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An overview & analysis of fixed asset purchase procedure

at Grameenphone IT Limited

By

Tanim Ahsan Chowdhury

ID: 0921071

An Internship Report Presented in Partial Fulfillment of the

Requirements for the Degree Bachelor of Business Administration

INDEPENDENT UNIVERSITY, BANGLADESH

November 2012


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An overview & analysis of fixed asset purchase procedure

at Grameenphone IT Limited

By


ID: 0921071

Has been approved

November, 2012

Dr. A.N.M. Shibly Noman Khan

Assistant Professor

School of Business

Independent University, Bangladesh


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Letter of transmittal

Dr. A.N.M. Shibly Noman Khan 29th November, 2012

Assistant Professor, School of Business

Independent University, Bangladesh

Subject: Submission of Internship Report.

Dear Sir,

It is a pleasure to be able to hand over the report of my internship program on

An overview & analysis of fixed asset purchase procedure at Grameenphone IT Limited.

My best efforts have been provided towards maintaining the quality of this internship

report. The internship program has provided me the opportunity to work with the

employees of Grameenphone IT Ltd, which has provided me with valuable understandings of

the corporate culture & values present in such an organization. This program really helped

me to enhance my practical knowledge regarding a professional work environment.

I, therefore, convey my sincere thanks to you for your kind cooperation, supervision and

advice in conducting and preparing this report. I have completed the whole internship

program with great enthusiasm. Despite some limitations I sincerely hope this report will be

worth reading and help you gain an insight regarding the research topic.

Yours sincerely,

_____________________


ID: 0921071

BBA

Independent University, Bangladesh.


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Acknowledgement

First and foremost, I would like to express my gratitude to the Almighty Allah, the

omnipresent and omnipotent, who kept me in good health and provided me with the

wisdom to complete this task in a properly and timely manner.

The accomplishment of this study has been made possible by the generous consideration of

the people at Grameenphone IT limited and my supervisor at IUB. I am happy that I am given

this opportunity to express my gratitude towards these good people.

I would like to acknowledge the valuable work experience I received during my internship

period at the Grameenphone IT limited working at the Treasury & Financial management

department. I will be forever indebted for the guidance & constant supervision provided to

me by the members of this department as well as necessary information for this research.

I would like to express my sincere gratitude to my Supervisor Dr. A.N.M. Shibly Noman Khan

for taking the time to review my progress and provide valuable feedback throughout the

course of my internship. He provided me with suggestions on how to improve my report &

what corrections were needed which proved to be quite valuable.

I would also like to thank my organization, Independent University, Bangladesh and my

mentors for providing me with the opportunity of self-development through practical

experience

Lastly, I would like to express my thanks to the authors, researchers, article writers whose

books and articles I consulted/quoted and who helped me in every stage of the report by

providing valuable information and suggestion in respect of preparing this report.


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Executive Summary

Our IT industry is currently an emerging sector in our country with a lot of potential.

However it is not quite at a place where it can be considered globally competitive.IT

company`s put the blame lack of infrastructure support while the government blames the

lack of aggressive initiative from the companies. The fact of the matter is that we have no

viable long term growth strategy in place. Even though the top IT companies are earning

hundreds of millions in revenue they are still running at a loss. Capital asset acquisition is a

major source of expenditure in any industry. In the IT industry assets are of more

complicated nature which is why proper controls need to be in place to prevent any excess

spending be it intentional (fraud) or unintentional (error).The key focus of this paper is the

identification & analysis the internal controls that are in place in the fixed asset purchase

procedure at Grameenphone IT limited. Since it is only through such analysis their

effectiveness at safeguarding the company`s assets can be assessed.


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Table Of ContentSerial no. Contents Page no:

1.0 Chapter 1: INTRODUCTION 1-3

1.1 Introduction 1

1.2 Origin of the report 2

1.3 Problem statement 2

1.4 Purpose of the study 2

1.5 Limitations 3

2.0 Chapter 2: IT Industry overview 4

3.0 Chapter 3: Company overview 5-73.1 Corporate Profile 5

3.2 Global Partnership 5

3.3 Employee & Organization structure 6-7

4.0 Chapter 4: Literature Review 8-12

4.1 Role of accounting in todays world 8

4.2 The importance of Accounting Information System & IT 9-11

4.3 The Importance of internal controls 12

5.0 Chapter 5: Research 13-24

5.1 Research problem 13

5.2 Methodology of the research 13

5.3 Data collection process 13

5.4 Data Analysis Procedure 14-16

5.5 Process description 17-195.6 Process flowchart 20-21

5.7 Research findings/Data interpretation 22-26

6.0 Chapter 6: CONCLUSION 27

References 28-29

Appendix 1: Interviews 30-35

Appendix 2: Forms & Indexs 36-37


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An overview & analysis of fixed asset purchase procedure at Grameenphone IT Limited

Page | 1

Chapter 1: Introduction

1.1 Introduction

It was only some time ago the IT industry in your country consisted of pre-dominantly a

hardware sector with little presence of IT service or software firms.It is probably one reason

why we still have such a huge number of IT hardware vendors compared to software

vendors. This resulted in our pc penetration being one of the lowest in the world standing

currently at 4.5 per 1000 person in the country (source: Basis).In present time however the

scenario is changing. The government is working with both foreign and local investors to

come up with a long term framework for the IT industry which would hopefully ensure the

proper support structure in place for the unhindered growth of the IT industry.

The IT industry is an emerging industry with large and expending yearly revenue earning

which holds the potential to be one of the major foreign revenue earning sectors in our

country. As such this makes this sector particularly venerable to accounting malpractices,

mistakes, frauds etc.

