Uncover Process and System Improvement Opportunities by Tom Sonde CPA SilverRoad Solutions

Uncover Process and System Improvement

Opportunities During an Audit

2011 Gaming Conference

The Institute of Internal Auditors

April 4, 2011

Tom Sonde, CPA

Uncover Process and System Improvement Opportunities During an Audit

Conducting Process Reviews

Introduction

Designing the Future State

What to Look For

Other Keys to Success

Agenda

Process Improvement Methodologies

ProcessImprovement

Six Sigma

Business ProcessManagement (BPM)

Enterprise Process Management (EPM)

Lean

Reegineering

Total QualityManagement (TQM)

Payroll Process (High Level View) - Pre Software Interface

PS

Pro

ject

Opera

tions-

ISO

pera

tions-

Data

Entr

yP

ayro

llH

RF

ield

Budget

Prepare Supp

Time Reports &

Overtime Reports

Review and

approve

Review and

correct Supp Time

Reports and OT

Reports

Input Supp Time

Reports & OT

Reports

Prepare T&L

Reports

Review and

correct T&L

Reports

Input T&L reports

Run Pay & Time

files into PS

Provide Account

Codes as needed

Prepare Payroll

Notification Forms

to process

adjustments

Create Paysheets Update Paysheets

Produce checks,

advices & DD file

for bank, and print

reports

Run final calc and

confirm

Distribute checks

and advices

Reconcile payroll

Process Improvements can be Applied to any

Functional Area

Evidence Process Improvements are Needed

Simple tasks take too long to complete

Too much time is spend validating data

Employees constantly complain

Too much paper is being used

Backlogs exist

There is a significant amount of manual keying and

rekeying of data

Clues that Processes are Not Operating Efficiently

Evidence Process Improvements are Needed

Information is not easily accessible

Senior management information requests result in

constant fire drills

System workarounds and renegade processes exist

Excessive use of spreadsheets

External databases / data warehouses supplement the

systems

Often senior management does not realize

how many inefficiencies exist?

Clues that Processes are Not Operating Efficiently


Introduction


What to Look For


Agenda


Process Reviews

The key to resolving process issues is to:

Obtain an Understanding of the Underlying Cause of Process Issues by Conducting Process Reviews

Process Reviews

The key to resolving process issues is to:

Address the end-to-end process.

Obtain an Understanding of the Underlying Cause of Process Issues by Conducting Process Reviews

Addressing the End-to-End Process is one of the Keys to Success

Salary and

Benefit

Expense

available for

transfer VAC

system

Green Bar Report

printed from

Specials Database

Postage, and

Supply Expense

report sent bi-weekly

The data from these

reports are manually

entered into an

Excel spreadsheet,

Excel Spreadsheets

are turned into a text

file then transferred

into the VAC

Disbursement SystemVAC System is

updated

MOD Budget

Report used to

prepare MQ

(1)

(1) Report shows MTD and YTD Expenses,Encumbered-unpaid expenses, $ Free

Balance, and % Free Balance. This report isused to create MQ.(2) Report shows General Funds

Departments, account #, recommendedbudget, current appropriations, YTD

expenses, and YTD % budget used.Attachment also includes Outside GeneralFunds with all categories plus estimated

revenue, YTD revenue received, and YTD% collected. Report generated by

Controllers office and given to JohnMurphy (12th Floor room 1243) for

review. The report is reviewed with theCFO by the staff and Controller.(3) Other daily phone bills are sent through

on an AP voucher to be paid(4) Fleet Management supports 3

departments and generates approximately100-150 work orders each month.(5) This report shows monthly receipts and

expenses by departments. Any request foradjustments are sent via hardcopy to the

Controllers office.

General Fund

Quarterly

Summary Report

(2)

Medicare Expense

from Payroll

Telephone bills are

received from Nynexl,

Nextel, Sprint, Arch

wireless, and Ameritech

(3)

Total for each

department is

entered on Excel

Spreadsheets.

One sheet per

company

Each department

receives an

itemized list of

charges to their

department

Any disputes are

reported to the

Telecommunication

s dept. and a credit

is granted.

