CHAPTER ONEABOUT THE REPORT 1.1About Internship The part ‘Internship’ indicates practical training in any area. Stated in other word internship is practically training in any real field where theoretical knowledge is practically applied. In academic teaching student become aware of common rules and principles that should be followed in the typical situations due to various reasonable causes. The participants of practical training become acquainted with practical rules that in follow in practical situation. They also become aware of how practical practice deviate from theoretical principles. Thus internship program expands the knowledge and it fulfills the theoretical knowledge of the participants. Therefore in single word it would be called that internship is a process by which the acquired knowledge if the participant become expanded by application of academic knowledge in practical field. 1.2 Origin of the Report The report is originated from the curriculum requirement of BBA program of American international university. The topic of my report is “Accounts Payable – Internal Control System, Compliance and Recording Process of Incepta Pharmaceuticals Ltd.”. The report has been prepared under direct supervision of Kazi Tanvir Mahmud Ph.D Assistant Professor, Department of Economics, Faculty of Arts & Social Sciences, AIUB and Md. Touhidun Nabi khan Accounts Officer, Finance & Accounts, Incepta Pharmaceuticals Ltd. 1.3 Background of the study Accounts payable are unpaid obligations for goods and services received in the ordinary course of business. It is identified by the existence of vendor’s invoices for obligation. A large number of transactions are affected by accounts payable. So it is important to maintain this account in such a way that possible misstatements, fraudulent activities or any other risks related to this account can be avoided. Incepta Pharmaceuticals Ltd. is one of the large local organizations in our country. It has plenty of vendors both local and foreign. Md. Touhidun Nabi khan, Accounts Officer, Finance & Accounts Department of Incepta Pharmaceutical Limited asked me for designing the existing methodology of recording process, compliance and internal control system of accounts payable of Incepta Pharmaceuticals Ltd. 1 1.4 Benefits to the organization through this report The Institution will get an overall picture on internal control and recovery process of this report. It may take steps to overcome its shortages or weakness; at the same time it may explore the opportunities it does have. 1.5 Scope of the Report The scope of my study is only about accounts payable- its recording process, compliance and internal control. The report describes about the existing procedure of recording process of accounts payable of Incepta Pharmaceuticals, the rules and regulations followed by it and the existing internal control system relating to this account. The report is prepared on the basis of interviews with personnel of accounts and finance department of IPL. My scope of work is limited to local transaction. For understanding the internal control system of accounts payable there is lots of audit related work. But as an intern I am not allowed to do that type of work. 1.6 Objective of the Report The main objective of preparing this report is to fulfill the requirement of BBA program. This contains three credit hours for internship and to apply the theoretical knowledge gained from the coursework of the BBA program in a specific field. The other objectives are; Broad Objective The objective of this study is to determine the recording process, compliance and internal control. Specific Objectives The specific objectives of the study are to Know the ability of employees to perform promised service dependently and accurately. To get an introduction about the organizational structure & how co-ordination among different set of activities is made. To know about the procedures of acquisition and payment. To be familiar with internal control system of accounts payable payment procedure. To get an idea about the related compliance of accounts payable To relate the theoretical leanings with the real life situation. 2 1.7 Methodology of the Report This report has been prepared on the basis of experience, which I was gathered during the period of internship. For preparing this report, I have also got information from various employees of IPL (Purchase Dept., Planning Dept., Accounts Dept., and Human Resources Dept. etc), different books and website of the Incepta Pharmaceutical Limited. 1.8 Data processing and Analysis Data collected from primary and secondary sources have been processed and analyzed manually and qualitative approach has been used throughout the study. Data has been analyzed by using computer program with the help of Microsoft Word, and Microsoft Excel. Primary sources Practical deskwork Face to face conversation with the officer Direct observations Face to face conversation with the client Secondary sources Annual report of IPL Files & Folders Various publications on IPL Employee database prepared by HRD Audit Report Website 3 1.9 Limitation of the Report Limitations may conflict the study, but among those some major limitations have been mentioned below: - The duration that is for internship is not enough to learn about a big organization like Incepta Pharmaceuticals Limited. For non-availability of secondary data and for time limitation it was not possible to work on the basis of board data. Due to restriction of time, I could not get detailed information about every Departments of IPL. Lack of confidential information about the organization makes many mistake and targeted aim. It was very different to collect the information from various personnel for the job constrain. Incepta policy was not disclosing some data and information for obvious reasons. Lack of experiences has acted as constraints in the way of meticulous exploration on the topic. Internet speed is very slow (outside) for collecting necessary data in time. 4 CHAPTER TWO AN OVERVIEW OF INCEPTA PHARMACEUTICAL LIMITED 2.1 History of Incepta Pharmaceutical Limited (IPL) Incepta Pharmaceuticals Ltd. is a leading pharmaceutical company in Bangladesh established in the year 1999. The company has a very big manufacturing facility located at Savar, 35 kilometer away from the center of the capital city Dhaka. The company produces various types of dosage forms which include tablets, capsules, oral liquids, ampoules, dry powder vials; powder for suspension, nasal sprays etc. Since its inception, Incepta has been launching new and innovative products in order to fulfill unmet demand of the medical community. The focus was to bring more new technologically advanced molecules to this country. The company specializes in value added high technology dosage form like sustained release tablets, quick mouth dissolving tablets, barrier coated delayed release tablets etc. It has established a modern research and development laboratory for the development of new advanced dosage forms for various drugs and devices like poorly soluble drugs, dry powder inhalers, coated pellets, modified release products, taste masked preparation etc. Incepta quickly developed a very competent sales team, which promotes the specialties throughout the country. The company virtually covers every single corner of the rural as well as urban area of Bangladesh. It has its own large distribution network having 13 depots all over the country. The company has a clear vision to become a leading research based dosage form manufacturing company with global presence within a short period of time. The Research and Development department for various dosage forms has been very well developed. Incepta intends to bring newer products of advanced technology through research hitherto unknown in this country. Such activities will not only benefit the company but also the total pharmaceutical sector of the country. In the post 2005 era, the company also intends to embark into the production of Active Pharmaceutical Ingredient (API). Plans are underway to get into reverse engineering and analogue research in order to produce new API. The company is now expanding its activities beyond the geographical boundary of Bangladesh. The products are of high standard and therefore these will be exported to both developed and developing countries. The company is open to collaborate with interested parties in various countries. The future is wide open and the opportunities 5 Total Market Size in 2009: US $ 715 M Second highest contributor to national ex-checker Largest white-collar labor intensive employment sector 97% Local Manufacturing About 39. 3.48% Aristopharma 4.000 retail drug license holders in Bangladesh.Incepta will continue to strive to provide high quality medicine at affordable prices to the people here in Bangladesh and other parts of the globe.81% Opsonin Pharma Ltd 4.59% Reneta Pharma 4.72% Acme Laboratories 4.00% Others 33.24% Beximco 7.07% Drug Int. Market Position of Incepta Table 1: Companies Market Position Of the Companies Square (Total 100%) 19.54% ACI 4.48% Incepta 8.43% Annual Report 2009 Incepta was ranked the 2th largest company of the country with the highest growth rate among the top Ten. 6 . Highlight of the fastest growing Pharmaceuticals sectors in Bangladesh.76% Eskayef 4. Mission Provide people globally with high quality health care products at affordable prices in order to improve access to medicine and to improve employees an enabling environment that facilities realization of their full potential. turkey. Vietnam. Srilanka. Costa Rica. Congo.3 Ownership Pattern Incepta Pharmaceuticals Limited is the sister concern of the renowned Impress Group and the business is running as fully private limited company.So any kind of significant decision taken by the management. Cambodia. Honduras. Tajikistan. Dominican republic. Somalia.2 Vision and Mission Vision To become a research based global pharmaceutical company in addition to being a highly efficient generic manufacturer. so it is controlled by the internal board of director’s . 2. Mauritania. Guyana. Ukraine. Mongolia. 2. 