Asset acquisition is a major source of revenue outflow for any company. This holds especially

true for a newly booming sector like IT. This is why companies such as GPIT Ltd must take

precautions so that unnecessary/fraudulent expenditures do not occur. The general

procedures under Bangladesh Accounting Standard (BAS) mostly designed to safeguard

against frauds, mistakes that are common to the dominant business sectors during such

expenditure procedures. This leaves sectors such as IT which makes specialized capital asset

acquisitions open to innovative fraudulent activities if strong internal controls tailored

toward such vulnerabilities are not installed & maintained.


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1.2 Origin of the Report

This report has been prepared as a means of completion of the requirements of the

Internship program of school of Business of Independent University, Bangladesh. This report

is the conclusion of three-month internship program. Grameenphone IT Limited is the

organization where I gathered experience about the operations of the Treasury & Financial

management department. I worked under the close supervision of Dr. A.N.M. Shibly Noman

Khan. He approved the topic on which I prepared this internship report.

1.3 Problem Statement

As with any newly emerging industry the IT industry holds the potential for financial

mismanagement & accounting malpractices and so on. This is due to the fact that the

accounting systems in place to safeguard the companys assets have not been thoroughly

tested through repeated use, refined thorough detection of mistakes, fraud etc as it happens

in older and more mature industries. This is why proper internal accounting internal control

is crucial to prevent fraud, mistakes, errors etc. The key issue this research paper tries to

address is whether the internal controls in place regarding the fixed asset purchase

procedure are effective at preventing such things and if how far have they matured in the

course of past few years.

1.4 Purpose of the study:

The first and main purpose of this report is to fulfill the partial requirement of the internship

program. The aim of this research is to provide an accurate overview of how the purchase

procedure (fixed asset) at Grameenphone IT Limited is carried out & analyze the degree of

effectiveness of the internal controls regarding the process those are in place. To accomplish

this aim three key objectives have been deemed necessary. These objectives can be


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regarded as sequential objectives as without the accomplishment of one the next cant be

achieved.

The three key objectives are given below:

o To collect data regarding the fixed asset purchase procedure

o To craft an overview of the fixed asset purchase procedure based on the data

o To evaluate the effectiveness of the internal controls regarding the procedure

1.5 Limitations:

Although I will be trying to the best of my ability to make this research free from error and

accurate there are some there is some limitations. Some of the effects of such limitations

have been minimized while others were present due to the nature of the study itself thus

they cannot be avoided. As stated before the key basis of this research will be my

observations & the interviews with the experienced personal at Grameenphone IT limited.

The quality of both depends upon my proper execution which might be hindered due to my

lack of experience in conducting interviews business environment. The limitations that I

faced during the course of my internship are summarized below:

o Lack of practical work experience may lead to oversight of some of the factors

o Accuracy of research will be questionable due to the vast nature of the organization

o Some of the data being used are of sensitive in nature as such not all the information

which would aid in this study were made available

o The analysis of the information gathered is subjective thus may lead to different

conclusions if assessed by some other individuals


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Chapter 2: IT Industry overview

Although the IT industry is relatively new in Bangladesh, It holds great potential and has

commended the attention of both foreign & local companies. Currently there are over 800

ITES (IT Enabled service) & Software firms and few hundred more unregistered IT based firms

working in the country. The firms are currently catering to both local and foreign clients,

earning a yearly industry revenue amounting to Taka 1800 crore. (USD 250 Million)

The industry currently employees around 30,000 professionals, while in itself that doesnt

sound like much but keep in mind these are considered high quality employment (average

salary ranging from BDT 15,000+).This in itself makes the IT industry one of the top

employers of graduate students in the country. (Source: Basis)

Our country`s key strength lies in the deeply rooted origins in the English language over

many centuries used in all areas of life. This coupled with the fact that we have an

abundance of graduates willing to work at a fraction of the wage of their foreign

counterparts makes it an ideal destination for software & IT services outsourcing.

Chart 1: Snapshot of the IT industry


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Chapter 3: Company overview

3.1 Corporate Profile:

Grameenphone IT Ltd. (GPIT) is the leading fastest growing IT Company in the country; it is

registered with the Registrar of the Joint Stock Companies and Firms of Bangladesh under

the Companies Act 1994. It is a 100% subsidiary company of Grameenphone Ltd and was

incorporated on 28 January 2010 with the objective of providing IT related services to GP

and other external parties. As a leading IT company, GPIT is providing end to end solutions

for Bank, Financial Institute, FMCG, Pharmaceuticals and Telecom Industry further

highlighted in the table below. They bring a team of talented individuals dedicated to

creativity, service and efficiency to their customer. Purely devoted to bringing clients

noticeable transformations in their operational efficiency and GPIT strive to provide

inventive end-to-end IT solutions which are unsurpassed in value and quality.

GPIT Products GPIT Integration & Managed Services

Banking & Financial

Business Support

Solution Communication Infrastructure

Human Resource Management System Mobile Banking ERP Contact CenterServer &

Storage

Approval Management System Internet Banking Collaboration IP Telephony Oracle Exadata

GPIT Crystal

(Logistics distribution tracking system)

Loan Origination

System

& Content ManagementVideo Conferencing

& Exalogic

Enterprise Resource Planning (ERP) MiddlewareUnified

Communications

3.2 Global Partnership:

GPIT is looking forward for other partnership opportunities with large and medium sized

companies that have worked with relevant portfolios and sectors for adding more value to

the business. Retaining the existing partnerships and expanding them in a large scale will be

there focus in validating and aligning the company.

Chart 2: Product & ITES services of GPIT


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The existing partners of GPIT include IBM, Dell,HP, Wipro, Huawei, Microsoft, Cisco and

other global giants from whom GPIT leverages extensive product/solution.