Telecommunications - Phone

Expense

Fleet Management - Gas and Maintenance

ExpensesWork Orders are

generated as work is

done in Fleet

Management

(4)

At month end,

work orders are

summarized by

department and

entered into Excel

Printed report is

sent to each

department and

Controllers office

One copy is sent to

the department, the

other is used to

record expense/

billing

AP and

Disbursement

transactions

Risk Management - Life, Health, Dental Expenses

Payroll - Salary and Benefits Expenses

Central Supply - Xerox, Postage, and Supplies Expenses

Spreadsheet

is sent to

Controllers

office

Health Enrollment

Database with all

employee health,

life and dental data

Report of all

enrollment is sent

to departments for

update/correction

Changes are input

on Excel

Spreadsheet

which calculates

chargebacks

Departments

return hard copies

to Risk

Management for

changes

John Murphy uses

report to record

expenses and transfer

funds between

departments

Payroll System

Specials

Account

maintains

mileage

Departments

receive blank

report listing

Department

completes mileage

and total

department

reimbursement

Report is returned

by 9th of month to

Payroll

Payroll inputs

mileage, system

calculates

reimbursement.

Payroll - Mileage Expense

Payroll - Medicare Expense

Payroll System

Medicare Expense

adjustments are

posted after

payroll run

Report printed by

department/

account

Department

sends

spreadsheets

to the Controller net

of any

adjustments

RollOver Monthly

Report sent to

departments

(5)

Manual log of copy

requests by

department (+10%

surcharge)

Departments

request supplies

via phone/fax and

they are tracked

via VAC system

Postage machine

tracks postage by

Department

Supply and postage

expenses per

department are entered

into VAC system

Meet with Individual process owners

• Obtain an understanding of how day-to-day activities are accomplished

• Conduct workshops, benchmarking and/or surveys

Follow the data and/or paper trail

• Obtain an understanding of the content and requirements for each piece of data/paper

Remember the 80/20 rule

• Address all processing procedures especially the exceptions

Follow the process from department to department

• Review the process end-to-end both internally and externally

80 / 20 RuleData / PaperUnderstand

Current ProcessesMultiple

Departments

Review the end-to-end process

Conduct Process Reviews to Obtain an Understanding of the End-to-End Processes

Identify all inputs and outputs

• Examples include: manually keyed data, electronically fed data, reports, etc

Pay careful attention as to all the steps that go into a process

• Look for the unusual one-off processes

Understand what procedures are accomplished by the system

• More importantly identify manual processes that the system should be handling

Be ObservantNon System DataInputs / Outputs System Utilization


Identify data being stored or analyzed outside the system

• Examples include:spreadsheets, databases, index cards, etc.


Review existing policies, procedures and user manuals

• Obtain an understanding of what is documented and then compare it to what you have observed

Create current state process maps (if necessary)

• There is no need to create a process map for every process –the focus should be on the future requirements

Develop a future state

• Develop future state process maps that document process steps and requirements

• Document depending on the level of detail required (Visio, PowerPoint)

DevelopProcess Maps

PPolicies andProcedures

Future State


Document current requirements

• Identify what processes need to be accomplished, what data needs to be generated, etc.

Current Requirements


Don’t AssumeAlways Ask Why

End-to-End

Processes

Understand the Need

for all Inputs and

Outputs

Key Steps when Sitting with a Process OwnerQuestion Every Activity

Always Ask Why

What is the activity trying to accomplish?

Is it is necessary

Does it add value?

Question why

Always ask and then continue to ask

Why a process or procedure is being performed?

Why isn’t the system performing it?

Why an output is needed?

End-to-End

Processes

Key Steps when Sitting with a Process Owner Question Every Activity

Don’t Assume

Don’t assume anything

Ask “dumb” questions

Politely challenge

Validate what you have been told

Compare it to the data or paper trail and/or documentation

Check with other process owners / departments

Check with other staff performing the same or similar tasks

Key Steps when Sitting with a Process Owner Question Every Activity

End-to-End

Processes

Understand the Need for All Inputs and Outputs

Review all inputs and outputs

Question what the data is needed for

Determine it’s accuracy

Question what users or other departments do with the data

Ask the user what they would like in the ideal world

Question if the frequency is appropriate


End-to-End

Processes

Question Every Activity

Identify the root cause of a problem rather than

the symptoms

Question whether the activity is necessary

Question if the frequency is appropriate

Determine if the activity could be

accomplished in another fashion

Always question why a manual process is not

being performed by the system


End-to-End

Processes

Is the System Not Delivering?

