Faculty of Creative Industries & Business

Department of Accounting and Finance

Bachelor of Business

CISC 8802: Accounting Information Systems

Group Assignment
Semester: Semester Two 2019
Due time and date: ◼ Power point presentation in hardcopy Thursday week 12.
◼ Signed Cover sheet for report by Friday of week 13 in class.
◼ Written report submitted to turn it in by Friday week 13

Submission ◼ Further information inside.

Total marks: 100 marks
Weighting: 30%
Instructions: ◼ This cover sheet must be attached as the front page to your
written assignment
◼ Where applicable, show details of your workings.
◼ Collusion, copying or plagiarism may result in disciplinary
action
Group Members Student ID No and Name

Lecturer: Dr James Prescott

Student I confirm that:
Declaration: ◼ This is an original assessment and is entirely our own work.
◼ Where ideas, tables, diagrams etc of other writers have been
used the sources are acknowledged in every case.
◼ This assessment has not previously been submitted as
assessed work for any academic course.
Name and Signature 1525501 – Loc Do
of each student in the 1526876 – Linh Nghiem
group: 1521988 – Ryosuke Hayashi
Date of signature:
The Revenue Cycle of Public Transportation Service at Auckland Transport
1. Introduction ........................................................................................................................ 1
2. Company profile ................................................................................................................ 2
3. Fare options and The Revenue Cycle for Public Transport Service at Auckland
Transport .................................................................................................................................... 3
a. Two major fare options ................................................................................................ 3
b. The Revenue Cycle for Public Transport Service at Auckland Transport ....... 4
4. Risk and Technical issues .............................................................................................. 6
5. Proposed Internal controls and Improvements ......................................................... 7
6. Summary and Discussion ............................................................................................... 9
References ............................................................................................................................... 10
1. Introduction
Both for-profit and non-profit businesses generate their revenue streams through a
business process that comprises the revenue cycle. In manufacturing firms, physical
inventories take time in the production process before being delivered to customers when
companies entitle to recognise revenue. The interval between the point of sales and
subsequent receipt of cash may take many days and weeks. The operating process in
trading business (e.g., supermarkets, groceries) that may ramp up the time of revenue
recognition bases on possession of products right at the time of check-out. In general,
the timing difference can split the revenue process into two phases: (1) the physical
phase, involving delivering of goods to customers or providing the service to clients and,
(2) the financial phase, collecting the cash from the buyer in the payment of account
receivable.
In this paper, we aim to focus on the difference in the revenue process by taking an
analysis of Auckland Transport, especially at its Public Service Transportation. In
particular, two major fare options from AT will be discussed. The physical and financial
substance on this type of service are not respectively clear-cut and therefore, bring our
attention to how the company manage its information system to capture and recognise
revenue following current standard (i.e., NZ IAS 23). Besides, the existing risks, technical
issues of the operating system are also being discussed and our further respectively
suggestions to improve and address those risks.

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2. Company profile
Auckland Transport (‘AT’) is one of the six Council Controlled Organisations of the
Auckland Council established on 1st November 2010 (Figure 1). AT is the largest
organisation among the council’s organisations (Auckland Transport, 2019). It was
formed with the expertise and functions of the local, regional councils and the Auckland
Regional Transport Authority (ARTA). Its responsibility is to build an efficient and safe
system for the Auckland Region’s day-to-day transport operations, including public
transport and the local roading network. Its main tasks are to develop the infrastructure
of Auckland’s roads, ferry wharves, cycle and walkways, ensure travel safety for the
community, plan and fund public transport services. AT’s objectives are guided and
directed by the board of director.
This case’s primary focus is on Auckland public transport. Public transport in Auckland
consists of bus, train and ferry. Since 2000, there have been several developments in its
services and infrastructure. The major improvements of Auckland’s public transport
system are the introduction of the electric gates and integrated ticketing system, the AT
HOP card. It is reported that there were 100.8 million train, bus and ferry trips in the year
ended June 2019– the highest annual record since 1951. AT public transport revenue for
2019 experimented an increase to $204,058,000 in comparison with the last financial
period (AT Annual Report 2019). However, AT has not met its 2019’s target due to the
increasing costs and indexation have exceeded the growth in revenue.
Figure 1: Auckland Transport in Group Structure