3.3 Employee & Organization structure:

GPIT continues to drive development and learning through encouraging a structured

approach towards capability analysis and ensuring development initiatives. Currently GPIT

employees close to 400 people. In orders to ensure productivity and cost efficiency GPIT

introduced innovative and cost-effective Such as utilizing working from home concept and

flexible hour mechanisms. Currently its working on the process of building people and

process capacity for achieving ISO and CMMI certification and maturity alignment.

As it can be seen above in the chart 3 is the tier 1 organogram of Grameen Phone IT limited

highlighting the first level management team.The two exceptions being the director for

strategic busines devolopement who works on forming strategic partner alliances &

cordination specialist who cordinates the Chief executive officer activites.

Chart 3: Tier 1 Organogram of GPIT


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Above in chart 4 is the tier 2 organogram specifically of the GPIT Finance department as it

can be seen the finance department is sub-divided into five additional sub-departments each

working under a sub-department head. The functional scopes of each of the

sub-departments are describes in brief below:

a)

Corporate Strategy & Business performance: Business planning, Operational

efficiency program, Target setting, Investment planning & approval, Management

Reporting

b) Treasury & Financial Management: Accounting, Financial reporting, Cash

management, Fiscal compliance, Tax & Vat compliance

c)

Legal & Corporate Affairs: Legal & Regulatory compliance, handling regulatory

approvals, Stakeholder management

d) Business Excellence: International standardization (ISO 20000),Service Management

Policies, procedure and guidelines preparation risk management

e) Sourcing: Sourcing policies, Supplier relationship management, Supply chain

management

Chart 4: Tier 2 Organogram of GPIT (Finance Department)


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Chapter 4: Literature Review

4.1 Role of accounting in todays world:

In the modern world that we live in, accounting is one such discipline that every one needs

to have some knowledge about regardless of job position. Its concepts are in everywhere

regardless of job specialty, its importance has been promoted in recent years, and it is useful

in peoples everyday lives. Firstly, some basic accounting knowledge is important because it

can be applied in all job specialties. Secretaries must use accounting skills to manage the

company check book and orders, auditors have to study financial statements to evaluate the

accuracy and integrity of the business, and executives need to judge the success of their

business using accounting statements from the past and present.

Secondly, knowledge of accounting is more crucial now days because in recent years, people

in the business world have been held more accountable for their financial practices. Since

the crises such as Enron, WorldCom when independent auditor Arthur Anderson failed to

report illegal accounting practices, the SEC has been monitoring public corporations more

closely. Thus, companies require some basic knowledge of accounting to avoid any future

misstatements unintentionally occurring. (cws.cengage.co.uk)

The modern business environment has changed drastically in a short time. Business

technology has advanced business functions and operations to levels not previously believed

possible. Although accountants and the accounting profession have retained their

fundamental roles they have grown into various branches of the profession, which have

developed their own specializations such as performance benchmarking, Forecasting,

Compliance testing, Fraud detection etc. responsibilities.


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4.2 The importance of Accounting Information System & IT industry:

Accounting Information System (AIS) is vital to all organizations (Rahman et al.,

1988;Wilkinson et al., 2000) and perhaps, each organization either profit or nonprofit-

oriented need to maintain the AIS (Wilkinson, 2000). On the other hand, an AIS is the whole

of the related components that are put together to collect information, raw data or ordinary

data and transform them into financial data for the purpose of reporting them to decision

makers (Mahdi Salehi, Vahab Rostami & Abdolkarim Mogadam, 2010). To better understand

the term Accounting Information System, the three words constitute AIS would be

elaborated separately. Firstly, literature documented that accounting could be identified into

three components, namely information system, language of business and source of

financial information (Wilkinson, 1993). Secondly, information is a valuable data processing

that provides a basis for making decisions, taking action and fulfilling legal obligation. Finally,

system is an integrated entity, where the framework is focused on a set of objectives (Bhatt,

2001; Thomas and Kleiner, 1995). Accounting literature argues that strategic success is

considered an outcome of Accounting Information Systems (AIS) design (Langfield-Smith,

1997).

Several, studies have analyzed the role of AIS in strategic management, examining the

attributes of AIS under different strategic priorities (Ittner and Larcker, 1997; Bouwens and

Abernethy, 2000).

It has also been analyzing the effect on performance of the interaction between certain

types of strategies and different design of AIS (e.g. different techniques and information).

The appropriate design of AIS supports business strategies in ways that increasing the

organizational performance (Chenhall, 2003).


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Increasing AIS investment will be the leverage for achieving a stronger, more flexible

corporate culture to face persistent changes in the environment. Innovation is the incentive

with which a virtuous circle will be put in place, leading to better firm performance and a

reduction in the financial and organizational obstacles, while making it possible to access

capital markets.

Accounting Information Systems (AIS) are a tool which, when incorporated into the field of

Information and Technology (IT), were designed to help in the management and control of

topics related to firms economic-financial area. But the stunning advance in technology has

opened up the possibility of generating and using accounting information from a strategic

viewpoint. Since this is important for all firms, it is more important even for medium-sized

and small ones which need this information to deal with a higher degree of uncertainty in

the competitive market (El Louadi, 1998)

The main advantages of an optimal use of AIS in an industry such as IT are: better adaptation

to a changing environment, better management transactions and a high degree of

competitiveness. There is also a boost to the dynamic nature of firms with a greater flow of

information between different staff levels and the possibility of new business on the

network and improved external relationships for the firm, mainly with foreign customers

accessed through the firms web. With the existence of more intercommunication there are

increased chances for diversification of traditional businesses. Nonetheless, excessive use of

these tools may decouple the quality of interaction between workers and customers with a

consequent reduction in productivity. Therefore, there are authors who defend the need for

a profound change in firms organizational culture to make these installations productive

(McGrath, 2006).