Many system issues are not the result of the software.

Is the System Working the way it’s Supposed to?

Is the System Not Delivering?

Many system issues are not the result of the software.

They were caused by a flawed implementation.

Is the System Working the way it’s Supposed to?

Implementing new technology does not guarantee efficiency

Teacher

completes

requisition form or

fills out pre-printed

list for items

needed

School clerk

enters data into

system from

requisition

Principal or Dept.

Head approves

and signs

requisition

After data is

entered,

requisition will be

funneled into the

following

Non site-based budget

purchases goes to an

approver initially

Based on the type

of purchase,

requisition is

routed to one of

the following:(1)

Finance Dept. (2)

Site-based budget purchases

go directly to Finance

Custodial - Plant

Operations

Exceptional

Children Division

Applied

Technology

Career

Development

Library Services

Chief Academic

Officer-Textbooks

Teaching &

Learning Assmt.

Interscholastic

Supplemental

Funds-Budget &

Management (3)Type 1

Purchasing Dept/

Senior buyers

receives

purchases in

"requisition proof"

Senior buyers

review requisition

proof, checks for

errors (4)

Other purchases

are routed to a

buyer - based on

assignment

Buyer receives

buyer's copy

Buyer requests

quotes/bids from

vendors (fax, mail,

or phone) Request

for Quotation form

Requisition proof

is generated from

information

entered into

system

If no errors found

on requisition proof

If errors

are found

Purchase order is

generated from the

requisition proof

the next day

Senior buyers will

correct errors and

another proof is

generated

Purchases orders

printed at

Southside location

and delivered to

Admin Bldg.

Senior buyers

separate POs (5

copies)

Orange copy kept

on file at

purchasing office

White PO copy

routed back to

original buyer

Blue copy sent to

Controllers Office

Brown/yellow copy

sent to school

(brown copy is

receivers report)

Buyer signs and

dates PO; sends

to vendor by mail

or fax

Vendor receives

PO and ships

order to school

Vendor sends

invoice to Finance

Dept.

Type 2

Finance Dept.

matches invoice to

receiver's report

System generates

payment when

both invoice and

receiver's report

are entered into

systemSchool confirms

purchase by

sending receivers

report to Finance

Dept. (5)

Type A

Type B

Purchases from a contract

company or pre-printed list

Purchases not from a contract


regardless of price

Teacher

completes

requisition form or


list for items

needed

School clerk

enters data into

system from

requisition

Principal or Dept.

Head approves

and signs

requisition

After data is

entered,

requisition will be

funneled into the

following



approver initially

Based on the type

of purchase,

requisition is

routed to one of

the following:(1)

Finance Dept. (2)



Custodial - Plant

Operations

Exceptional

Children Division

Applied

Technology

Career

Development

Library Services

Chief Academic

Officer-Textbooks

Teaching &

Learning Assmt.

Interscholastic

Supplemental

Funds-Budget &


Purchasing Dept/

Senior buyers

receives

purchases in

"requisition proof"

Senior buyers

review requisition

proof, checks for

errors (4)

Other purchases

are routed to a

buyer - based on

assignment

Buyer receives

buyer's copy

Buyer requests

quotes/bids from

vendors (fax, mail,

or phone) Request

for Quotation form

Requisition proof

is generated from

information

entered into

system

If no errors found


If errors

are found

Purchase order is

generated from the

requisition proof

the next day

Senior buyers will

correct errors and

another proof is

generated

Purchases orders

printed at

Southside location

and delivered to

Admin Bldg.

Senior buyers

separate POs (5

copies)

Orange copy kept

on file at

purchasing office

White PO copy

routed back to

original buyer

Blue copy sent to

Controllers Office

Brown/yellow copy

sent to school

(brown copy is

receivers report)

Buyer signs and

dates PO; sends

to vendor by mail

or fax

Vendor receives

PO and ships

order to school

Vendor sends

invoice to Finance

Dept.