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3. Fare options and The Revenue Cycle for Public Transport Service at Auckland
Transport
a. Two major fare options
Customers have two payment options either by pre-purchased ticket or AT Hop card.
Despite very few cash transactions, the rest revenue is collected through a central system
called Auckland Integrated Fares System (AIFS) and under the management of Thales
Group.
AT Hop Cards
The AT Hop card rolled out on public transport in 2012, firstly on trains and later on ferries
in 2012, buses in 2013. Until June 2019, more than two million AT Hop cards were issued
and 95 per cent of trips were paid by AT Hop card (Auckland Transport, 2019).
An AT Hop (Figure 2 – below) which is a stored-value contactless smartcard, and can
hold a prepaid fund (called ‘HOP money’) to pay for the fare. Registration allows
passengers to download a free mobile application and use this app for tracking real-time
board, checking account balance. Credit/debit card or cash are used for a top-up at AT’s
kiosks
There are also day pass and monthly pass ticket with the unlimited travel that are
convenient for tourist and daily commuters. To possess an AT Hop card, the passenger
has to pay a fixed price of $10 and needs to put another certain amount of money before
using (‘top-up’). The AT day pass or monthly pass will specifically require passengers to
load a fixed amount onto the purchased card depends on which types of transport service
they are using.
Figure 2 (Ordinary AT Hop card – left, Senior Gold AT Hop card – right)

The card is operated bases on near field communication (‘NFC’) and can be used only
for fare payments and only on Auckland Transport routes. Passengers ‘tag on’ and ‘tag
off’ their card on electronic card readers placed at the train, ferry stations or on the bus.
AT cards will typically expire after six years if no top-up, change in the user’s balance.
Usage of AT card is widely encouraged in Auckland by offering cheaper fares than the
cash ticket option. AT Hop card also have an auto top-up function that helps passengers
always have enough funds on their card. When their cards drop below a previously
specified level, the system will automatically top-up again by the amount they have
specified.

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Paper Tickets
Paper tickets are available at the ticket and top-up machine or customer service centre
at all stations (Figure 3 - below). The fare is paid when passenger purchases the ticket.
It is essential for the passenger to know the origin and the destination before purchasing
the ticket. The system or service clerk will apply a pre-determined rate to the selected
journey. In contrast, using the AT Hop card does not require passengers to declare their
destination; the system will automatically check, update the transition and calculate its
fare accordingly. Upon the boarding, passengers need to present their ticket and enter or
exit using the paper ticket gate.
Paper tickets are issued for a single trip only; thus, passengers need to purchase another
single ticket for returning and moving. The pre-purchased ticket is not refundable and
valid only on the day of purchase and has a time allowance of 30 minutes beside the
travelling time.
Figure 3 (Single-trip paper ticket):

b. The Revenue Cycle for Public Transport Service at Auckland Transport

According to Hall (2019), the revenue cycle consists of two major subsystems: (1) the
sales order processing subsystem and (2) the cash receipt subsystem. The two
subsystems present in most of the business processes regardless of how implicit and
explicit they are and perform their primary activities such as obtaining sales order,
completing the obligations to the buyer, invoicing and eventually collecting cash. In the
service area, such as public transportation, customers need to purchase a ticket or its
equivalent, offer to ‘buy’ the service at stations and then they can travel from origin to
destination. In this manner, the service provider also has an obligation to provide the
means of transport, results in the commitment are only completed when the passenger
reaches the destination. Besides, this type of transaction is determined as a non-
exchange transaction where “the revenue arises without an exchange of approximately
equal value” (Auckland Transport Annual Report [AT], 2019, p.92). The definition of non-
exchange transaction which is mandated in Public Benefit Entity IPSA 23, para.8-11, also