7 . value-added products those improves the quality of life of people around the world and significantly contribute towards the growth of Bangladesh. Myanmar. Georgia. honk Kong. Incepta is not DSE listed in capital market yet.2. EI Salvatore. Directors of Incepta Pharmaceuticals Limited own the majority shares. Belize. Kenya. Ethiopia. To discover and develop innovative.4 Scenario of Incepta Exporting country Afghanistan. Togo. Bhutan. 11 of these generics were first ever in Bangladesh. technical excellence. first batch of product was produced. Table 2: December 16.5 Figures of Incepta Incepta began its operation with a handful of highly skilled and dedicated professionals guided by an able leadership. swift and timely decisions helped us achieve our objectives leading to much faster growth. 2000 2001 By the end of 2000 Incepta become the number 31st company of the country. The company was ranked the 5th largest company of the country with the highest growth rate among the top five. 1998/99 December 1999. By the end of the year Incepta was ranked the 8 th company of the country. 1998. Proper strategic planning. 18 of these generics were first ever in Bangladesh.2. 6 of these generics were first ever in Bangladesh. the construction of the factory began. April 2000. 2003 A total of 32 new generics with 48 presentations were launched. New office for the sales and distribution operation was also taking shape. 2002 By the end of the year Incepta was ranked the 10 th company of the country. By end of the year incepta was ranked the 12 th company of the country. 14 of these generics were first ever in Bangladesh. A total of 18 new generics with 37 presentations were launched this year. Osartil the CVS product of Incepta came to the market. A total of 32 new generics with 49 presentations were launched. 8 . 2004 A total of 17 new generics with 32 presentations were launched. 6 Company Profile 9 . It is a pre-requisite for export to European Union very quickly has achieved their goal than others. Incepta started to provide life saving drugs to UNICEF from March. 12 of these generics were first even in Bangladesh. Incepta Pharmaceuticals Company really a big Company and day by day it will be increase because most of the employees are so sensitive their own work. As a result of this certificate Incepta will be able to start export of non-patent infringing products to European union and many other regulated markets. design and development of new products.2008. 9 of these generics were first ever in Bangladesh. 6 of these generics were first ever in Bangladesh. Marketing. With this harmony Incepta successfully started overseas marketing from May 2006. Therefore.2005 We thrived under challenges and excelled in venturing into unexplored grounds and continued to satisfy our customer. 2006 In a short time Incepta positioned itself at home as an innovative research oriented and knowledge based Pharmaceutical company specializing in analysis. Incepta introduced the era of biotech and lyophilized products in Bangladesh and remained as one of the pioneer manufacturers in Bangladesh. Our core strength is our manufacturing plant which attained European “Certificate of GMP compliance” on the January 11. 2. Incepta pharmacy is the only national company in Bangladesh to have an EU-GMP certified plant for solid dosage forms. distribution and administration departments shifted to fully own new office premises. The company was ranked the 2th largest company of the country with the highest growth rate among the top five. 4 of these generics were first ever in Bangladesh. A total of 17 new generics with 32 presentations were launched. such reorganization for a Bangladesh Pharmaceuticals company. sales. Incepta has been able to bring. for the first time ever. 2007 2008 2009 2010 A total of 32 new generic with 82 presentations were launched. Insulin was manufactured and launched for first time in Bangladesh by a national company. 2005. A total of 27 new generics were launched. A total of 25 new generics with 82 presentations were launched. The company was ranked the 3rd largest company of the country with the highest growth rate among the top five. 7 Structure of Incepta Figure 1: Employment Structure of Incepta Senior Officer 10 Officer Assistant Officer .com 40 Shahid Tajuddin Ahmed Sarani Tejgaon I/A. Savar. Bangladesh General Manager Phone: +880-2-7708502 Fax: +880-2-7708507 E mail:
[email protected]. Bangladesh Managing Director Operational Phone: +880-2-8837811-26 Headquarters Fax: +880-2-8837952 E-mail: incepta@inceptapharma. Dhaka-1208.Corporate Headquarters 40 Shahid Tajuddin Ahmed Sarani Tejgaon I/A.com.com Deputy General Manager Year of establishment 24/02/1999 Assistant General Commercial Production Manager April-1999 Status Private Company Limited. Dhaka-1208.com Director Factory Dewan Idris Road. info@inceptapharma. Type of business Pharmaceuticals Number of employees 3500 Manager Deputy Manager Assistant Manager Executive Officer 2. info@inceptapharma. Senior Manager Manufacturing Company. Jirabo. Bangladesh Phone: +880-2-8837811-26 Fax: +880-2-8837952 E-mail: incepta@inceptapharma. Dhaka. 1 Major Departments Head Office 11 .2.8. Trusty 2.8.3 Five wings of Finance & Accounts Department Figure 2: Five task of Finance & Accounts 12 . Administration Human Resources Finance & Accounts Financial System Management Information System Planning & Commercial Legal Affairs Marketing Strategy Sales Secretariat Sales Service Research Factory Management Information System Engineering Production Planning Production Quality Assurance R&D 2.2 Finance and Accounts Department There are five wings under Finance and Accounts Department: 1.8. Budgeting. Costing. Treasury 2. Financial Accounting 3. Controlling & Industrial operation 4. Legal Affairs 5. Core function of Financial accounting wings Day-to-day transactions recording Monthly reports Auditing Preparing reports. and leases Party payments & receipts Employee payroll. etc. 2.Financial Accountin g Trusty Treasury Accounts & Finance Departmen t Legal Affairs Costing. Core function of Treasury wings Fund Management Maintaining banking transaction. etc. Budgeting. 13 . Controlling & Industrial operation Annual Report 2009 1. loan. 9. Our business practices and processes are designed to achieve quality results that exceed the expectations of patients. colleagues. frequently transcending organizational and geographical boundaries to meet the changing needs of our customers. 2. Core function of Legal Affairs wings Maintaining legal compliance All legal events. Core function of Trusty wings Handling tax related matters Maintaining SEC rules Employee payroll management. 5. Core function of Costing. measuring results carefully. etc. etc. We have a relentless passion for Quality in everything we do. and Controlling and Industrial operation wings Budgeting Costing Cost control Internal Reporting Factory inspection. and 14 .3. etc 4. business partners and regulators. Quality is ingrained in the work of our colleagues and all our Values.1 Teamwork We know that to be a successful company we must work together. We are dedicated to the delivery of quality healthcare throughout the nation.9. the Incepta name has been synonymous with the trust and reliability inherent in the word Quality.9 Factors of Quality Control Since 1999. 2.2 Performance We strive for continuous improvement in our performance. customers. 2. Budgeting. Incepta maximizes safety in work place for its employees and child labour is strictly prohibited. employees. Khulna. 2.11 Corporate Social Responsibility Incepta achieved its tremendous commercial success through its honesty and sincerity in business polices. Company CSR activity includes its finances because the company pays tax and VAT to the government and also settles bank and suppliers liabilities in a timely fashion and disburses benefits to employees on time. Bogra.10 Distribution channel of incepta Incepta has highly disciplined and organized Sales and related information available to the customer. Chittagong. Barishal. Sylhet. The company virtually covers every single corner of the rural as well as urban area of Bangladesh. Incepta have 600 members strong sales team promotes the products to the doctors. Incepta considers its employees to be valuable assets and protects their rights and provides full range of staff facilities including life insurance and disbursement of 5% of the company profit to them. Sales team operates its activity by dividing the whole country into 8 regions. which promotes the specialties throughout the country. governments and the society at large. Incepta gives emphasis to its practice of corporate social responsibility and evidence of this commitment is found in its dealing with clients. They make the products available in every single drug store of the country.3 Community We aim to become nation’s most admirable business enterprise through our honest and intelligent approach to everything that we do. The company has very large and competent sales team. Rajshahi. We strive to support the community where we live and to also support our nation as far as possible at the time of its need. The depots are located at Dhaka. Comilla. Company management strives to support the community where they life and also to support this nation as far as possible in times of need. We truly believe that we can only survive and grow if our nation remains healthy. Incepta believes it can survive commercially and grow if the nation remains healthy. The company aims to become nation’s most admired company through their honest and intelligent approach to everything they do. 15 . 2.ensuring that respect for people are never compromised. It has its own large distribution network having 13 depots all over the country.9. 2. rent (or mortgage) payments.As it commitment to society the company donates medicine to the government Relief Fund during natural disaster. It is classified as a current liability account and as such normally has a credit balance. materials. 