Capital Investment

As a centralised, electronic control and recording system the prime objectives of the Activa CapEx Work in Progress software is to;

In practical terms capex work in progress defines the detail and scope of a capital project, it records the funding requirements and the individual budget appropriations, it consolidates all associated documentation including economic analyses and justifications, board papers and scanned images. Document management is a very significant part of the process.

It defines and controls the approval process and project sign-off and records the details of all purchase orders, delivery dockets and subsequent invoice transactions including pushing these through to accounts payable.It also employs encryption techniques in the transfer of stored documents and other important information to protect privacy.

It does all of this with the further view to creating one single point of reference for all project information and a permanent transaction record for future reference. Place this at the fingertips of the responsible operational manager, not just finance and administration, and you have immediately enhanced your business intelligence communications by 100%.

Invoke the internal policies to support these security tools to achieve real segregation of the critical duties and the system will pass muster in the most stringent audit. These days, it's as important to know for sure that you are doing the right thing, as it is to be seen to be doing it.

Many financial accounting systems have specialised modules for enhancing the control of the purchasing function. Few successfully integrate this functionality with the procurement process particularly from an operational viewpoint. However, this is the SECOND KEY ISSUE in evidencing internal controls and it is usually the one that is most abused, misused or simply bypassed altogether.

Electronic, on-line purchase ordering is still, it seems, a fundamental change to business processes that formalises and streamlines work-flow, eliminates a range of existing administration activities and introduces centralised control over the purchasing function. It is also the one process that seems to create the most resistance to change internally.

This is not surprising when it seems to make for greater efficiency, for instance, if the person who orders the goods is also the person who matches and records the supplier invoice. Fine, but without documented transactions and segregation of duties the process is fundamentally flawed from the outset, open to abuse and unless the policy is reviewed the best software in the world won't help.

All too often, too much information and responsibility is vested in a single individual and as a fundamental control issue, it would fail the test abysmally. However, in this sort of situation the elimination of risk is not the only benefit foregone. Accurate historical data is also a casualty. Fudging the system by raising late orders to match invoices can always be detected through the audit trail as individual order transactions contribute to a live history which, in turn, can be used to build a purchasing profile for each supplier and item. This would highlight any inconsistencies.

Accurate information can be used to identify lead times, rationalise suppliers, optimise negotiated pricing and institute a preferred supplier strategy for core expenditure items for the entire organisation. This in turn can contribute to significant savings from even the most modest volume discounts.

As a point of control, purchase orders populated directly from an approved CapEx project item using a preferred supplier, supplier item codes and descriptions pre-recorded from previous invoices, promotes efficiency and consistency. It may require separate approval prior to publication, depending on internal policy, but it is then emailed [or printed and faxed or even posted, if necessary] directly to the supplier.

The prime objective of this function is not only to successfully acknowledge the physical receipt of goods and services and to accept ownership, but to record the event as part of the central control procedure linked directly to all of the other key steps in the procurement process; it is the THIRD KEY ISSUE in evidencing internal controls.

The recording of goods and services actually received is not a compulsory system process. The problem is, it is usually a discrete process where the action required is generally isolated to the receiving department concerned and where the transactional information is neither adequately recorded nor readily available to other, sometimes remote areas of the organisation.

To be of any use at all as an operational and financial control, all received goods and services need to be directly recorded against the purchase order, clearly identifying the units of measure on the documentation and the number of items actually received. Mobile PDA data capture or internet browser functionality can be deployed economically to almost any location to achieve this.

Apart from the obvious benefit of knowing the current supply status of any order prior to approving supplier invoices, any ready to use assets received into the system can be immediately deployed as operational assets in the fixed assets register. This can be actioned whether they have been invoiced and paid for or not. Needless to say, the actual physical lead-time for the supply of goods and services is useful information for budget, planning and forecasting and critical for efficient stock management.

At present, there is no substitute for the physical review and manual endorsement of hard copy invoices. To this extent they must follow the approval process according to the prescribed areas of responsibility and limits of authority. However, assuming that all necessary approvals are manually applied, apart from the obvious need to record the invoice details and file the original invoice document, the additional objectives of invoice capture are to;

All invoices are automatically matched to the approved purchase order and/or delivery advice in a single pass and then swept to the Account Payable Creditors via the AP Interface each time this central process is run. Posting batch headers and invoice details complete the audit trail for each run.

Where over-expenditure limits are imposed on projects, any invoice that increases expenditure beyond the imposed project limit cannot be processed by the system until additional funds have been approved.

There is nothing more confusing in an asset register than records called variously 'Progress Payment #1', 'Progress Payment #2', 'Fee' etc. This information is unhelpful and it becomes virtually impossible for anybody other than those directly associated with the project to know what it actually refers to. Invariably such costs contribute to the cost of an asset but are not assets in themselves.

This sort of data shows that there is no meaningful link between the source of the capital expenditure transaction and the information in the asset register. Long term projects associated with asset construction can incur any number of contractual or progress type payments. With no dedicated procurement system to hold the expenditure details pending completion of the asset it becomes difficult to provide a simple reconciliation between capitalised and un-capitalised expenditure on the balance sheet; i.e. fixed assets and work in progress. CapEx Work in Progress automatically produces this reconciliation.

One of the significant benefits of this solution is the ability to capitalise individual project assets as they are 'installed ready for use' but to defer others pending their final completion.

Integration with the fixed asset register module ensures that the simple capitalisation process automatically applies all of the protocols normally associated with asset additions without unnecessary user intervention. This includes the direct reference links to the CapEx project and budget allocations and especially to the pre-defined template conditions for accounting and tax depreciation including effective life.

"These days, it's as important to know for sure that you are doing the right thing, as it is to be seen to be doing it!"

If you would like to discuss any of the items mentioned above or have a demonstration of our Capex solutions please register a contact request and one of our consultants will be in touch soon.

Notwithstanding any of this, a software process is only as good as the management will to impose the appropriate internal policies to support it. Sadly, there is rarely a gain without a little pain and in this case it arises as a resistance to the change resulting from the imposition of extended management control over what are generally seen as fairly simple business processes.

So be it; but since this is strictly a control mechanism with benefits it must go hand in hand with an appropriate change management strategy. Winning the hearts and minds of the key stakeholders is the key to a successful implementation.

'If the inherent software tools are consistently applied and maintained, the CapEx Work in Progress module will effectively control, record and audit each step of the capital procurement process from the initial documentation of a project submission through to the capitalisation of the completed assets into the fixed assets register.'

These notes are intended as a product brief and should not be read as the full specification of Activa software. If you have more specific questions please use the Search option on this site. If you do not find what you are looking for on other pages of this site please complete a Contact Request noting your area of interest and we will respond by return.

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Article last updated : Feb 23 2012 10:37AM