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Despite of some authors who postulate that the direction of the cause-effect relationship is

only that companies achieve a high performance when they can afford the implementation

of certain technological developments (Damanpour, 2001). Others indicate that firm

performance drops just after the implementation, taking several years to realize the benefits

from IT adoptions (Wah, 2000). There are several research works, which, in the widest sense,

have studied relationships between performance indicators and IT, and how IT impact on

firm performance achieving inconclusive results.

For the first time in 1966, the American Institute of Certified Public Accountants (AICPA)

stated that: Accounting actually is information system and if we be more precise,

accounting is the practice of general theories of information in the field of effective

economic activities and consists of a major part of the information which is presented in the

quantitative form. In the above definition, accounting is a part of a general information

system of an economic entity. Boochholdt (1999) defines accounting information systems as

systems that operate functions of data gathering, processing, categorizing and reporting

financial events with the aim of providing relevant information for the purpose of score

keeping, attention directing and decision-making. Recently several studies have asserted

that AIS plays a proactive role in the strategy management, acting as a mechanism that

enables organizational strategy (Chenhall, 2003; Gerdin and Greve, 2004). Strategy has been

examined using different typologies, such as Porter (1985) or Miles and Snow (1978). The

latter has been extensively used in management literature (Zajac and Pearce, 1990). In the

present study it is assumed that the organizational performance is a function of the financial

performance, performance management and the AIS. Fitness will exist in the combination of

strategy and AIS that contribute to financial performance.


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4.3 The Importance of internal controls :

There is currently considerable interest in the topic of internal audit and its contribution to

exact management of any business economic resources (Kantzos and Chondraki, 2006;

Rittenberg, 2006).

This developing role of the internal auditing is also reflected in its current definition, i.e.

Internal control is the system of internal administrative and financial checks and balances

designed by management, and supported by corrective actions, to ensure that the goals and

responsibilities of the organization are achieved (Cahill, 2006).

In accordance with the above, growth in international financial markets has given companies

the opportunity to design new products and to provide a wide range of services, there can

be noticed an increase in associated risks (Palfi and Muresan, 2009).

Simultaneously, there is growing management recognition of the importance of

implementing a good internal control system as some of the recent reports on institutional

failures have highlighted fraud and negligence as the major contributory factors

(Chan, 1995).

In other words, the activities of internal audit are now seen as critical elements in the

assurance process. Strong internal control systems have long been seen as particularly

relevant to a company because of their vulnerability to fraud and the links between

information systems and money (Cahill, 2006).

As it is mentioned before, internal auditing is a critical component of an organizations

management and a foundation for its safe and sound operations (Drogalas et al., 2005;

Karagiorgos et al., 2010)


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Chapter 5: Research

5.1 Research Problem:

The key problem this report tries to assess is that is whether the internal controls regardingfixed asset purchase procedure at Grameenphone IT limited are effective enough to prevent

things such as:

o Unnecessary/Excess spending on asset purchase

o Loss of assets due to internal theft

o Misrepresentation of the asset value in the books

o Lack of reliability of the financial information generated

5.2 Methodology of the Research:

This research has been carried out through the use qualitative techniques & personal work

observation. Interviews (Appendix 1)have been conducted with at least one employee from

each of the key departments involved in the fixed asset purchase procedure. Summative

content analysis technique was used to extract relevant data from the interviews. The

gathered data was used to frame a process description of the fixed asset purchase procedure

of Grameenphone IT limited. The process description was then used as a basis to craft the

process flowchart to visualize the problem. The data then have been analyzed on the basis of

five key internal control activities focusing on few key activity criteria`s to determine the

overall effectiveness of the internal controls the are in place. Depending on the level of

criteria effectiveness GPIT has been rated on 5 stage scale (Poor, Below Average, Average,

Good, Excellent) & ranked overall.

5.3 Data Collection process:

For the purposes of this research qualitative data have been gathered through the following

means. Primary data have been gathered through interviews, observations of the staff and

hands on work experience in different sub-divisions of the finance department at


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Grameenphone IT limited. Rapport building has been used as a tool to gain further insights

and improve quality of the information gathered. Secondary data have been collected from

publications, journals on the subject matter & GPIT SharePoint knowledge database.

5.4 Data Analysis Procedure:

The data analysis procedure has been carried using a content analysis method on the basis of

five internal control activities & their key criteria which are described below:

A) Transaction authorization:Transactionauthorization is the basis by which the authority

to complete the various stages of a transaction is delegated. These stages include the

processes of Recording (initiate, submit, process) & Approving (pre-approval, post entry

review). The key criteria`s and best possible execution for this internal control activity is

given below:

I. Documentation of level of authority: The proper documentation of the level of

authority is crucial as it creates an expectation of responsibility and accountability.

Best possible execution: Organizational policies and procedures are clearly

documented identifying type of authority granted to each employee

II. Authorization knowledge: Refers to the possession of the required knowledge to

properly authorize the transactions under review & being able to verify the

supporting documentation for transaction validity

Best possible execution: Employees are properly trained and informed of related

departmental procedures related to internal controls

B) Documentation: Documentation such as accounting records, journals, and supplier

invoice, delivery log provide a financial evidence of each event or activity related to the

business, and therefore ensures the accuracy and completeness of transactions.


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This includes expenses, revenues, inventories, personnel transactions. The key criteria`s and

best possible execution for this internal control activity is discussed on the below.

I.

Document design standardization: This refers the consistency of design of

departmental supporting/source document template & forms which ensures

transactions are recorded properly. Standardized designs also make them easy to

decipher for external parties

Best possible execution: Documentation relating to a transaction can be filled up

accurately & efficiently. External parties & other department is able to extract

relevant information from documents quickly

II. Preservation of audit trail:The audit trail refers to the auditors ability to trace any

transaction from financial statement all the way back to the source documents.