16 . CHAPTER THREE PROJECT PART LITERATURE REVIEW 3. utilities. and loan payments and interest. accounts payable might include such expenses as taxes. Incepta also provides financial assistance for expensive treatment including heart and cancer and disburses its corporate zakat for relief of distressed people every year. All these activities are evidence of socially responsible and carrying company. accrued interest payable. It is classified as a Current Liability because the obligation is generally due within 12 months from the initial transaction date. insurance.1Concepts of Accounts Payable Accounts payable are unpaid obligations for goods and services received in the ordinary course of business. Incepta also products life saving ‘import-substitute medicines’ at affordable price for the people of Bangladesh as an expression of a true love and compassion for the people. or rent payable. This list is kept in the ordinary course of the debtor's business. or supplies. This kind of liability usually arises from a purchase of merchandise. Aside from materials and supplies from outside vendors. The accounts normally do not include accrued salaries payable. org/wiki/Accountspayable Maintai n Account s Payable 17 Accounts Payable Master File Payment Cash Requirement Forecast Management Purchase Analysis .It is sometimes difficult to distinguish between accounts payable and accrued liabilities. Wikipedia2 describes accounts payable as one of a series of accounting transactions covering payments to suppliers’ owed money for goods and services. telephone company.com http://en.wikipedia.2 Recording Inventory Process of Shipping Notice Receive Goods Accounts or Payable Services Control Accounts payable is a part of acquisition and payment cycle. but it is useful to define a liability as account payable if the total amount of the obligation is known and owed at the balance sheet date. newspaper subscription. cable television or satellite dish service. especially in industries where inventory turnover is rapid”. The cycle begins with a request for goods or services and ends with the payment to the vendor. “Accounts payable is any amount owed as the result of a purchase of goods or services on a credit basis. Even as it is a debt owed by a business that arises in the normal course of its dealings. The average household performs this task by writing cheques each month to such suppliers as the electric company. Although a firm making a purchase issues no written promise of payment. and that is not necessarily due or past due. Figure is a data flow diagram Materials of the acquisition and payment cycle. Requisition Form Receiving Report Figure 3: Data Flow Diagram of the Acquisition and Payment Cycle Production Departments Purchase Requisition Acknowledgemeant Purchas e Goods or Services Purchase Order Vendor Notice of Receipt 1 2 http://britannica. and other such regular services. According to Britannica concise encyclopedia1. it enters the amount owed as a current liability in its accounts. Companies often incur this type of short-term debt in order to finance their inventories. 3. that has not been replaced by a note from another debtor. winter 2000. accounts. cash disbursements 3. Jonathan D. How to find and Eliminate Erroneous Payments. Eighth Edition. 2000.Casher.. According to Arens & Loebbecke3 there are three classes of transactions included in the cycle.An Integrated Approach” . They have drawn a table showing the classes of transactions.3 Classes of Transactions and Business Functions for the Acquisition and Payment Cycle The cycle encompasses transactions related to credit purchase of goods and services. and to pay for the item purchased. 3 Arens Alvin A and Loebbecke James K.“Auditing. 18 . The table is shown in table 1. purchase returns and allowances and purchase discounts They have told that this cycle involves the decisions and processes necessary for obtaining the goods and services for operating a business. 1. According to them there are four business functions shown in the third column of table 1. 3. business functions and related documents for the cycle. Prentice Hall International. acquisition of goods and services 2.. But Romney and Steinbart has divided those functions into three categories. APA's Employer Practices. Ordering for goods and services Receiving goods and services Recognizing liability for receiving goods and services Paying for goods. plant. Business Functions. Ordering For Goods and Service The cycle begins with need reorganization. Table 3: Classes of Transactions. supplies and services 3. arise purchase requisition and then send it to purchase department. supplies and services 2. 2. 4. and Related Documents and Records for the Acquisition and Payment Cycle Classes of Transaction Acquisition Accounts Business Function Inventory Services Property. supplies and services 1. As a whole we can say that acquisition and payment cycle includes four basic business activities. This department makes order for goods and services. Respective department identifies its need. Receiving and storing goods. Paying for goods. 1. Accounts. equipment Prepaid expenses Leasehold improvements Accounts payable Manufacturing expenses Selling expenses Processing purchase order 19 Documents and Reports Purchase requisition Purchase order . supplies and services He includes ‘the liability recognition’ in the paying for goods supplies and services function.1. 3. Ordering goods. 4. 3. It also requires proper documentation and adequate references for disbursing cash.4 Methods to Design Accounts Payable and Accounting Procedures 20 . Recognizing the Liability If all the received goods are in accordance with purchase order.Administrative expenses Receiving goods and services Recognizing the liability Cash Disbursement Cash in bank (from cash disbursements) Accounts payable Purchase discounts Processing & Recording cash disbursement Receiving report Acquisitions journal Summary acquisitions report Vendor’s invoice Debit memo Voucher Accounts payable master file Accounts payable trial balance Vendor’s statement Cash disbursements journal Check 2. Processing & Recording Cash Disbursement After a certain period of time the liability should be paid up. liability for receiving goods is recognized. 3. Whatever the case may be it should be recognized with proper documentation. Some organizations recognize the liability at the time of reception. Before that an inspection cell inspects those goods. Normally the goods are received by factory and send them to ware house. Receiving Goods and Services After a certain period of time vendors send goods or services to the organization along with invoice and packing slip. electronic invoice matching applications save time in retrieving paperwork. Web-based supplier selfservicing. 5. centralized vendor files. such as business credit cards. can reduce by paper handling costs by as much as 90%. small-dollar purchases. Increase Payment Terms Negotiate payment terms based on receipt of goods or the invoice. which allows a company to get more work done with fewer personnel. and vendor payments. According to Chris Anderson4 there are nine methods to design accounts payable and accounting procedures 1. automated workflows for electronic or imaged invoices (see ERP below). Also. Integrate ERP Systems Enterprise Resource Planning (ERP) automates the purchasing and payables functions. and for many organizations this is a good return on your investment. Utilizing paperless invoices. Take Payment Discounts If you are getting 2%/10 net 30 terms. including: purchase orders. It is estimated that an ERP system can annually save an organization $300 per million in sales. This can add one week or more to your terms. and payment methods. then consider taking it. 3. This translates into an 18% return on your capital. 2. 4. purchase order follow-up. Electronic Data Interchange (EDI) and Electronic Funds Transfer (EFT). Eliminate Paper The single biggest cost for any purchasing and payables department is paper.com?src=ART81 21 .bizmanualz. This means you are offered a 2% discount if you pay within 10 days.If an organization follows some method it could improve its accounts payable procedure. Review Purchases 4 http://www. which can be 25% of 30 day terms. delivery tracking & receipts. Use EFT for just-in-time payments to maximize your payables terms and minimizing the impact to your credit. instead of the normal 30 day terms. When disputes occur. These policies and procedures are often called controls and collectively they comprise the entity’s internal control.Purchasing is a continuous process that requires continuous review. And review and monitor everything to account for changes in your environment. payment terms. Eliminate Disputes Disputes with your suppliers are typically the result of a problem with your purchasing/receiving process.” Detailed definition of Internal Control per ISA 65 is given below The term “Internal control system means all the policies and procedures (internal controls) adopted by the management of an entity to assist in achieving management’s objective of 5 paragraph 6. actual operating practices. 7. errors or irregularities that may occur. The system should be designed to discourage occurrences of errors or irregularities and to identify. international Standard on Auditing 22 . According to Arens & Loebbecke “a system of internal control consists of policies and procedure designed to provide management with reasonable assurance that the company achieves its objectives and goals. new pricing. and more. Communicate with your suppliers to improve the process. The system includes organizational design. This will save you time. within a reasonable time frame. new products. The internal control system encompasses a variety of internal controls such as background checks of prospective employees for sensitive positions to locking the door when the office is closed for the evening. Ask suppliers to submit their invoices electronically. consolidating vendors. It is the management of business risks and is a dynamic process that changes as personnel and Circumstances change. 3. expedited fees. physical barriers to protect assets and all personnel. written policies and procedures. resources and losses due to waste. odd lot penalties. Consider: transportation charges. review your purchasing procedures to ensure that they are producing the correct metrics and that you are not forced to pay for your mistakes.5 Definition of Internal Control An internal control system is the process that an administrator uses to provide reasonable assurance that the unit's goals and objectives will be achieved. new vendors or buying groups. Communicate with Suppliers Communicate with your suppliers to improve the process. 