In the Business era, all businesses have business process regardless to the size of the organization. The business process cycle that people, system and steps are involved. It is obvious that each single cycle consist of various unique business activities that evoke technology to accomplish organizational objective. Despite sophisticated technological innovation, most companies are struggled to organize load of different business papers. Burden business documents that refer to various operations and transactions within organization. Over the past 30 years, concern over the implications for the less paper loaded workflow has been grown. Organizations are attempted to eliminate the use of bulky filing cabinets in their business nature and transfer to a computer based system to capture business data. Capturing numerous relevant business data from a paper based system to a digital form. Once data are collected, ultimately it needs to transfer to a digital structure in a computerized system. Then the captured data are manipulated and organized to produce information that represent processing of data. Data processing is the method of converting data input into information output. Finally, information are readily available to be reported for the managerial decisions. Reported data is submitted to the line managers and top executives for superior decision making. It is obvious that data capturing, data processing, data reporting with all resources allocated are assembled together to accomplish an organizational objectives. The purpose of this essay is to be able to demonstrate knowledge acquired from learning about data capturing, data processing and data reporting. And in order to do that the International Committee of the Red Cross (ICRC) has been selected. Firstly, this paper looks at a short brief about ICRC organization, including its areas of work, history and so forth. Then business processes inside ICRC are explored, especially the financial process with its system. And afterwards, the data capturing phases, data processing and data reporting are explained and justified in financial process in an accounting information system perspective.
Short Brief about the International Committee of the Red Cross (ICRC)
The International Committee of the Red Cross (ICRC) is a non-profit, humanitarian organization in which is impartial, neutral and independent. The ICRC mandated to protect and assist people affected by armed conflict and other situations of violence. Furthermore, the ICRC work is to strengthening the humanitarian law and universal humanitarian principles. The origin of the International Committee of the Red Cross (ICRC) refers to the Geneva Conventions and the International Red Cross and Red Crescent Movement which was founded on February 09 1863 (Forsythe, 2005). The work of ICRC is to visit both prisoners of war and civilians detained during an armed conflict to make sure that these detainees are treated with dignity. Also, ICRC tries to maintain economic security (EcoSec); this means ensuring that households and communities that have been affected by conflict or armed violence can meet essential needs (Breau, 2007). This includes food, shelter, access to health care and education. ICRC also tries to provide standard health care to those affected by armed conflict; this sometimes assists or replaces local health services. In addition ICRC also makes sure that communities have clean water access (WatHab) (ICRC, 2012). The ICRC works in 80 countries around the world (ICRC, 2012). In Iraq there is one ICRC Delegation which is in Baghdad. There are two Sub-Delegations, in Erbil and Kirkuk and offices situated in Suleymaniah, Khaniqin, Dohuk, Ramadi, Basrah, Nassiriya, and Najaf. In this specific paper, only ICRC Erbil Sub-Delegation is discussed. Erbil Sub-Delegation is currently responsible of Suleymaniah and Dohuk offices. There are 2 types of employees at ICRC, expatriates and national staff which are around 30 expatriates, and 145 national staff. Erbil Sub-Delegation consists of 9 departments; finance, administration, human resource, information technology, welcome, communication, economic security (EcoSec), water and habitat (WatHab) and tracing. Finance department made of 5 staff; finance manager, finance officer, 2 accountants and a casher.
Business Process in ICRC Organization
Business process cycle is a collection of business activities that assembled together in order to achieve the targeted organizational goal. According to Draheim (2010) business process cycle is a systematic approach that aggregate set of blended task to deliver a service or product in order to serve a particular objective toward final business goal. Each business process performs different business transaction within organization. Business process cycle varies among organizations due to the environmental and dimensional aspects. Mainly, most organizations adapt similar business processes to govern its workflow. Romney and Steinbart (2012: 27-28) categorized business processes cycle into five main clusters ; revenue cycle, expenditure cycle, production cycle, human resource/payroll cycle and financing cycle (as you can see in the diagram below).