Best possible execution: Audit trail of economic activities are well preserved and

requested records can be fetched for any given transaction quickly and accurately

C) Independent Verification:This refers to verification procedures consisting of independent

checks of the information from multiple sources to identify and rectify errors and

misrepresentations. The key criteria`s and best possible execution for this internal control

activity is discussed below

I. Validity of transaction activity:Refers to the transaction processing systems ability to

provide the tools to verify transaction activities are being carried out for the correct

purpose and amount.

Best possible execution:The validity of the transaction activity can be verified on the

basis of support documents and records from multiple independent sources

(E.g. procurement departments P.O being matched against suppliers delivery log)


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II. Error correction : Refers to the detection & rectification of intentional(fraud) or

unintentional errors in a timely manner

Best possible execution: Recorded transactions & filed source documents are

reviewed by the appropriate departments. Expectations for timeliness of error

rectification have been clearly established.

D) Security & Access control:This refers the activities that ensure only authorized persons

have access to the assets & related records of the firm. Access may be direct (physical) or

indirect (electronic records) these two categories are further explained below

o Physical security:This is the protection of physical records and assets from loss by

theft or damage. Uses of Locks, Surveillance etc.

o Technical security: This is the protection of electronic records from loss by theft,

damage, or loss in transport

e) Segregation of duties:Segregation of duties is the means by which no one person has sole

control over the lifespan of a transaction. Ideally, no one person should be able to initiate,

record, authorize and reconcile a transaction.Segregation of employee makes it difficult to

conduct fraud. The key criteria for this activity is the proper segregation of critical duties in

the asset purchase process such as

o Whether Asset acquisition request is kept separate from asset acquisition

authorization

o Whether asset custody is separate from asset transaction processing

o Weather validation of transaction record is kept separate from transaction payment

o Whether these measures makes it impossible to perform fraud without the collusion

of multiple individuals with incompatible responsibilities


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5.5 Process description:

This process description attempts to summarize the fixed asset purchase procedure at

Grameenphone IT limited into a set to action steps for easier understanding and analysis.

The action steps needed to complete a fixed asset purchase & recording are given below.

1. The fixed asset purchase procedure begins when the user department (BM)asses the

need for new asset and requests capital expenditure approval from top management

(usually finance department head/C.F.O).Once granted the next step is to fill the

Purchase requisition (appendix 2) containing the details of the asset acquisition. This

is then sent to the Sourcing (Procurement unit)department for validation.

2. Sourcing department (Procurement unit) runs basic verification tasks once the

purchase requisition (appendix 2) is received. If verification check passes then

Sourcing department (Procurement unit)checks vendor list for a suitable vendor &

cross checks for any prior agreement with the vendor regarding the purchase, if not

the assets may be purchased directly or a new contract is to be formed. At this point

sourcing department (Procurement unit)processes the purchase requisition & raises

purchase order & simultaneously places the order with the supplier from the supplier

list. The purchase order is then forwarded to the service & operations dept.

(Warehouse unit)

3. The supplier checks his inventory for the goods required against the purchase order

and verifies whether they can meet the contractual demand.

4. At this point the supplier sends over the goods along with the sales invoice and

delivery log (indicating the goods being sent & their value)

5. The service & operations dept. (Warehouse unit) takes the necessary steps to make

the necessary entries to receive the goods system wise & physically.


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6. Once the good arrives from supplier service & operation dept. (Warehouse unit)

checks the delivery log, sales invoice is checked against the purchase order & goods

are physically verified & goods are stored in the warehouse awaiting move order

from the user dept. (BM). A goods received note (GRN) is issued & forwarded with

other supporting documents to the Finance & Operations dept. (OTC unit) & sourcing

departments.

7. Upon receipt of the documents first accounting entry is made by sourcing dept.

(Capital inventory receiving DR, Supplier liability accrual CR).

8. At this point the user department (BM) issues move order to retrieve the asset from

warehouse. Once the move order is in effect the second accounting entry is made by

sourcing dept. (Capital inventory IT DR, Capital inventory receiving CR).

9. Once the move order is complete sourcing makes third accounting entry (WIP DR,

Capital inventory IT CR).

10. At this point the Finance & Operations (OTC validation unit)department performs

verification of the attached documentation (Vat Chillan, delivery log, GRN, Po). Upon

validation provides the invoice with a unique identifier number (OTC code).

11.The Finance & Operations (OTC processing unit)department attaches the necessary

documents and Stamps it approved by the OTC. They then upload the transaction

to the system database & provide then vendor with a tentative payment date. After

which the documents are sent to the business manager (the user/department who

raises the Purchase requisition) & the Treasury & Financial management dept.


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12.Upon receipt of the compiled supplier invoicethe User Dept. (BM) checks suppliers

compliance with the agreement terms and ensure sufficient explanation of the

transaction is provided. After which the billed amount is checked and comments are

made on any correction required. The compiled documents are then forwarded to

Sourcing (SCM unit).

13.At this point the Sourcing (SCM unit) ensures the accounting entries properly

matches, applies relevant adjustments (Prepayment, Vat, Tax charges) and forwards

the validated documents to (Validation unit) Treasury & Financial management

department.

14.Treasury & Financial management (Validation unit) reviews transaction merit based

on the received documents ensures compliance with existing vat & tax

rules/regulation. After ensuring necessary controls being performed on the invoice,

GRN & other relevant documents, the invoice is stamped approved by Treasury.

After approval by the Treasury & Financial management (Validation unit) two

accounting entries are made to first to initiate asset capitalization procedure (IT

assets DR & WIP CR) and second to record the liability into proper books (Accrual DR,

Supplier liabilities CR).After this the approved documents are forwarded to the

Treasury & Financial management (Payment Unit).