6. the orderly and efficient conduct of its business. The requirement is that if the auditor wishes to rely upon controls as part of his audit evidence he must: Gain an understanding of those controls. personnel policies and procedures and segregation of duties. as far as practicable. states (paragraph 2) about the importance of internal control that the auditor should obtain an understanding of the accounting and internal control systems sufficient to plan the audit and develop an effective audit approach. proper recording of transactions and the efficient and effective accomplishment of the units and university's goals and objectives including compliance with federal. and monitoring of the internal control system 23 . There is no requirement that the auditor is to rely on any particular control. state. The internal control system extends beyond those matters which relate directly to the functions of the accounting system and comprises The control environment means the overall attitude. the accuracy and completeness of the accounting records. including adherence to management policies.ensuring. The entity’s organizational structure and methods of assigning authority and responsibility. the safeguarding of assets.7 Responsibility for Internal Controls The administrator who is responsible for the accomplishment of goals and objectives is also responsible for establishment. awareness and actions of directors and management regarding the internal control system and its importance in the entity. Management’s control system including the internal audit function. 3.6 Need of Internal Control The internal control system provides for safeguarding of assets. maintenance. The auditor should use professional judgment to assess audit risk and to design audit procedure to ensure it is reduced to an acceptably low level. Factors reflected in the control environment include: The function of the board of directors and its committees. Study the operation of that control and evaluate the operation of those controls 3. International Standards on Auditing relating to Risk Assessments and Internal Control. and the timely preparation of reliable financial information. and university rules and regulations. Management’s philosophy and operating style. the prevention and detection of fraud and error. increase the time required to process transactions and add no value to the activities. provided to all staff. increase the complexity of processing transactions. and expectations for compliance communicated to staff. 3. not recorded properly 24 .9 Components of Internal Controls Environment Control The control environment includes administrator's attitudes that are then reflected in the employees' attitudes. 3. Background checks should be performed prior to hiring for key positions. state. Poor or excessive internal controls reduce productivity. Policies and procedures should be written. An administrator's attitudes should support ethical values and good business practices. and University rules. Disciplinary action should be consistently applied to all employees. protection of the university's assets including its human resources. and procedures. He or she must ensure that the funds entrusted to the unit are used appropriately. There should be no tolerance for fraud or conflicts of interests. and who is in a position of risk. He or she should ensure that employees also support ethical values and have the technical competence for the position. They provide reliable financial reporting for management decisions. He or she should determine what can go wrong. Risks may include: Public scandal Revenues not received or if received.which helps ensure the accomplishment of those goals and objectives. They ensure compliance with applicable laws and regulations to avoid the risk of public scandals. what assets are at risk. Good internal controls help ensure efficient and effective operations that accomplish the goals of the unit and still protect employees and assets. what areas have the most risk. He or she is responsible for the sound financial condition of the unit. An administrator should promote compliance with university policies and procedures through his or her actions as well as through unit policies and procedures. regulations. The administrator may delegate some of the related duties but cannot delegate accountability. Administrators must support compliance with university policies and procedures if they expect employees to have that attitude. and compliance with federal.8 The Importance of Good Internal Controls Good internal controls are essential to assuring the accomplishment of goals and objectives. Risk Assessment Administrators should identify and analyze the relevant risks to the achievement of unit goals and objectives. Transactions should be properly documented and the records retained in an organized manner. or available Methods to control risks should be identified and the associated costs analyzed and compared to the risk. For some risks. Assets should be physically secured. misuse or mismanagement of resources. Physical assets should be counted periodically and the results of the counts compared to accounting records. personal property) not used efficiently Assets (financial. Reconciliations of assets to accounting records should be prepared periodically and reconciling items should be resolved timely. Separation of duties provides that one employee does not have the responsibility for all phases of a transaction. space. personal property) not used to accomplish unit goals and objectives Assets (financial. and management's ability to override controls. Control activities include Authorization to initiate or approve transactions should be limited to specific personnel. personnel. there may not be reasonable controls or the cost of controls may be prohibitive. personnel. Uncontrolled risks may result in insufficient resources to achieve established goals through loss. Access to assets should be limited. collusion. space. timely. personal property) may be diverted to personal use Information used for decision making is not reliable. Discrepancies should be reported to appropriate administrators and investigated. Assets (financial. space. Control Activities Control activities are those activities that provide a "reasonable" level of assurance that the unit's goals and objectives will be accomplished. Authorizations can be limited by type of transactions or amount of transactions. an employee with physical access to an asset should not also be responsible for accounting records relating to that asset. personnel. Generally. Absolute assurance is not possible due to costs. Information and Communication System 25 . human error. financial.The purpose of the information and communication system is to help ensure that employees are aware of the unit's goals and objectives. Information and communication systems include: The university's written policies and procedures The unit's goals and objectives The unit's documented policies and procedures Organization charts Position descriptions Performance evaluations Training programs An essential part of the internal control system is an effective information and communication system that ensures that employees know what they are supposed to accomplish and how they are to do it. It should be performed by supervisory personnel and focused on high-risk areas Monitoring activities include: Spot checks of transactions to ensure compliance with policies and procedure Reviews of outstanding encumbrances Understand internal control-payroll pay lists and employee Reviews of high risk accounts or records including acquisitions and cash leave records disbursements Evaluations of trends Review of supporting documentation Assess planned control riskFigure 4: Methodology for Designing Tests of Controls and Substantive acquisitions and cash Tests of Transactions for the Acquisition and Payment Cycle disbursements Evaluate costbenefit of testing controls Design tests of controls and substantive tests of transactions for 26 acquisitions and cash disbursements to meet transaction-related audit Audit procedure Sample size Items to select Timing . Monitoring Monitoring ensures that the internal control system is operating as expected. The information and communication system must also provide administrators with reports containing operational. and compliance information to monitor progress toward accomplishing established goals and objectives and to allow administrators to make appropriate decisions. and who is responsible for the specific tasks to accomplish them. how they are to be accomplished. These key controls should be examined carefully. The second part is about related document and records kept by IPL. The acquisition and payment cycle of Incepta Pharmaceuticals (IPL) begins with a request for goods or services from various departments and ends with the payment to the vendor by issuing checks. 4. After identifying the weaknesses and assessed control risk. accounts payable is a part of acquisition and payment cycle. Third part talks about the procedure of acquisition and payment with related business functions. For the convenience of discussion I have divided this chapter in to four parts. preparing internal control questionnaires and performing walk through tests for acquisitions and cash disbursements. There are some key internal controls for all business functions mentioned earlier in this chapter.Internal control can be understood by studying the client’s flowcharts. auditor will decide whether substantive tests will be reduced sufficiently CHAPTER FOURE ACCOUNTS PAYABLE & RECORDING PROCESS OF IPL As discussed earlier. And in the last part I have talked about their accounting software in which they maintain a separate module for accounts payable. The first part is about the accounts and classes of transactions in the acquisition and payment cycle of IPL. In some cases the procedure includes budgeting and prior approval of superior before requesting to the authority.1 Accounts and Classes of Transactions in the Acquisition and Payment Cycle 27 . Ledger Ledger Ledger Ledger postal. gardening. nursery. Acquisition of goods6. property. Selling Administrative Legal fees It designed its Advertising documents and reports in such a way that they can be used inAudit multiple expenses Expenses fees purposes. acquisitions are debited against accounts payable and cash disbursement is credited against it. Those accounts are shown in figure (below). Control Control Subsidiary 8 Service refers to all type of short term and long term services like cleaning.2 Recording and Reporting of Accounts Payable Travel expense System Supplies Delivery expense Officer’s travel Repairs IPL maintains a number of documents and reports for its own convenient. For example. plantation. The cycle includes three classes of transactions.The acquisition and payment cycle of IPL consists of the procedure regarding procurement activities in order to continue the day to day business and production process. Figure 5: Accounts in the Acquisition and Payment Cycle of IPL Material Property. and services8 Cash disbursement Purchase return These transactions generate different types of accounts. plant and equipment All type of services Accounts Payable Acquisition of Purchase Account Payable document of IPL returns Cash disbursements Manufacturing expenses Repair and maintenance Taxes Supplies Freight in Utilities Insurance Purchase Prepaid Printing discounts Module expenses 4. we can see that each account is affected by accounts payable. But the reports Taxes accounting software. 