Figure 1: AIS and Its Subsystems (Romney & Steinbart, 2012)
As Romney and Steinbart state, revenue cycle is a customer oriented cycle that performs different transaction to response to the customer need to achieve customer satisfaction. While expenditure cycle is a sequence of process that includes purchase of goods and materials through the final process. Human resource/ payroll cycle refers to recruitment and selection, recording employees’ personal information, performance appraisal, attendance and termination of the staff. And production cycle is the period where a raw material moves along from the beginning of manufacturing through the output of a finished product. Financing cycle is related to fetch funds to organization, estimating cash needs and formulating management statements and reports. Each single organization has its own business process with the implication of various modules. For instance, ICRC would not implement production cycle due to its humanitarian business nature. This specific report is focus on the financial cycle with its process inside ICRC organization. ICRC organization comply single business management software to coordinate data in every area of business within organization which is called enterprise resource planning system. ERP system is an integrated application system that assembles various module and organizations data into a unified system and structure with the use of software and hardware technologies (Glenn, 2009). The specific ERP software that ICRC globally implements in its entire business processes is Sun System. Sun System is comprehensive financial management software that accelerates financial processes within organization.
Financial Business Process in ICRC Organization
The ICRC is a humanitarian organization that is funded by voluntary contributions from the States party like Switzerland’s Humanitarian Aid, governments, European Commission, Donor Support Group (DSG) and public and private sources (ICRC, 2014). The financial cycle in ICRC organization starts with the yearly budget allocation. Focusing on Erbil Sub-Delegation, starting from August to October all departments is requested to submit their predicted and expected yearly project budgets. Then at the beginning of November, the predetermined yearly project budgets are proposed to the top management. The top managements conduct a yearly meeting with the head of ICRC Baghdad Delegation and high executives in order to forecast the cash need and a probable budget allocation for a long term forthcoming year. Then Baghdad Delegation shares the estimated budget of Iraq which includes South and North with the ICRC Head Quarter of Geneva. The forecasted budget is negotiated and subsequently approved by the high community, authorities and decision makers of Head Quarter for coming year. Then the endorsed budget is deposited in the account of the ICRC Baghdad Delegation in the Central Bank under the Allocation of Expenditure (AoE). AoE is process to in place the assigned budget by the Head Quarter to accomplish a specific task. After forward, Baghdad Delegation subtracts its budget and circulates the North budget with ICRC Erbil Sub- Delegation that includes Erbil, Sulaymaniah, Dhouk. The assigned budget is transferred from Central Bank of Baghdad to Trade Bank of Erbil (TBI) and debited in the ICRC Erbil Sub- Delegation account. By then the pre-determined budget is separated to the department budget as submitted in the latter stage of the process and entered to the Sun System under a specific cost center of each department with various line entries in order to differentiate between departments and with its projects. Finance department has a significant responsibility to enter the collected data to the system accurately. In this stage data is moves along a data processing cycle. According to Reddy (2004) data processing cycle is a process in which an input raw data is converted to a meaningful information output in utilizable format. Romney and Steinbart (2012: 46) divide data processing cycle into four basic stages; data input, data storage, data processing and information output (as you can see in the diagram below).
Figure 2: The Data Processing Cycle (Romney & Steinbart, 2012)
Data Processing Cycle Regarding Financial Cycle in ICRC Organization
Data Capture and Data Storage:
The initial step in the data processing cycle is data input to capture the relevant data and entering them to the computerized system. As Gelinas and Dull and Wheeler (2012) state that data capture is the method or procedure of converting paper document into machine readable form in order to support a business process . Focusing on ICRC, data capturing starts with two basic steps. Firstly, the submission of the specific project document to finance department by all other departments in order to release payments. The second path is submission of 10 ‘ 40 daily invoices through the suppliers to finance department to receive their payments. The pre submitted documents and invoices are collected by finance department and become a source document. Then the source document is entered to the Sun System by accountants on daily biases. Each payment inside the source document is charged under the cost center of the related department. Then the payment is adjusted by entering the objective code of the specific project, currency and the amount of the payment accordingly. Accountants perform daily accounting entries and daily booking. Book keeping is the process of preparing vouchers for each payment and invoice. In addition, accountants check the support document such as contract, requisition order, purchase order and other related documents are attached payments and invoices.
