Luedo_Software_Ltd

AAT Unit 10 Simulation Project Report An analysis of Purchase System procedures to reduce the overdraft and improve the working capital 1 TERMS OF REFERENCE 1.1 This report has been produced to cover the requirements of Unit 10, Managing Systems and people in the Accounting Environment, of the Tecnhician Stage set out in the proposal document submitted to Mr Bernard Drouin , lecturer of City of Westminster College, on 12th May, 2011. 1.2 The report looks at the Purchase system of the Simulation D2068 Case study of Luedo Software Ltd. 2 EXECUTIVE SUMMARY 2.1 The aim of this report is to identify key improvements in the current managing system and people in the accounting environment that relates to their performance, professional behaviour and responsibilities. 2.2 3 INTRODUCTION INTO THE BACKGROUND OF LUEDO SOFTWARE LTD Luedo Software Ltd (LSL) provides educational software to schools, colleges and other educational establishments. Clive Luedo , who had a background in teaching is the owner and managing director of the company, formed the company in 1989 with his wife. Mr Luedo recognised the impact and importance computers would have in education, focused initially on a software range suitable for 5 to 7 age range. Since then, the LSL has created software for wider age range that target private training sector in addition to educational establishments due to the market demand. The current business structure consists of 6 employees in administration department and 15 sales representatives who travel the country. Appendix 1 illustrates the current business structure 4 ANALYSIS OF THE CURRENT SYSTEM 4.1 The organisational structure Job specifications and guidance are not clearly defined where each employee works at their own initiative. Staff do not have the relevant qualifications and in some cases proper technical skills relevant for their roles. The company does not offer this along with any overtime work unpaid and any adequate motivational incentives, which leads to de-motivation in addition to the general lack of good communication between various departments. The contingency planning relating to training and cover for staff absence does not exist and so does not a proper supervision and internal control. * not equally treated Simon is paid overtime whereas the others of Andrews knowledge no one has Simon always last in first out, all of so sudden stayed late – ‘work overtime’ to get extra money to fund his holidays. Outcome fellow workers unhappy as they are not paid overtime. Demotivated staff 4.2 Information technology * Hardware- 7 years old, with individual terminals and often cash. This is open to the risk of data impairment and ultimately its loss. * Operating system- the hardware is based on Windows 98 operating system that will not allow updated business software versions. * The accounting computer package, Tass books (version 2) has not been changed since company was established (1989), is very rigid as it produces almost incoherent statements and does not generate invoices. As it is supported by dated and unstable operational system, it often crashes. In addition to this, the company does not provide support and training for this accounting package any longer. * Software- Invoices and letters are produced by Microsoft office version 1999 that adds to the overall picture of dated systems. * Data Security- anti-virus software and back up procedures are not implemented, which adds to the above-mentioned risks to data security. 4.3 Internal control 4.3.1 Sales and credit control As the most recent balance sheet shows, revenue exceeds the overdraft by £ 35,000 that indicates absence of proper and stricter credit control procedures. Furthermore, there are no proper control procedures from the point of generating and recording customers’ orders to recovering the debt. This affects the cash flow and the working capital of LSL, with some detrimental consequences relating to the salaries and the consistent bank overdraft. Credit checks undertaken before placing a customer order 4.3.2 Payroll The principal controls in payroll system are not in place at the LSL. Dated computer system on which payroll run relies is prone to crashing down which delays the salaries that are paid monthly by cheque whereas most overtime is unpaid. This can be delayed further due to bank overdraft. This means that PAYE and NIC may not always be paid on time. Expenses and any shortages are often reimbursed from the petty cash without proper authorisation or knowledge of the supervisor. There is no clear indication who and if checks all the salary payments and expenses’ claims. The current payroll system is open to the risks of fraud and error.