7 28 . The name of the software is MAPICS which means Manufacturing 6 Here goods refers to inventoriable items like raw material and packing material. If we note the figure carefully. Refers toSubsidiary tangible fixed assets used by BPL. All these accounts are either debited or credited against accounts payable. plant & equipment7. It helps them to minimize their cost of acquisition as well as control the quality. The Promotional documents are generated from using Expenses are mainly prepared in manual system. software etc. The heading contains the purchase order number. Accounts payable payment voucher 7. purchase requisition number and date. Documents 1. CEP and purchase order number with date name and description of material and service. 5. due date. Purchase Requisition It’s a requisition generate by respective department. 3. 2. advance payment (if any). Besides. unit price and quantity ordered. Purchase requisition Purchase order Material receiving report (MRR) / Goods receiving report (GRR) Invoice / Bill Quality Assurance (QA) Report Records and Reports under Accounting Software 6. estimated budget. justification for proposed expenditure and estimated life of proposed expenditure is also required. terms and conditions.Accounting Production Information Control System. If the requisition is for fixed asset then a CEP (Capital Expenditure Proposal) is raised by the user department. Purchase Order It’s a document through which an order is made. Cash requirement report 11. proposed suppliers name. quantity required and ordered. mode of payment. The documents and reports maintained by IPL from acquisition to payment procedure are. Vendor ledger 8. supplier’s name. it also 29 . It also includes signature and approval of authorized person. Report on payment 1. amount with unit price. 4. terms and condition of order. required quantity. Report on purchase 14. VAT (Musok 11) report 13. MRR number. supplier’s name and address. The body contains the description of required item. A sample of CEP is given in the Annexure –A (Figure 8) 2. Journal register 10. In this case. other relevant dates etc. Tax report 12. Vendor account balance 9. Data elements conveyed by a purchase requisition of IPL include unique number of purchase requisition. unit number. invoice number etc. information about due date for payment. The report indicates item ordered. Invoice / Bill This document is generated by supplier/ service provider that mention the quantity and amount. Deduction and 30 . its quantity. vendor no. invoice no.. The bill is attached with MUSOK 11. From the figure given is Annexure –A (Figure 10) we see that information relating to voucher no. order number. item name. Accounts payable is credited here. It is used to reflect the receipt of goods on consignment or goods returned to supplier. bill number with date etc. purchase reference and other relevant information. The report is also used as inspection report. Because it mentioned information regarding to Quantity ordered before quality test Quantity received after quality test Quality Whether as per specification or not Country of origin Deliver in time or not Pricing Legal requirements etc. 4. 5.e. party name and the number of the account under which the item belongs to is also required. A sample of purchase order is added with Annexure –A (Figure 9) 3. Besides. Material Receiving Report (MRR) / Goods Receiving Report (GRR) It’s a report produced by the inspection department or receiving department. delivery challan etc. unit. 6. quality and description of the received item. advance payment (if any). item number. Accounts Payable Provision Voucher Under this document provision i. entry is given against acquisition. name of the material and supplier with the date of arrival of products. Tax and VAT (Musok 11) Report IPL prepares these reports for calculating the amount of Tax and VAT deducted at source of suppliers. Tax and VAT amount is deducted from the total amount due. signature of the authorized person etc. and MRR no is required with their date for provision journal.describes the mode of purchase. It also includes MRR number. 52 of ITO. rule 16 of ITR-198410. payment amount tax deducted amount etc. number. Vendor account balance It is nothing but a report about the due amount payable to an individual vendor 9r a number of vendors on a certain date. Income Tax Rules 1984. VAT amount and amount excluding VAT. The report includes vendors’ name. amount excluding tax amount. has been mentioned. 10. 9 Income Tax Ordinance 1984. AP journal voucher number with date. Accounts Payable Payment Voucher It’s the preliminary entry of a invoice in accounting software. From this register management of IPL will get all related information of accounts payable transaction for a certain period of time. The reports contain vendor number. Report on payment It’s a statement of payment to vendor. voucher no with date. tax amount. Report on purchase It’s a statement that informs manager about the amount of purchase that has been acquired from an individual vendor. A sample of tax and VAT report is added with Annexure (Figure 11) 7. From this report management of Finance and Accounts Department can be informed about the cash to be paid to individual vendor for a certain period of time. item or batch no. and the VAT Act-1991 (Musok 11). amount. mode of payment. code and the total due amount. A sample of this voucher is given in the Appendix-A (Figure 12) 8. 9. 10 31 . vendor name. Even the register also informs about whether any payment has been made or not and the due amount of that period. 11. For example.19849. total amount due. Cash requirement report It’s a managerial enquiry regarding vendors’ payable amount to forecast the current liabilities. Here vendor’s name. if management wants to know about the amount of purchase of an individual vendor for a certain period of time with related deductions they can get it from journal register. and period. The voucher contains the information of the payment date. party name and other related information.calculation is made according to section 51(A). Receiving goods. material and services Requisition of respective department 4.3 Acquisition and Payment Cycle of IPL This cycle defines the buying process from initial need recognition through to cash disbursement. 2. Recognizing the liability With approval of the departmental head 5. 1.4. MRR / GRR and approve Sent bills to accounting department Payment procedure is complied with sec Figure Acquisitions 51(A). or by receiving department Produce MRR / GRR Receiving bills by purchase department Comply the bills with order. Processing purchase order 3. The procedure includes following business functions. Here I am going to describe the whole procedure of acquisition and payment procedure of IPL. Processing recording Tenderand / Quotation callcash disbursement Issuing order By Purchase Department or by User Department Receiving goods / Services by factory/ Respective Department By QAD.652 of income tax ordinance-1984 and rule 16 of income tax Rule1984 and Musok 11 of VAT Act 1991 Accounts payable journal voucher/ provision voucher and Payment Procedure of IPL Ready for payment Accounts payable payment voucher 32 Issuing check . plant and equipment acquisition. a budget has to be prepared 33 . gets approval of the departmental head and with the approval an authorized person sends purchase requisition to purchase department to initiate purchase. The respective department identifies its need.Processing Purchase Order The procedure begins with need recognition. In case of property. before sending purchase requisition. In case of raw or packing material. When the purchase department got the requisition. it has been inspected by the inspection or QAD. it calls for quotation11 or tender12. After receiving the quotation or tender. And in case of raw or packing materials. goods and services an MRR is issued for material and other than material a GRR is issued by receiving department to purchase department. If the departmental head or higher authorities. Normally. 1. 2. User department inspects non standardized items like services. Inspection department inspects machineries. Goods and Services Generally the goods and services are received by the user department who has issued the purchase requisition or in some cases by the authorized department. whichever is required. QAD inspects standardized items like raw material. In the mean time the invoice or bill is received by the purchase department. After receiving materials. 