The data regarding the payments and invoices are stored in the Sun System. The System lures automation to the nature of the organization which data is smoothly stored and saved. With the use of this system the employees and employers easily store and retrieve data in though out the business process. Once the paper based source documents, ledgers and journals are transferred to the digital form, and then they should be stored in a safe manner. Data storage is the core function process that store and save data which can be easily retrieved and accessed by the employee, line managers and top managers of the organization (Khurshudov, 2001).
Data processing
The second phase is to process the captured and stored data inside the Sun system. Data processing encompasses the manipulation of stored data to formulate eloquent information (Chakravarthy & Jiang, 2009). Data processing consists of many activities that a database perform to generate information. As explained by Romney and Steinbart (2012) that data process consist of four various activities within a specific database such as creating records, reading the existing record, updating record and deleting records. In the ICRC Erbil Sub- Delegation, data inside the Sun system is processed in several various ways as the following:
Payment release
As explained before, the payment and invoice data are entered to the Sun system by accountants. The required amount is approved by line manager of the concerned department and finance manager. Then the amount is released in two different ways, through a bank transfer to the concerned department and through a cheque to the supplier. Hence, another responsibility of the accountants is daily closure of the entire accounts. This daily closure allows finance department to check all accounts in daily basis in order to know is there any difference in the system. Furthermore, through this process accountants make sure that the entire cash and journal accounts is equal. The Cash is what has been entered to the system and the journal accounts are what have been paid in the Sun system of the ICRC Erbil Sub- Delegation. Also, this daily closure assists in monthly closure.
Payroll
Payroll represents the sum of the employee’s salary including wage, bonus, and all other deduction (Bieg & Toland, 2011). Focusing on the ICRC Erbil Sub- Delegation, the payroll system starts within Human Resource department to make necessary change when needed in case of promotion and allows. Mainly, HR department uploads the salaries of entire staff to the Sun system. Then the uploaded data is received by finance department for further processing of the data. The finance department classifies the salary of each staff inside the system by deducting the income tax, social security, pension and the net salary. By then salaries of the entire staff is documented in a paper based document which is called letter of authorization. This letter contains the name of each staff with their net salary. Once the letter of salary green lighted, it is circulated to the Trade Bank of Iraq (TBI). Depending on the letter, assigned amount of the letter is distributed from the ICRC Erbil Sub- Delegation’s main account to the staff’s personal current account.
Premises and Amortization
ICRC Erbil Sub- Delegation leases around 6 premises to accommodate 30 expatriates and 10 offices to accommodate 145 staff excluding the expatriates. For this reason, finance department should release payment for each premises and office on monthly basis. Also the premises list should be updated regularly according to the contract start date and the last payment date for further payments. Moreover, another task of finance department is to perform daily cash count. The safe is counted on a daily basis to avoid any error that may occur and to be secure. Also, through the cash count, daily budget is monitored that assist in the monitoring process of the monthly budget.
Monthly Financial Statement
Financial statement represents the business’s financial activity that includes three basic financial elements; balance sheet, income statement and cash flows. Balance sheet refers to the business’s assets, liabilities and equities. While income statement is related to business’s income, expense and profit. And, cash flows report organization’s investing and financing activities (Stickney, Weil, Schipper, & Francis, 2010). Those elements of the financial statement are the building block of any business organization. ICRC Erbil finance department, prepare monthly financial statement to record the relevant elements.
Monthly Accounting Closure
Closure system depends on the organization. Each organization has its unique monthly closure system. The initial step of the monthly closure in ICRC Erbil Sub- Delegation is bank statement. One day prior to the closure, financial department attain a bank statement from TBI bank in order to double check all transaction and compare it with the financial statement. Hence, as explored earlier ICRC Erbil is responsible for the entire North offices. For this reason ICRC Erbil Sub- Delegation consolidate data from Sulaymaniah and Dhouk offices. The received data is uploaded to the Erbil Sun system and the entire North account is accurately checked to eliminate the difference. Finally, all balanced monthly accounts are closed in the system.