Type 2

Finance Dept.

matches invoice to

receiver's report

System generates

payment when

both invoice and

receiver's report

are entered into


purchase by

sending receivers

report to Finance

Dept. (5)

Type A

Type B





regardless of price

Teacher

completes

requisition form or


list for items

needed

School clerk

enters data into

system from

requisition

Principal or Dept.

Head approves

and signs

requisition

After data is

entered,

requisition will be

funneled into the

following



approver initially

Based on the type

of purchase,

requisition is

routed to one of

the following:(1)

Finance Dept. (2)



Custodial - Plant

Operations

Exceptional

Children Division

Applied

Technology

Career

Development

Library Services

Chief Academic

Officer-Textbooks

Teaching &

Learning Assmt.

Interscholastic

Supplemental

Funds-Budget &


Purchasing Dept/

Senior buyers

receives

purchases in

"requisition proof"

Senior buyers

review requisition

proof, checks for

errors (4)

Other purchases

are routed to a

buyer - based on

assignment

Buyer receives

buyer's copy

Buyer requests

quotes/bids from

vendors (fax, mail,

or phone) Request

for Quotation form

Requisition proof

is generated from

information

entered into

system

If no errors found


If errors

are found

Purchase order is

generated from the

requisition proof

the next day

Senior buyers will

correct errors and

another proof is

generated

Purchases orders

printed at

Southside location

and delivered to

Admin Bldg.

Senior buyers

separate POs (5

copies)

Orange copy kept

on file at

purchasing office

White PO copy

routed back to

original buyer

Blue copy sent to

Controllers Office

Brown/yellow copy

sent to school

(brown copy is

receivers report)

Buyer signs and

dates PO; sends

to vendor by mail

or fax

Vendor receives

PO and ships

order to school

Vendor sends

invoice to Finance

Dept.

Type 2

Finance Dept.

matches invoice to

receiver's report

System generates

payment when

both invoice and

receiver's report

are entered into


purchase by

sending receivers

report to Finance

Dept. (5)

Type A

Type B





regardless of price

Teacher

completes

requisition form or


list for items

needed

School clerk

enters data into

system from

requisition

Principal or Dept.

Head approves

and signs

requisition

After data is

entered,

requisition will be

funneled into the

following



approver initially

Based on the type

of purchase,

requisition is

routed to one of

the following:(1)

Finance Dept. (2)



Custodial - Plant

Operations

Exceptional

Children Division

Applied

Technology

Career

Development

Library Services

Chief Academic

Officer-Textbooks

Teaching &

Learning Assmt.

Interscholastic

Supplemental

Funds-Budget &


Purchasing Dept/

Senior buyers

receives

purchases in

"requisition proof"

Senior buyers

review requisition

proof, checks for

errors (4)

Other purchases

are routed to a

buyer - based on

assignment

Buyer receives

buyer's copy

Buyer requests

quotes/bids from

vendors (fax, mail,

or phone) Request

for Quotation form

Requisition proof

is generated from

information

entered into

system

If no errors found


If errors

are found

Purchase order is

generated from the

requisition proof

the next day

Senior buyers will

correct errors and

another proof is

generated

Purchases orders

printed at

Southside location

and delivered to

Admin Bldg.

Senior buyers

separate POs (5

copies)

Orange copy kept

on file at

purchasing office

White PO copy

routed back to

original buyer

Blue copy sent to

Controllers Office

Brown/yellow copy

sent to school

(brown copy is

receivers report)

Buyer signs and

dates PO; sends

to vendor by mail

or fax

Vendor receives

PO and ships

order to school

Vendor sends

invoice to Finance

Dept.

Type 2

Finance Dept.

matches invoice to

receiver's report

System generates

payment when

both invoice and

receiver's report

are entered into


purchase by

sending receivers

report to Finance

Dept. (5)

Type A

Type B





regardless of price

New Technology

InefficientOld Process

NewTechnology

InefficientNew Process

Why Doesn’t the System Perform as Promised?

