inappropriate and erroneous actions. The approval function, the accounting and integration function, and the asset custody function should be separated among staff members.
Preventative controls — such as requiring dual signatures on checks or password-protected files — also apply. These types of controls protect and limit access to business assets. Additionally, detective controls such as bank reconciliations or inventory counts are used periodically to determine whether any processes need to be modified.
"Budget, revenue, and collection reporting needs"
"Invoice approval workflow and payment controls"
"Outsourcing rationale and QuickBooks selection"
"Late fees, invoice tracking, and archive costs"
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