15.Payment unit firstly ensures there are sufficient funds available in the bank to meet

the expenses and uploads the payment data into the online banking software. After

which it double checks online banking data with the data in the system. At this point

the Payment entry (Supplier liabilities DR, Bank A/C CR) is made.

16.The bank sends the checks to the payment unit as per request bringing the

transaction process to a close.


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5.6 Process Flowchart:

For easier understanding and visualization of the process description a process flowchart has

been created using the process description given in the next page. This flowchart not only

helps to understand the steps required but also helps identify the decisions involved more

accurately. From the process flow chart four out of the five internal control activities can be

indentified these are Transaction Authorization(T.A),Independent Verification

(I.V),Documentation, Segregation of duties The legend for the symbols involved in the

process is given below.

Legend:


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Chart 5: Fixed Asset purchase process flowchart


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5.7 Research Findings:

Given below is the analysis of the process related data according to the activity criterias &

personal observations.

a) Transaction authorization & Approval:While my time at Grameenphone IT limited it

has come to my attention that it has policy of creating authority hierarchy for approval of all

significant actions within the company. This hierarchy is well documented via the company

documents (e.g. business travel manual, divisional f.a.q handbooks,).

However during my interviews & work with the GPIT staff the thing that become apparent

employees seem to be lacking concrete knowledge of inter-departmental actions relating to

transactions under review. They often rely on assistance from the related department during

verification which may dampen the authenticity of their validation of document/transactions

In the Fixed asset purchase procedure there is several layers of transaction approval aimed

at increasing the validity of the transaction. These include primary transaction authorization

for capital expenditure by top management (chart 5). There is also a secondary approval

layer(chart 5) which is also crucial according to Mr Adnan Kabir a senior executive at

procurement unit of sourcing dept. (Appendix 1,Interview: A) If a Purchase requisition fails

verification check the asset acquisition process is halted

Given the above mentioned scenario the following can be concluded that authorization

documentation criteria of this control activity is well executed meaning the structure for the

proper control enforcement of is in place. However authorization knowledge criteria is

somewhat lacking therefore this control activity can be rated average on the internal

control effectiveness scale (appendix 2)


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b) Documentation: Documentations that support the validity of a transaction must be well

preserved as well as being easily understandable. At GPIT they utilize a self-created web

knowledge database known as GPIT SharePoint here templates & forms relating to major

actions (Business travel advance, purchase requisition, leave request etc) are categorically

made available here. The standardized design have been adopted to the forms with the key

information being kept at the top most portion of the forms & validation stamps, signature

being kept at the left portion or the bottom. This helps the user getting used to filling out the

forms & can quickly understand forms which are form another department as well.

The preservation of the audit trail depends on not only what supporting documents that are

being issued but also how easily accessible they are on request. According to Miss Nusrat

Sharmin (appendix 1: Interview B) The unique identifier number or OTC code assigned to an

invoice helps track the transaction throughout the entire process giving access to all the

related information. This makes the all the relevant document of the transaction retrieval at

a single place making it easier to trace through the audit trail back to the source.

Throughout the asset acquisition procedure supporting documents are being issued,

received & archived. A total of six accounting entries are made to record the asset into the

proper books & to settle the liability payment. As mentioned before the system places the

transaction at a central location to entries made by sourcing is immediately reflected in the

transaction file and can be viewed by the related departments.

Given the above mentioned scenario the following can be concluded the documentation

procedures and controls are quite effective making tasks simpler. Given that Document

design standardization & Preservation criterias are both being fully met this control can be

rated at an excellent on the internal control effectiveness scale (appendix 2).


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c) Independent verification: Independent verification are crucial to the timely detection

and rectification of errors & fraudulent activities in the process

During the Fixed asset acquisition procedure at GPIT independent verification is occurring in

two instances. Firstly, (Process description: Step 6) When the Warehouse unit of service &

operations receives the Purchase order from sourcing (source 1) & Sales invoice, Delivery log

from the supplier (source 2) which can be cross examined to detect any discrepancies.

Secondly, the validation unit of the treasury & financial management cross examines

documents received from the OTC (source 1), Goods received note from warehousing

(source 2) & Purchase order forwarded from sourcing (source 3) before the final approval of

payment. The rectification of errors is dependent at which phase the error is detected

According to Mr. Mohammad Touhidul Islam (appendix 1: Interview D) an executive at

Treasury & Financial management If an error is detected in the OTC then invoice submitted

in the system can be canceled and rectified however if it is detected at an later phase in the

treasury finance department where payment entries are made in batch the entire batch must

be canceled This leaves some room for improvement in the latter phase.

Given the above mentioned scenario the following can be concluded the independent

verification procedures occurring at two instances are adequate at detecting errors meaning

the validity of transaction criteria is well executed. This makes the act of fraud difficult

without multiple incompatible parties being involved. However it should be noted that

execution of error rectification criteria while being adequate can still be improved further

this leads me to rate this control activity at good on the internal control effectiveness scale

(appendix 2).


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d) Security & Access control: According to Mr Tawsif Kabir (appendix 1: Interview E) an

executive at Security & IT service operationsSecurity is a top priority at Grameenphone IT

limited physical records are stored at locked cabinets & as you saw departments can`t be

accessed with HID panels requiring proper identification.

Physical access to high security areas is controlled with strong identification and

authentication techniques. Several measures are implemented to ensure physical safe

custody of assets. Access to the warehouses is very limited & each asset is given a unique

asset tag to track it through its lifespan leading up to disposal.

Technical security is ensured by a secure log-on Procedure. Inactive sessions are shut down

after a defined period of inactivity electronic records are kept in an encrypted system

maintaining a hierarchical method of access control. Access control standards are

create/revised by management periodically. Procedures for registration/deregistration of

users are well documented. Access to all systems have to be authorized by the owner of the

system and such access, including the appropriate access rights (or privileges), are recorded

in an Access Control List.