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states that “where the entity may provide some consideration directly in return for the
resources received, but that consideration does not approximate the fair value of the
resources received”. Therefore, Auckland Transport defines its revenue accounting
policy that upon the time it receives fare revenue from certain bus and ferry and all rail
services, “this revenue is recognized when the ticket is purchased and/or travel actually
occurs” (AT, 2019). Normally, the revenue of public transportation will be quantified as V
= P x Q (in which, V is the revenue for the trip, P is the fare passenger has to pay, and Q
is the length of each trip).
There is an interesting question for the public transport system in Auckland that how does
it capture the length of the passenger’s trip (i.e., Q – the length of the trip)?. For AT’s
public transport, especially at train, ferry station, the length is clearly cut from the start to
the ending of its journey based on a real-time card reader. It is visible at the Auckland’s
large train stations (e.g., Britomart, New Market) that there are two separate areas to
distinguish ‘paid’ and ‘unpaid’ passengers and allow them to proceed on the train. Access
to the ‘paid’ area is restricted by electronic control gates and requires to create, read,
update passenger’s records of travel. Similarly, travellers by bus also have to ‘tag on’ the
card reader under the supervision of bus drivers to ensure online transactions are
captured. By doing this, those records will be automatically stored, uploaded in
passenger’s log at the central of AT HOP system which can take up to 24 hours, and
facilitate the fare calculation of each journey.
For the ‘unpaid’ area, prospective travellers are kept out of the ‘paid’ area by the controlled
access gates. The only way can get permission for going through is using forms of
prepayment (i.e., purchasing a one-off ticket at standing kiosks – Figure 3 above, or
ensuring sufficient balance on AT Hop card). When the passenger gets into the boarding
zone, means that he or she now is a passenger in transit. At the time of exit, the
passenger gets off the train and again presents AT Hop card to the card reader, AT Hop
system recognises the presence of the passenger for the trip, completes his journey by
updating the travelling log and automatically calculates the fare and deducts from his AT
Hop card. As a result, the passenger is logically no longer in AT’s information system;
the pending amount at the start of his journey is now transferred to the revenue
recognition.
Auckland Transport uses ‘zones’ to compute its fares (i.e., P – the fare charges) and a
passenger will be only charged for the number of zones that he passed through, rather
than how many buses or trains he travelled through. There are fourteen ‘fare zones’
around Auckland from South area (i.e., Franklin) to the North (i.e., Warkworth), West
region (i.e., Beachlands) to East (i.e., Huapai), or even island (i.e., Waiheke). A
passenger is charged once for any single zone as long as he travels up to 5 trips on buses
and trains, completes his journey within 4 hours and tags on within 30 minutes of tagging
off his previous service. Besides, the separation of zones that creates overlaps between
the border of each zone, those areas allow a passenger to travel to the edge of the zone
without crossing into another zone.
Moreover, the fares also vary accordingly with the types of passenger and the types of
service they are using such as children (under 16s), adult, tertiary students, senior
citizen’s gold card (65s or over), accessible (customers with disabilities). In this manner,

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passengers must load their respective concession onto their card in prior; otherwise, the
adult fare will be applied.
It is also important to distinguish between a cash collection and revenue recognition.
Using the paper ticket is creating a short time lag between the cash receipt and the
revenue is officially recognised. Strictly speaking, the amount paid in advance for a pre-
purchased ticket is a prepayment for these types of service. However, the AT system
implies that all cash receipts coincide with revenue recognition for three reasons. First,
the starting point and destination had been known in advance; second, following shortly
after the purchase of a paper ticket, the journey needs to proceed in a particular time (i.e.,
2 hours); finally, the prepaid amount is non-refundable.
The day pass and monthly pass ticket require the system to defer the time of revenue
recognition until the day or monthly period has passed. It is the time, period when the
AT’s provision of service will completely discharge the obligation with its customers.
As for the ordinary AT hop card, all of the top-up cash that was loaded onto the
passenger’s card are not assets of the company. According to Auckland Transport, it
operates a restricted bank account for AIFS with a balance of $21.1 million at 30 June
2019 (2018: $18.5 million). This balance is used for the deposit of unused stored value
on AT Hop cards and is deducted at the time of using.