12 Tender is a means of selecting supplier. Before using the product by user department that is at the time of delivery. The supplier may be local or international. computer Packing Accept or IT related products are inspected by IT department. the purchase order is issued by the factory. Materials are received by Quality Assurance Department (QAD) in the factory.by the user department. The lowest bidder with required quality is selected. packing material etc. approve the proposed budget a purchase requisition is sent to purchase department. order Slip Vendor Refuse the order Goods & Reorder the item services Received on condition Figure 7: receiving function Delivery by User department/ Factory Packing slip by Purchase/ Planning Dept Goods & services Count & Inspect MRR/ GRR Vendor goods by respective departments 11 Quotation is an indication of the price at which a seller might be willing to offer goods for sale. QAD examined the materials on a sample testing basis and provide a certificate. A purchase register is maintained by the purchase department in which they maintain all the required information relating to a consignment. plants etc. by user department or by authorized department. Receiving Material. furniture are byPurchasing HR department. an order for the purchase is than issued by the purchase department. 34 MRR/GRR Goods & services Warehouse/ Factory/ Ready for Use . stationeries etc. If the terms and conditions are in favor of both IPL and the selected supplier. the planning department determines the quantity and timing of raw materials. For example. This department informs the purchase department when to buy materials. 3. Again at IPL there are some authorized departments for inspection. supplier has been selected. The source documents for recognizing the amount of liability for acquisition are. If every thing has been complied. There is a seal on the invoice named ‘Approved By’ with the signature of purchase manager. It means the purchase department is satisfied with the information mentioned in the bill. The accounts and finance department is then ready for giving provision voucher. Report on purchase Vendor account balance Vendor ledger Journal register Tax report VAT report 35 . He examines the not negotiable copy of bill/ invoice at the time of giving provision voucher. Generally the liability is recognized when the vendor sends the invoice or bill. A copy of all this documents is kept by purchase department and the main copies along with copies not negotiable are sent to accounts and finance department. But in some cases it may be recognized at the time of goods received. the amount payable to supplier is approved by the purchase department.Recognizing the Liability The purchase department compares the invoice/bill and MRR/ GRR/ QC with the purchase order. An authorized person is liable for giving provision voucher. In some cases the payment may be made by cash or by bearer check or paid in advance fully or partly. By ‘payee only’ check 2. In most cases the payment is made by payee only check. It is recorded in the record book after the sign has been made. The same person checks the arithmetical accuracy. MRR/ GRR. The mode of payment is usually pre numbered check. If the checking is matched with those reports checks are issued to pay vendor. In this stage another report is prepared for forecasting cash requirement. The payment voucher is given by the same person who has checked the reports and payable amounts. The due amount for an individual vendor is identified from vendor business position report. cross casts. After all the procedure has been completed the check is given to vendor and the counter foil of that check is preserved by IPL. casts. deductions and payable amounts. It is prepared by that person who will give the payment voucher. So we can say that IPL pays its supplier in three ways1. By cash or bearer check 3. An individual person enters data in “MAPICS” for having this reports and forecasts. If the payment amount is large part by part payment is Vendor made. This voucher includes original bills. Purchase Factory/ User Department Purchase order department MRR/GRR Vendor invoice Approve vendor invoices by purchase department Bill/ Invoice Purchase Order MRR/ GRR VAT (MUSOK 11) Figure 8: Pay for Goods Function Accounts & Finance Department Pay Vendor (cash 36 disbursements A/P Payment Voucher A/P Provision Voucher Checks . Pay in advance ( partial/ full) Issuing check is a sensitive issue. Vat (musok 11) and challan.Processing and Recording Check/ Cash Disbursement After a certain period of time when the date becomes matured for the liability the payment is made by IPL. The matured date has been calculated in the aged payable report for each vendor. And it is signed by senior management. File Maintenance B. Through this module related transactions’ records and reports mentioned earlier are kept. Transaction Processing D. Payable Figure 9: Accounts PayableAged Module 4. Cash Requirement Report Following items are the part of AP module.4 Accounting Software Tax Report Vat Report Vendor37 Business Position Create Web Page . The use of the module implementation data is controlled by user password.Accounts Payable Module A. Journal Register Only theMaintain authorized personnel of IPL are allowed to use this module. Reports Maintain vendor master Journal Register Reports on Purchase List vendor master Reports on Payment List vendor code Vendor Ledger Both Vendor Ledger Maintain item code Vendor Account Balance List item code In MAPICS IPL maintains a separate accounts payable module for its own convenient. Year End C. Inquiry E. Accounting Payable System.John Wiley and Sons. 2000 Edition CHAPTER FIVE ACCOUNTS PAYABLE INTERNAL CONTROL SYSTEMS OF IPL 38 . methodology for designing tests of controls and substantive tests of transactions has been described. But before starting I want to confess that I have some inherent limitations. Internal control system is very sensitive issue for any organization and I was only an intern at BPL for three months. relating to accounts payable. 39 . The picture that I have drawn in the following sections is prepared on basis of interviews with Incepta personnel. After appropriate review of the report necessary corrective actions are undertaken. IPL claims that it employs a sound system of internal control including internal financial control to ensure compliance of its activities with the desired objectives.In the literature review section. 5. 5. It reviews the system periodically Inspects what is done in the factory Inspect the inward and outward of materials and finished goods Review the cash receiving and disbursement process Monitor the activities to make sure that the standard and procedures set out for each business function is being effectively complied with etc.2 The Controlling System of Accounts Payable A brief description of controlling system of accounts payable of IPL is given below. So it was not possible for me to do all the theoretical works.1 Internal Control Committee IPL has a specially assigned team to carry out internal financial audits of different segments of the business. The team is known as FSD (Financial System Department). internal control questionnaires and my personal observations and assumptions. The team is headed by a manager who reports to the CEO. It also says that the FSD carries out internal audits of different segments of the business. In this section I am going to draw a picture of internal control system of Incepta Pharmaceuticals Ltd. The description is designed on basis of internal control questionnaires attached in the annexure section. they are inspected by user department. Both purchase order and purchase requisition requires approval of departmental head of user department or factory. For example Table 4: Cross examined assets Computer & Other IT related assets Office Equipments or Furniture & fixture Manufacturing Equipments Raw and Packing materials Department for cross examination MIS Department HR Department BRD Department. who are responsible for inspection and what is inspected there. Receiving Material. In some cases items are received by another department. Annormation Systems”. Normally the user department receives items. From the recording process we see that how each of the items is examined. Normally the need for such requirement is reviewed by cross sectional departmental check. It inspects the items received and after inspection the product is sent to user department. Invoice computations and pricing are verified before approval for payment and are paid in a timely manner so that discounts may be taken. Before inspection no products will be used. Recognizing the Liability and cash disbursement Invoices are matched with purchase orders and receiving reports before approval for payment. Planning Department Accounting Inf. Ninth Edition So possibility of orders for unneeded goods or more goods than need has been checked by this cross sectional verification. Copies of the order forms are distributed to receiving and accounting departments. a third one. Monthly statements are compared with accounts payable balances. Goods and Services When ordered products are received. According to me the internal control system at this stage is satisfactory because the ordering department and the receiving department are different. Pearson Education. Payable Subsidiary Ledgers are reconciled to the control accounts monthly. Claims are filed promptly for goods damaged in shipment. 40 .Processing Purchase Order In case of purchase unique-numbered purchase and field order forms are used and strictly accounted for by number. and initials of individual taking action. The bank checks of IPL are pre-numbered. rules. 