The above mentioned protocols apply also during the Fixed asset acquisition procedures

ensuring that fixed assets & there records are kept safe both physically and electronically.

Therefore as the Physical & Technical security criteria of this internal control activity are

being met fully I can rate this control activity at excellent on the internal control

effectiveness index (appendix 2).


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E) Segregation of duty: At Grameenphone IT limited segregation of duty is well enforced.

During the asset acquisition procedure beginning from the transaction initiation to the

supplier payment the whole process is divided up into numerous task & responsibilities

which are assigned to different units in different departments. The key separations are in the

fixed asset acquisition procedure is highlighted below:

i. Asset acquisition request (handled by the business manager/user) is kept separate

from asset acquisition authorization (handled bysenior management, procurement)

ii.

Asset custody (handled by warehouse unit) is kept separate from the Asset

transaction processing (handled bysourcing , otc unit)

iii. Asset acquisition transaction verification (handled by various validation units) is kept

separate fromPayment for asset acquisition (handled by treasury payment unit)

iv. As mentioned before this measures makes involvement of multiple departments a

requirement for successful collusion

Given that most of the criterias for this internal control activity is being met I can rank this

internal control activity at good on the internal control effectiveness scale (appendix 2)


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Chapter 6: Conclusion

It is important that newly formed companies such as Grameenphone IT limited have strong

internal controls as they are the essential to the success of business operations. According to

the data analysis most of the internal control activities related to the fixed asset purchase

procedure have been rated at a good to excellent level with only one average rating. Overall

by the internal controls averaging the internal control activity ratings regarding the asset

purchase procedure at Grameenphone IT Limited can be ranked at a good level. What this

basically means is that the internal control processes are adequate enough to prevent most

common errors & misrepresentation activities while it still hasnt been truly tested against

innovative attempts at fraudulent activities. This makes it hard for management to

determine how well the internal controls are actually working. A company`s size effects how

it should asses/enhances internal control. This makes it easier for GPIT to work on improving

its internal control given its still a newly formed company.


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Appendix 1: Interviews

Several interviews have been conducted in a Q & A format on the key departments related

to the purchase procedure which is given below.

Interview A (Mr. Adnan Kabir): The first interview conducted was with Mr. Adnan Kabir a

senior executive in Sourcing (Procurement Unit) .He was asked questions regarding the

scope of the department and there part in the purchase procedure:

Tanim Ahsan: Thank you for taking the time to speak to me, the first question I would like to

ask is what is scope the work that the procurement unit in the sourcing department is

involved in?

Mr. Adnan Kabir: Firstly,Let me give you a brief idea of how the procurement unit is actually

organized. The procurement unit does not work as a whole rather it is divided into several

small teams catering to different suppliers of Grameenphone IT. We are mainly involved in

initiation of contractual agreement procedures with vendors, deciding optimal vendors for

procurement, running basic verifications on acquisition related documents from other

departments.

Tanim Ahsan: So would it be correct to say your unit is mainly concerned with purchase

related tasks?

Mr. Adnan Kabir: You could say that but a vendor you conduct purchases from can also

become someone you sell to in the future and its up to us to provide judgments related to a

vendors reputation, credit worthiness etc.

Tanim Ahsan: So vendor relations are an important part of your work, one more questions

could you explain whats your units role exactly is in the fixed asset purchase procedure?

Mr. Adnan Kabir: Well the first thing you`d notice that asset acquisition is a bit different

then good acquisition as it is categorized as a capital expenditure. The Business manager that

is the department that will use the assets simply cant raise a purchase requisition and

forward it to us. They must first seek capital acquisition approval either from the C.F.O or

C.E.O depending on the expenditure amount. After we receive a purchase requisition form


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We put it through basic verification checks & if it passes then we move on to the main

procurement tasks. The procurement phase is crucial as we must first select a vendor which

will be suitable for the need and will ensure we get the maximum cost savings regarding our

acquisitions. Once we select the vendor we form check for prior contracts if absent we will

form a new contract and place the order. The other thing we do here is process the

purchases requisition form and include new information regarding the supplier, order etc

and fill out the purchase order form. We forward the purchase order form to warehouse unit

and they continue the process from there.

Tanim Ahsan: Would it be correct to say after primary approval from the top management

the verification checks serve as a secondary approval for asset acquisition transactions?

Mr. Adnan Kabir: Yes you could say that if a Purchase requisition fails verification check the

asset acquisition process is halted.

Tanim Ahsan: Warehouse unit is that part of the sourcing department?

Mr. Adnan Kabir: No, it works offsite, part of the service & operations department they work

on a separate system then the rest of the company.

Tanim Ahsan: So would it be correct to say your unit is mainly concerned with purchase

related tasks?

Mr. Adnan Sabir: You could say that but a vendor you conduct purchases from can also

become some you sell to in the future and its up to us to provide judgments related to a

vendors reputation, credit worthiness etc.

Interview B (Miss Nusrat Sharmin):The second interview conducted was with Miss NusratSharmin an executive at Over the counter (OTC) unit of finance and operations

department.

Tanim Ahsan: I know OTC unit is very busy so Ill try to keep this brief let me begin by asking

what the key functions of the OTC unit are?

Miss Nusrat Sharmin: The OTC department basically deals with bill processing, invoice

screening & registration in the system.


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Tanim Ahsan: Can you tell me what the OTC units role in the fixed asset purchase process?

Miss Nusrat Sharmin: Our work basically begins once we receive the billing related

documents from the supplier. The unit is divided into two separate teams. First team deals

with validating the submitted supplier documents & provides the sales invoice with a unique

number for easier tracking. The second team processes the validated documents and

provides a tentative payment date. They then forward the processed invoice to the Business

Manager (user) & Treasury dept. This team also scans the documents and inputs the entry it

to the system.