4. Risk and Technical issues

Disruptions in transportation operations can directly affect Auckland Transport’s revenue
performance. The services could be cancelled or interrupted due to various reasons such
as infrastructure maintenance, weather, incidents and control reasons. The organisation
is unable to generate revenue until services continue. The disruptions cause problems to
the customers as well as the public(i.e. congestion is made due to train service disruption)
Most of AT’s services depend greatly on machines and computer-based networks. If the
systems are down, data cannot be captured properly. For example, power outages can
malfunction the top-up machines, card readers at the entry and exit gates, to make people
travel for free. The fare will not be collected. Transportation schedule will not be properly
communicated to the customers which can affect customers satisfaction.
This issue also results in the possibility of incomplete and inaccurate data collection.
People could also board the train without a valid ticket or using a concession card that
belongs to others. Therefore, data are either missing or false.
The risk of inaccurate fare charges arises from several factors. When the machines are
faulty, they could charge an incorrect fare. Top-up machines failure lead to overcharging
customers. Overcharging is problematic for the organisation since refund procedure is
complicated. Meanwhile AT suffers a loss in revenue if undercharged. Additionally,
unauthorised changes made to the fare system can result in incorrect charges.
Data input errors at the ticket office ảe likely since data input is physically done by the
staff. For example, sale staff enters the wrong amount of fees or top-up for the wrong
card. Such a case could also lead to under or overcharging the customers.

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Theft of cash is could happen if there are no practice of proper internal control procedures.
Cash is used as a payment method for public transportation. Cash transactions usually
take place at the ticket office, on busses or ferries. This raises the issue of the staffs,
drivers not recording cash receipts or stealing cash.
Besides the advantages of AT HOP card, there are some limitations to the payment
methods for public transport. Customers cannot purchase AT HOP card and paper tickets
anytime, anywhere. For instance, some bus stops do not have nearby places for
customers to purchase and top-up money. For an online top-up transaction take up to 72
hours to be updated. Overall, AT HOP card and other payment means are lacking optimal
features to increase customers satisfaction.

5. Proposed Internal controls and Improvements

Possible risk treatment and internal control
Internal control is the system or practice to mitigate the risk of error and fraud in an
organisation. An objective of internal control is to prevent and/or mitigate the risk from
error and fraud Hall (2019). Possible risk treatment and/or internal control for the risks
mentioned in the previous section are illustrated in this section.
Disruptions of services
Service disruption is one of the unexpected circumstances for any organization. For
example, on 25th January 2019, AT train service has been disrupted entire day due to
traffic signal problem, and many customers experienced inconvenience and dissatisfied
with AT’s information regarding service disruption (RNZ, 2019). In essence, minimising
downtime, emergency operation plan and notifying timely information to customers
broadly are considered as mitigations for revenue loss. It is important to inform customers
about the current situation and further operation plan. AT is currently providing train
update service such as service information a notification via text and e-mail for registered
customers (Auckland Transport, n.d.). However, this service is provided only for
registered customers. Notifying information to broad customers is essential. For
instance, providing notification via AT mobile application on the smartphone is a great
idea because a majority of New Zealand residences own smartphones, and a number of
AT mobile application user is over 300,000 in 2019 (Auckland Transport, 2019). Thus,
notification via mobile application is one of the most effective methods to let customers
know the information on a real-time basis.
Issues of computer-based systems and networks
In order to mitigate the risk of revenue loss by network system unavailability, the backup
system is significant. Since AT transportation system is heavily relied on the network.
One of the largest problems about the network-integrated system is that issue occurred
in one place, it affects the entire system and possibly makes the entire system
dysfunctional. Therefore, the backup system is significant. For instance, the main system
can be operated with a network-integrated system and the backup system made with a
flat-file structure could be helpful. The flat-file structured system is a stand-alone system.
Therefore, when a problem occurred in one place, the entire system is not affected, and