5.3 Internal Control Keys for Accounts Payable In this section I am trying to compare my practical knowledge with theoretical. Authorization of Purchases 2. Disbursements are handled in such a manner as to ensure that the proper funds and accounts are charged. Bank statements are reconciled at least monthly by an employee not involved in cash receipt or disbursement procedures. Controls are established to assure that all payments are made on a timely basis and in accordance with all purchase orders and contracts and to ensure that duplicate payments are not made. The preparation of checks. Each cash disbursement is properly vouched and approved by the proper authorities of the agency before the actual disbursement occurs. The recording of disbursements. Blank checks are to be kept in locked storage under the control of a designated. responsible employee. A separate record is maintained for each check series issued or voided. reason for voiding. In IPL original invoices totaling the amount of the disbursement are to be attached to each voucher before payment. and regulations governing the disbursement are followed. invoices. inclusive serial numbers. employee duties in this area are to be complementary to or checked by another employee. Authorization of Payments 41 . quantity voided. Employee duties in the handling of disbursements are separated to the extent possible with regard to: The initiation of purchase requisitions and field orders. and warrant registers. The same person mails and prepares checks someone approves bills for payment other than the persons who sign checks. Bills or vouchers are presented with checks for signature and are marked "Paid only” at the time checks are signed. Separation of Asset Custody from Other Functions 3. and that laws. Someone maintains physical control of checks other than persons originating disbursement requests. The record for voided warrants is to include the date voided. that the disbursement is used only for authorized purposes.The responsibility for disbursement procedures is clearly documented and assigned to specific personnel of IPL. They are completely filled out before being presented for signature. Disbursements are to be made by and counter signatures provide an additional control. This will ensure the proper and regular review of all disbursements. Normally dual signatures are required on all checks. As described earlier key internal controls for accounts payable are. The approval of vouchers. To the extent possible. Timely Recording and Independent Review of Transactions 4. 1. It also contains the signature of the person raising requisition. But before requisition a budget has been made for that asset. And in case of fixed asset IPL required approval of CEO or deputy chairman. It is not responsible for authorizing or receiving goods. at IPL the user department sent purchase requisition to purchase department with the approval of departmental head. There should be an authorized person for acquisition of products Different authorized personnel are required for acquiring different items Approval of departmental head is required There should be a specified limit. Without purchase requisition no purchase order will be made. If the ordered amount cross that limit approval of Board of Directors is required No purchase order would initiate without purchase requisition Purchase order should be in written form because it’s a legal document to buy The purchase department should not be responsible for authorizing the acquisition or receiving the goods. The purchase department is responsible for making the order only. In case of materials. unit price and suppliers’ name. There are some important controls regarding this area. All purchase order should be pre-numbered and have enough space to minimize unintentional omissions Internal Control Procedure Followed by IPL As described earlier in recording process section. The purchase order document contains a unique number. In each case there is a limit amount for ordering goods. 42 . Separation of Asset Custody from Other Functions Major Internal Control Issue This control key says that The receiving department should initiate the receiving report and the inspection report.Major Internal Control Issue This control is essential because it ensures that goods or services acquired are actually needed by the organization. This unique number is used as reference for further proceeds. It avoids the excessive or unnecessary items. It maintains a purchase register where all given orders are recorded with ordered item. An authorized person check that requisition and made the purchase order. the planning department identifies the required quantities of materials and sent requisition to purchase department. quantity. The same report is also used as inspection report. Again there is a physical control over item from their acquisition to disbursement. A cross departmental monitoring activity is a common scene here. So the personnel are separate from each other. it is received by factory. The personnel in the receiving department should be independent of the storeroom personnel and the accounting department. the ordered items are received by user department. This will help to prevent theft and misuse. Internal Control Procedure Followed by IPL Usually. The receiving department produces the MRR/ GRR. Both documents should be prepared in multiple set. that is raw or packing material. and other assets. and account distributions should be verified. Quality Assurance Department generates Quality Assurance report. Among them one set should be kept by the receiving department and others should be sent to accounts department and store room. It recognizes the liability by analyzing the following documents. Personnel who record acquisitions do not have access to cash. Timely Recording and Independent Review of Transactions Major Internal Control Issue The accounts payable department recognizes the liability at the time of receiving goods or deferred until the vendors invoice is received. But in case of inventorial item. The department has the responsibility for verify the propriety of acquisitions. Adequate documents and records should be kept Internal Control Procedure Followed by IPL IPL recognizes accounts payable as its liability at the time of vendors invoice is received. In case of raw or packing material. marketable securities. Not negotiable copy of purchase order MRR/ GRR Not negotiable copy of invoice/ bill 43 . footings. The department should compare the details on the purchase order. The accounting records should transfer responsibility for the goods as they are transferred from receiving department to storage and from storage to manufacturing. receiving report and the vendor’s invoice Extensions. One copy of MRR/ GRR/ QA is kept by the receiving department. Goods should be physically controlled from the time of their receipt to disposal. one copy is sent to purchase department and another copy is sent to accounts department. Vat report If the person is satisfied with those documents he will then give the provision voucher. VAT (MUSHOK 11) and challan. securities or other assets. A separate person gives the payment voucher. Normally these signs are made by managers or director of accounts and finance. This control includes Checks should be signed by an individual with proper authority The personnel signs the check and performs accounts payable function should be separate The check signer should carefully examine the supporting documents at the time of signing the check The checks should be pre-numbered and printed on special paper Care should be taken on voided and signed checks. he just skims through the attached documents with the payment voucher. Normally the payment is made by pre-numbered check. Authorization of Payments Major Internal Control Issue It’s a very important control. CHAPTER SIX FINDING & RECOMMENDATION 44 . This person does not have the access to handle the cash. MRR/ GRR. The payment voucher includes original bills. Before giving payment voucher he checks all the documents and reports relating to that transaction and also examined that the bills are approved by purchase department. When the authorized person signs the checks. Internal Control Procedure Followed by IPL IPL pays its vendors after the date has been matured for payment. Source of documents (which are provide from Purchase Department) are not timely available to initiate the process of recording transaction and associated works. The existing IPL accounts payable software is looking pretty difficult and not enough friendly for the user.1 Findings Recording process of Accounts Payable in IPL is the most modern in Bangladesh Pharmaceuticals Business. Incepta provide very good job environment for their personnel. 45 . Some of these are missing due to indecent file maintenance. Even when purchase department sends the documents timely. IPL need to provide priority (Job) for the BBA internees. For that reason finance & accounts department respective person fall in many problem to complete party bills and record. and also IPL may loss someone they are looking for. Other wise may they can’t show their best performance in the work. A separate file is maintained in a slapdash manner.2 SWOT analysis of Incepta Pharmaceutical Ltd Strengths The company has successfully built up a good reputation. It requires extra time for searching the right one as and when needed. The following Findings are made on the basis of the research for further improvement of the organization. Purchase department do not verify all relevant information sincerely. Some times documents are received in time but unrecorded and piled up for processing in the future when some other documents will come. 6.6. That is very important for better business. especially without any sequence. Without trained person fall in difficult to operate it. Sometimes they are kept in other files. Its time consuming. Medical promotion officer etc) The product quality of the company is better than any other company The service quality of the company is outstanding. 