Who’s to Blame

Project Implementation Team

Process Owners

Training

Consultants

Other

1

2

3

4

5

The Foundation of a Successful System Includes Process and Best Practices

Pro

cess

Tech

no

logy

Be

st P

ract

ice

s

Successful Implementations Address more then Technology

Best Practices

Professional organizations

Conferences

Other companies

Books

Consultants

System Functionality

Best Practices and System Functionality Knowledge

How do you obtain knowledge of Best Practices and

System Functionality?

User manuals

Vendors web site

Books

Consultants


Introduction


What to Look For


Agenda


SelfService

Paper

Integration

System self-service functionality should be used whenever possible

Take advantage of vendor provided self-service capabilities

Question why every piece of paper in a process is necessary

Wherever possible replace paper with an electronic solution

Fully integrate all systems

Require large volume vendors to provide electronic feeds

Provide electronic feeds to vendors

Potential Process Improvement Recommendations

Training

Access to Data

Reporting

An individual should have a through understanding of the process before developing training

Training should incorporate both process and technology

Training should be developed with the process owners skill sets in mind

Anyone that requires access to data should have the appropriate access

Ideally access should be provided electronically rather then on paper

Access to data should be timely

Reports should be developed with the user in mind

Review how process owners are using their reports

Identify user needs that are not being met by current reports

Reports for routine activities should include all required data on a single report


User Manuals, Policies &

Procedures

DataInput

Develop user manuals, policies and procedures that cover the entire process

rather then a “How to use the software” solution

Ideally all data should be fed to the system electronically

Manually input data should never be keyed more then once

Eliminate manual forms by requiring staff to complete electronic forms via the web or directly into the system using self-service functionality


Question Every Activity

Manual forms

Multiple reviews and approvals

Manual tracking of documentation

Labor intensive processes

Excessive handoffs

Duplication of effort

Unnecessary use of paper

Manual file folders

Huge piles of papers on desks

Excessive need for file cabinets

Routine missed deadlines

Non-value added activities

Always Ask Why

Errors / mistakes

Unreasonably long cycle time

Multiple data entry points

Manual keying of data

Duplicate keying of data

Bottlenecks

Unnecessary procedures

Unused data or reports

Shadow processes

Excel spreadsheets

Shadow systems (e.g. data warehouse)

Routine Delays

Potential Clues Indicating Process Issues


Introduction


What to Look For


Agenda


Your Logo

• This is an example of a to-be process map.

• Process maps may be prepared using Visio, PowerPoint

or on paper depending on the level of sophistication required.

Visioning

Whiteboard

Strawman

Developing a Future State

Payroll Process (High Level View) - Pre Software Interface

PS

Pro

ject

Opera

tions-

ISO

pera

tions-

Data

Entr

yP

ayro

llH

RF

ield

Budget

Prepare Supp

Time Reports &

Overtime Reports

Review and

approve

Review and

correct Supp Time

Reports and OT

Reports

Input Supp Time

Reports & OT

Reports

Prepare T&L

Reports

Review and

correct T&L

Reports

Input T&L reports

Run Pay & Time

files into PS

Provide Account

Codes as needed

Prepare Payroll

Notification Forms

to process

adjustments

Create Paysheets Update Paysheets

Produce checks,

advices & DD file

for bank, and print

reports

Run final calc and

confirm

Distribute checks

and advices

Reconcile payroll

Future State Design

It is important that you design and document the future

state process

The level of detail required depends on the degree of

changes planned

– Processes that are being tweaked simply require that

policies and procedures be updated

– Processes that require significant redesign can benefit

from a visioning session

Developing a Future State

Designing a Future State

When designing a new process don’t forget

– Prepare future state process maps with the appropriate

level of detail

– Design manuals, policies and procedures with the end

user in mind

– Provide process owner training that focuses on process,

make it as non technical as possible

Future State Design and Rollout


Introduction


What to Look For


Agenda


Successful Tips for Delivering Process Improvements

Build cross functional teams that include representation

from all appropriate functional areas

Place process owners in project lead positions

Make the process owner responsible for the budget

Utilize effective change management techniques

– Communicate, Communicate, Communicate

Key Success Factors

Change

Management

Politics

• Understand the political

landscape

• Use politics to your

advantage

Quick Wins• Fix the easy things first

• Gain traction

Resources

• Make sure the proper resources are on

the team and that there is an adequate

budget with realistic timelines

Communicate

• Communicate positive

results

• Communicate as

appropriate – Remember

the who, what, where,

when and why

• Communicate regularly

Understanding Project Dynamics

Build Alliances

• Win over adversaries

• Make IT part of the team

• Get Finance involved

Executive

Sponsorship

SupportProvides funding, appropriate resources and opens doors when necessary

ValuesSets the tone, communicates the importance of the project to the organization