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operation is still available in different places (Hall, 2018). It is important to make a backup
system to continue the business in an emergency.
Risk of over or under-charging
In order to mitigate the risk of incorrect fare issue, initially correct payments by the
customers are highly considered to save time and increase their satisfaction. For
travelling by train, there is a possibility that a customer purchases a single-trip ticket and
travel more than one zone by simply not getting off at the initial intended destination. AT
currently cannot avoid this issue excepts physical check. To prevent the issue, AT should
replace the paper ticket option simply by issuing a temporary transit card that will be
returned at the exit gate. The temporary transit card works exactly the same function to
ordinary electric cards. For example, both NSW transport’s (NSW Transport) and
SMRT’s (Singapore) single-trip use transit cards instead of single-trip paper tickets.
Besides, passengers may themselves correct the fare charged to their ticket by adjusting
the money they had put into the transit card respectively to the journey they had
completed. Tokyo Metro in Japan also has fare adjustment machines for wrong fare ticket
at each train station (Tokyo Metro). In case of AT HOP card, all the fare transaction on
train, ferry is calculated automatically. Most of fare collections of paper tickets are done
completely before passenger’s departure; thus, post-paid adjustment cannot be redone.
In order to make claim regarding fare, customers need to create an account of MyAT and
resister AT HOP card to check the balance and history of journey (Auckland Transport,
n.d.). Moreover, a refund can proceed on the My AT website; however, this procedure is
not provided to un-registered AT HOP card. AT need to consider providing a receipt for
un-registered AT HOP users to payment confirmation and refund.
Incorrect data input issue
Incorrect data input is one of the common human errors in any industry. Ticket issuing at
ticketing office is performed by ticket clerks; thus, that is a potential area of error. In order
to prevent this issue, AT should impose more IT-oriented control. For example, installing
more vending machines, kiosks for payment procedure in the replacement of manual
labours.
Theft of cash
Theft of cash is one of the common frauds in any company. Since a cash receipt activity
is conducted by the bus driver, there is an opportunity and ability of misappropriation of
cash. For example, the bus driver could easily receive the cash but did not issue the
paper ticket for passengers. As a part of the current physical control, AT has been already
conducting random ticket inspections by 200,000 times a month (Auckland Transport,
2019). However, this independent verification can not alone prevent, detect the fraud.
The effective control is that bus drivers have to issue a paper ticket for customer who
makes payment by cash. Our suggestion is that AT should enhance passenger’s
awareness for any ride with receipts; otherwise, they will get compensation for twice of
the fare by reporting the issue to AT’s centre.

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Ticket inspection and norm of ticket issuing are performed as a function of supervision to
reduce the opportunity of cash theft. Besides, each bus is equipped with CCTV that is an
IT control to reduce the risk of cash theft and also act as compensation for independent
verification.
Limitation of payment methods for transport
It is somewhat inconvenience for the customers to carry an additional card when
commuting. There is also a possibility of card lost, stolen. Some operators in oversea
can incorporate the virtual transportation card with online payment so that enable
customers to pay directly via Apple Pay and Google Pay (Apple, 2019) (Google, n.d.).
Therefore, the customer could use their smartphone for paying the fare instead of carrying
a physical transportation card. Furthermore, Singapore and NSW Australia recently
started accepted PayWave and Mastercard contactless as a payment option for
transportation (NSW Government, n.d.) (Barbaschow, 2019). AT should consider this
trend to encourage user convenience and increasing flow of revenue streams.

6. Summary and Discussion

In this paper, the revenue cycle of public transport service at AT typically focuses on how
it manages its two major fare options and apply information technology effectively to
capture and record the mass data from customers.
Inevitably, Auckland Transport faces several challenges in their internal control practice
to minimise possible risks and maximise their revenue. We point out how AT endeavour
to mitigate existing risks and what inherent risks that they are still exposed.
Disruptions in services can directly result in revenue loss. The solution could be to provide
customers with more replacement services and notifications so that they can plan ahead
of the alternatives.
AT’s systems rely mostly on computer-based systems and networks. Therefore, it is
important to focus on improving the sustainability of current systems and prepare offline
backup systems.
With the high frequency of services that AT is providing to customers daily, it is likely for
AT to have problems such as over or under-charging issues, data input errors, theft of
cash. Solutions to prevent these risks could be to tighten their control process,
authorisation of data inputs and changes, increase the use of monitoring cameras.
The payment methods for public transports in Auckland is limited compared to the
systems in other cities. By using advanced technology to replace physical tickets, AT
could increase their revenue and provide customers with better travel experience.

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References
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