46 . The product promotion effort of the company is outstanding and beat the company in that industry with a big margin. the company has successfully launched numerous products that provided the utmost demand of the customers as well as good customer satisfaction. The market share of the company is now around 4. The company management is proactive and the company practice a flexible market oriented planning and execution. Doctors. Incepta pharmaceuticals ltd has the necessary technical experts in respective fields- (Chemists. largest and most dedicated to lead in the country. The manufacturing facility of the company is one of the largest and most advanced in the country.47% annual growth rate. The company regularly provides doctors with the latest information regarding the development of the medical science. Microbiologists. Biochemists. The distribution network of the company covers every corner of the country. There is a well-developed formulation research and development laboratory. The sales force of the company is one of the youngest.67% with 42. The company is capable is introducing the latest innovative products in the country. Weaknesses The company is entirely dependent on imported raw materials for production. There is no financial liabilities of the company and the cash flow is steady and stable Over the last five years. There are very few experts on reverse engineering analogue research and chemical synthesis available in this country so company is hiring employees from abroad giving high remuneration. it has the potential to become. If the government extends necessary support to the industry. Employee’s benefits are not up to the mark in many cases. As Indian and Chinese companies will not be able to produce patented active ingredients but they have the necessary technology and expertise in reserve 47 . As the company is new and is heavily investing in capital machineries and infrastructure import from other countries. Opportunities From 2000 onwards Bangladesh being a member of LDC country will be allowed to produce cheap copies of patented drugs and their raw materials. A dedicated human resource development is lacking now. Although the company has plan for export but at the moment is too occupied in local market development and recently started to explore market outside the country. This is a great opportunity for Incepta to penetrate the market at this growing stage. Rules and regulation are still in the process of development. The current level of penetration of allopathic medicine in Bangladesh is low and is expected to increase significantly in the coming days. The employees of the company are relatively young and lack of experience. Recruitment in many areas is lacking in systematic approaches and procedures. Incepta having a CGMP(Current Good Manufacturing Practice ) compliant factory and one of the best technological know Who in the industry can take the expert opportunities that lie ahead. a very big export sectors both API and formulation products to all the LDC countries and off patented formulation products to developing and developing countries. especially in sales and distribution. compare to world Generic Market Threats The present regulation does not allow local companies to advertise their OTC drugs in the mass media whereas these are allowed in neighboring countries already creating a market for those products. s TRIPS and public Health agreement is very likely to result in the rise of production cost of medicine and their distribution which may adversely affect Incepta and the local industry. In the post 2010 scenario Bangladesh may end up not having the necessary raw materials for its products . The implementation of WTO. Taking advantages Of TRIPS Agreement.Incepta may also be forced to buy raw materials from the innovator company at a much higher price leading to price hike and market shrinkage.engineering and chemical synthesis they will be more interested in cooperation with Bangladesh after 2004 As multinational companies will be allowed to come to Bangladesh for business. Patented products for LDC. Chief labor and cost advantage . This situation is very likely to worsen in the post 2010 scenario. 48 . Similarly. Bangladeshi companies will also have access to other countries for export of both formulation products and raw materials under the open market system. The drug act 1940 & the drug policy of 1982 need to be revised soon on order to copy with the post 2004 scenario. So lots of paper works have to be done by IPL personnel. experienced and dedicated staffs possess the power necessary to reach the landmark of quality financial reporting 49 . I communicate with the personnel’s where I was completed my internship program. Incepta Pharmaceuticals Ltd is also the largest exporter of pharmaceuticals from Bangladesh. I think integrated software is a solution for this problem. But it is true that integrated software is a very complex one for a large organization like IPL.. I think that IPL performs an excellent job in compliance with applicable rules and regulations regarding accounts payable. for taken their views and tried to make it more appropriate & precise. To avoid this complexity it could use the same software in the selected departments. The documents are recorded manually. spreading its presence in many developing and developed countries across the globe. Incepta believes in creating the difference in the market place by offering impeccable quality. To make my recommendations more authentic and realistic I have used primary data. Its recording and reporting process are linked with each other in such a way its internal control system of accounts payable is very much strong. But the software is using only by the accounts department. skilled. I have tried my level best to identify the existing recording procedure of accounts payable.3 Recommendations The following Recommendations are made on the basis of the research findings for further improvement of the organization. Because in all steps from purchase requisition to cash disbursement all the documents are reviewed several times by different personnel of different departments. Internal Control According to my view point. Recording Process So far I understand the recording process of accounts payable is quite satisfactory as it uses accounting software. Sometimes it is difficult to find out the exact file. Again if any one wants to know about any information relating to those documents he has to search for the right files. Its recording process and disbursement procedure designed in such a way that the account is controlled automatically. theft or fraud is very low. So the chance of misstatement. professional. It’s very time consuming and may create errors in recording and filing.6. In this report. If the same software will be used by all departments it will be easy to find out required information. You have to press some keys only for this job. IPL operates its accounts payable according to their policy designed for recoding and reporting of that account. I believe that the Accounts & Finance department is equipped with knowledgeable. the controlling system of accounts payable of IPL is very strong. Free Treatment with Medicine and etc. Various new technique to be adopted to increase promotional condition like- To introduce IPL more attractively in front of the general people (bottom level). 50 . to arrange some special program like.Travel Medicine Show.4 Conclusion IPL’s every employee computer knowledge is not same to operate their daily works. Advertisement to be given through the various media’s about the products of IPL for the awareness of the general mass. Social-welfares are a positive sight for an organization to get the public sympathy. So IPL’s try to make their employee fit for their works. Travel Camp Treatment. So IPL needs to involve itself with social welfares related works.6. with the helps of proper training. Free Treatment Festival. Accounts Payable: A Guide to Running an Efficient Department. Jonathan D. 6. “Auditing. Mary S.org/wiki/Accountspayable 7. 2004.com 11. How to find and Eliminate Erroneous Payments. Romeny Mashall B & Steinbart Paul John. Prentice Hall International. APA's Employer Practices. winter 2000. http://www. http://oacr. Arens Alvin A and Loebbecke James K. Schaeffer.1 References 1. “Accounting Inf. 2000. International Standards on Auditing 8. Wiley. Pearson Education.ufl. Fourth Edition.2009.bizmanualz. John Wiley and Sons.An Integrated Approach” .A.com?src=ART81 13.. 2000. Annual report 2008. Risk Assessments and Internal Control.CHAPTER SEVEN REFERENC.edu/Investigations.. 3. Raval Vasant and. Wong-On-Wing Bernard.Essential Concepts and Applications”.wikipedia.org/wiki/Accountspayable 12. Annexure – A (Sample) 7. Ninth Edition 7. Intermediate Group. Eighth Edition.htm#5 14. The Institute of Chartered Accountants of Bangladesh 9. http://en. 5.2010 10.. Casher. Wilkinson Joseph W. http://en. 2. “Accounting Information Systems.2 Annexure-A 51 . Cerullo Michael J.wikipedia. Study Manual on Auditing. 2003. Paragraph 2. http://britannica. Annormation Systems”. 4. Supplier: 6. ___________ Order / Advance Payment Authorized Terms and Condition of Order: Figure 9: Sample of Purchase Order Date From Invoice/ Voucher No________Date_________ To Date………… 52 Amount for Refund______________________ Action Process Approval Approval Amount Due for Payment_________________ _________________ Required __________________________ ________ Authorized Signatures Signature Passed for Payment/ Adjustment Date . Estimated Expenditure 7._________________ Departmental HeadTk. CAPITAL EXPENDITURE PROPOSAL (CEP) SPARE PARTS APPROVA 1. Description of item with ID Number (if Any): 3. Budget Provision: Signature of Budget Officer Approved By Purchase Order No. Finance Advance Required Date: ate: Date: Pay Cash/Issue Check/Order to be Placed_________________________________ Name of the Party_____________________________ MRR NO. Economic life (Years) 5.Figure 8: Sample of CEP Incepta Pharmaceuticals Finance & Accounts Department. Reason/ Justification for proposed expenditure: 8. Remarks 4.Purchase Requisition No……………Date of Receipt by PD……………… SL No.Name and Description of Material / ServiceUnit NoQuantity OrderedUnit PriceQuantity CEO/ Deputy Chairman OrderedAmount1234_______________ Sign of Person Submitted By Raising Requisition________________ Recommended By Recommended By Approval of Departmental Head _______ DateTotal Mode of Purchase Cash / Against Order Purchase Ref. Commercial Director. Classification: Replacement Addition Unit Depth Date Serial # Development 2.__________ Director. Figure 10: Accounts Payable Provision Voucher 53 . Voucher No Vendor No Invoice / Bill Due Date Description Date: : ……..Incepta Pharmaceuticals ……..... ………./ Cr . ………. : ……… : ……… Payable : Vat : Commission : Item AP Journal Voucher ………. : ……… : ……… Date: ……… MRR/QC/WO : ……. Amount Dr Amount Dr Description Signature Prepared by Checked by Approved by Posted by Figure 11: Tax and VAT Report 54 0/00/00 Total (Tk) : Account no Date 0/00/00 Notes Amount (Tk) Dr. Amount Cr. Original Voucher No: …….. Vendor No Signature Check No Date Prepared by Checked by Approved by Posted by 55 type Account no Payee 0/00/00 Amount (Tk) Dr.Vendor’s no Vendor’s name Tax and VAT Report Period Total Tax VAT Other Net amount amount Amount deductions amount due due Figure 12: Accounts Payable Payment Voucher AP Payment Voucher Incepta Pharmaceuticals ……... Voucher No : ……… AP JV No JV Date Date: Original Voucher No: ……. /Cr . (Cash / Bank) Batch/item No : ……..