LeadershipProvides direction, advice and credibility

StickProvides the appropriate leverage when necessary

CarrotProvides rewards and incentives for success

Executive Sponsorship Plays a Key Role

PotentialThreat

It is important to Understand why People areResistant to Change

Fear of the Unknown

PotentialThreat


Fear of the Unknown

PotentialThreat

Threat of Obsolescence


Fear of the Unknown

Loss of Kingdom /

Status

PotentialThreat



Fear of the Unknown

Loss of Kingdom /

Status

PotentialThreat


Fear of Something

New


Fear of the Unknown

Loss of Kingdom /

Status

PotentialThreat


Fear of Something

New

Change may Uncover

Hidden Issues


Fear of the Unknown

Loss of Kingdom /

Status

PotentialThreat


Fear of Something

New

Changes may Result in

AdditionalWorkload

Change may Uncover

Hidden Issues


Justification

At a minimum on a small project you want to justify the need for dedicated resources to focus on

your project

Clearly Articulate Benefits

The better you can articulate benefits and real dollar savings the more support you will receive

Quantify Savings

Quantify potential savings in order to: Free up resources

(e.g. process owners, IT staff)

gain executive buy-in and

obtain funding

Focus on Savings

Focus on savings, not cost

ROI

Return on Investment - ROIA Positive ROI is Essential to Obtaining Project Approval

• While everyone agrees training is very important many times it is less then adequate

• Training should focus on how a process is to be completed, not just how to use technology

• Training should take into account the users skill sets

Training is the Most Important Element that often gets Shortchanged

System

Best

Practices

Data Captured Once

• Data is captured and

entered once at the

source

One Version of the Truth

•Data captured at the

source meets financial,

operational and

management needs Analyze Errors and Corrections

• Errors, corrections and adjustments should

be continually analyzed for opportunities

to minimize/eliminate occurrences

Data Meets the Needs of All Users

• All user data needs should

be met by the system,

other databases should

not exist

Data Validation

• Data validation should

occur prior to data being

entered into the system

Best Practices Systems

Integration• All systems are fully

integrated

Reporting Best Practices

ReportingBest

Practices

Single Source of

Data

RealTime

Ad-hocReports

AccessTo

Data

ReportingTools

KNOWLEDGE

INTEGRETY

CREATIVITY

STANDARIZATION

CONFIDENCE

LIVE DATA

DECENTRALIZED ACCESS

The Time Required For Improvement Varies

Improvements can be accomplished within a day or can

take months

– Quick hits

– Process adjustments / realignment

– Significant changes

Usually the work can be performed by in-house staff or

using contract labor

Implement quick wins to gain credibility and traction.

Improvements are Easier to Address then Many Believe

Free “How to”

Helpful Hints for Uncovering Process

Improvement Opportunities

Tom Sonde, Principal

(973) 722-9304

[email protected]

SilverRoadSolutions.com

Thank you for

your attention!

Any Questions?

Tom Sonde Biography

Tom Sonde

Tom is a principal with SilverRoad Solutions, a management consulting firm specializing in

helping organizations be more productive. He began performing process improvement work

while at The Dun & Bradstreet Corporation. He subsequently worked at KPMG Consulting

and was VP Global Business Transformation at Misys where he redesigned their global

processes during an SAP implementation.

For additional information regarding improving your processes and related systems please

visit SilverRoad.net.

Tom Sonde, Principal

(973) 722-9304

[email protected]

SilverRoad.net

Copyright © 2011 SilverRoad Solutions.

Uncover Process and System Improvement Opportunities by Tom Sonde CPA SilverRoad Solutions

Economy & Finance

Transcript of Uncover Process and System Improvement Opportunities by Tom Sonde CPA SilverRoad Solutions