Tanim Ahsan: What is the purpose of this unique identifier number?

Miss Nusrat Sharmin: The unique identifier number or OTC code assigned to an invoice

helps track the transaction throughout the entire process giving access to all the related

information.

Tanim Ahsan: I noticed the OTC unit is located on the ground floor far from the other finance

unit is there a reason for that?

Miss Nusrat Sharmin: Mostly because its more convenient for the suppliers but it also helpskeep our contact with other dept. to a minimum to ensure there is no interference in our

validation judgments.

Interview C (Mr. Sheikh Muniruzzaman):The third interview was conducted with Mr. Sheikh

Muniruzzaman the head of the sourcing department at Grameenphone IT limited.

Tanim Ahsan: Alright so first thing I would like to ask is how the Sourcing department is

organized? With the number of units working it all seems rather confusing.

Mr. Sheikh Muniruzzaman: Well some of the units are not totally a part of Grameenphone IT

alone such as the OTC department it works for both Grameenphone & Grameenphone IT.


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Tanim Ahsan: Ah I see I already talked to someone over at the procurement unit of the

department he gave me an idea of what his unit does. What would you say is the main

purpose of the Sourcing Dept.?

Mr. Sheikh Muniruzzaman: The sourcing dept. is there to ensure a timely supply of

equipment & services are provided to GPIT at the best achievable market rate.

Tanim Ahsan: What kind of work is involved in the sourcing department?

Mr. Sheikh Muniruzzaman: To put it simply sourcing mainly works on creating/managing

sourcing policy, procedures, supplier relationship management and supply chain

management.

Tanim Ahsan: How is supply chain management tasks handled by sourcing department?

Mr. Sheikh Muniruzzaman: We have a separate unit that works on SCM tasks. Supply chain

management is vast subject involving multiple areas of focus starting from suppliers to

things within the company.

Tanim Ahsan: Could you tell me where does the supply chain management come in exactly

in the purchase procedure?

Mr. Sheikh Muniruzzaman: Well after the business manager ensures documents related to

transactions have sufficient explanation and meets complaints they forward it to the SCM

unit. The SCM unit checks whether prior entries made are correct, they also made any

corrections request by the business manager and apply tax, vat adjustments before

forwarding the invoice to Treasury & Financial management department.

Tanim Ahsan: So besides the Treasury & Financial management department other

departments also make accounting entries?

Mr. Sheikh Muniruzzaman: Yes sourcing units makes some of the accounting entries where

necessary.


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Interview D (Mr. Mohammad Touhidul Islam): The fourth interview conducted was with

Mr. Mohammad Touhidul Islam an executive at the treasury & financial management

department.

Tanim Ahsan: Let me start with a basic question could you describe what is the scope of

operations of the treasury & financial management dept.?

Mr. Mohammad Touhidul Islam: The treasury & financial department deals with major

financial matters such as payables management, revenue Management, fixed asset

management, fiscal compliance, accounting & financial reporting.

Tanim Ahsan: Alright could you tell me where does this departments role is in the purchase

procedure?

Mr. Mohammad Touhidul Islam: The work of the treasury and financial department is at the

near the end of the payment process in two units Validation & Payment. The validation unit

of the treasury & financial management dept. receives forwarded documents from several

sources it is only when SCM dept. forwards there approved system invoice that the

validation process for a transaction begins firstly we check for compliance with government

regulations and ensure internal controls have been properly applied. After which we make

two accounting entries in the books first to initiate the capitalization of asset & second to

record the liabilities to the proper books.

Tanim Ahsan: You mentioned two entries what are they?

Mr. Mohammad Touhidul Islam: To initiate capitalization IT assets DR & WIP CR, To record

liability into books Accrual DR & Supplier liabilities CR

Tanim Ahsan: Ok regarding validation what if an error is detected during validation process

how will it be rectified?

Mr. Mohammad Touhidul Islam: Well it will depend on which phase of the process the error

is detected If an error is detected in the OTC then invoice submitted in the system can be

canceled and rectified however if it is detected at an later phase in the treasury finance

department where payment entries are made in batch the entire batch must be canceled.


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Tanim Ahsan: You mentioned the payment unit?

Mr. Mohammad Touhidul Islam: Yes Im getting to that after validation is completed the

payment unit uploads the payment data into the online banking software & double checks

uploaded data with the data in the system. After which the final payment entry which is

supplier liabilities DR & Bank CR is made after which bank sends the cheques as requested.

Interview E (Mr. Tawsif Kabir):The fifth interview was conducted with Mr. Tawsif Kabir an

executive at Security and IT Service operations. He was inquired about the physical &

electronic security measures in place regarding protection of sensitive documents & records.

Tanim Ahsan: I wanted to know how secure the records & important documents being kept

at the office are?

Mr. Tawsif Kabir: Well security is a top priority at Grameenphone IT limited physical records

are stored at locked cabinets & as you saw departments can`t be accessed with HID panels

requiring proper identification. We try to limit the amount of hard documents kept to ensure

greater security as IT records are easier to control.

Tanim Ahsan: Alright could you give me a brief idea what kind of IT security that are in

place?

Mr. Tawsif Kabir: Weemploy a secure log in system across the systemso you could say a

strong password is the first line of defense. We restrict what a user can access through

robust access control system limiting users to accessing only what is related to his job

responsibilities.

Tanim Ahsan: What about security of assets how do you prevent things such as theft etc.?

Mr. Tawsif Kabir: Well thats more of a warehouse dept. responsibility; few people have

access to the warehouses where the assets are kept. We also use asset tagging to track an

asset throughout its lifespan to ensure its security.

fixed assets purchse flow chart

Documents