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SECTION 3

SYSTEMS OVERVIEW

A business system is an organized flow of processes and operations within an

organization. It consists of manpower and automated applications, both combined in order to

meet organizational goals. Its purpose is to properly set forth policies and guidelines to follow

within an entity. It covers all areas that involve internal control; from the authority of persons

involved, restriction of access, and verification of every transaction. It seeks to establish a

workforce that aims to safeguard the organization’s assets. It is also important to efficiently

and effectively conduct operations both manually and in an automated process.

The objective of our system installation is to create and establish a well-defined structure

that promotes transparency and longevity of efficient operations. Our industry, which focuses

on providing medical services in the province of Sagay, have set forth in their vision and

mission to provide excellent service to people seeking medical care. It is an utmost concern to

develop better service not only on their medical services but also on the administrative aspect

which carries out the basic operations and functions of the hospital. This system application

and installation paves a way for North District Hospital to strengthen its operations and develop

a well-managed organization.

At a glance, the system we are going to apply oversees each subsystem starting from the

Revenue Subsystem, Expenditure Subsystem, Payroll Subsystem, Financing Subsystem,

Investing Subsystem, BIR/Tax Government Compliance Subsystem, and down to the General

Ledger Subsystem. We have provided a structured flowchart that enhances the

understandability of our overall accounting plan.

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Each flowchart is designed to properly show the persons involved and the duties they

carry out in every task performed. It also highlights the importance of having an approval from

authorized personnel for significant transactions. The flow of documents is presented in order

to have a clear view of how different forms and documents are prepared, verified, approved,

and filed. Everything mentioned above is vital to our goal of developing an effective system.

Moreover, our system includes a pre-designed organizational chart that visually

presents the relationship between individuals in the hospital. It serves as a guide in determining

the person who rank in file employees and middle management report to.

The North District Hospital’s existing system comprises mostly manual service operations

and computer-based system operations in their billing and ancillary department. In order to

fulfill an organized system, we established a coding structure under the Chart of Accounts

wherein we designed the books of account of North District Hospital in order to develop a

more precise and concise coding scheme. This coding scheme captures all essential information

regarding the form and nature of each individual accounts.

Our system is designed for the hospital’s specific operations. It captures all relevant

information needed for its full functioning activities. Our system ensures well-established

internal controls that will prevent fraudulent activities and risks in order to sustain the

company’s operations. Overall, these controls will drive the hospital to function at its utmost

capability as aimed in their organizational goals.

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Control Activities

1. Segregation of Duties

Segregation of duties is one of the most important risk management and internal

control of a business. It entails shared responsibility practices in order to prevent fraud

and error in the execution of tasks and responsibilities.

 Authorization of transactions must be separated from the processing of

transactions.

 Custody of assets must be separated from record keeping.

2. Authorization

 All transactions which are processed by the accounting system should be

authorized by proper personnel in order for it to be valid.

3. Supervision

The organization must ensure that it hires competent, flexible, and professional

personnel who have the ability to contribute to the overall organizational goals.

Supervision is an important factor to the management since they are involved in

providing medical services. Good management of employees will entail better

performance of the hospital as a whole.

 Background checks must be performed to help match the right person for the

job.

 Required vacation leave to serve as a detective control to uncover employee

malfeasance.
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4. Access Controls

Access controls are established security for accessing information as well as

tangible property. It is divided into account access and physical access controls. The

account access control involves controls relating to employees account that are

maintained and used in the system. The physical access control involves control in the

physical access in the hospital including supplies room and employees workplace.

a. Account Access Control

 Deny access to systems by undefined users or anonymous

accounts

 After a specific number of unsuccessful log in attempts, suspend

or delay access capability

 Passwords must be changed frequently.

 Enforce password requirements (length and content)

b. Physical Access Controls

 Segregating authorized and unauthorized visitors

 Segregating public and patient areas from staff only areas

 Further restrict staff access to highly sensitive areas.

 Vaults, locks, biometrics, and surveillance camera.

5. Documentation Controls

These are controls which entail proper authorization of source documents, types of

documents needed, number of documents produced in each transaction, and the

eventual disposal or filing of these documents.

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 Source documents are reviewed for proper authorization by management.

 All source documents are produced according to sequence.

 Backups are maintained for master file protection.

 Copies of source documents should be filed properly.

 Number of copies allowed for printing should be restricted to a certain limit.

 Limited access to printers should be supervised.

 Documents are filed either numerically, alphabetically or by date depending on

the type of document and its purpose.

 Dates are further reviewed for transposition/sliding errors.

Independent Verification

Through verification and independent review of recorded transactions, errors and

misrepresentations are identified. Management can assess the reliability of the recorded

transactions, effectiveness of the individual’s performance, integrity of the transaction

processing system, and accuracy of recorded transactions.

 Compare physical assets with accounting records

 Review management reports that summarize business activities

 Review the accounting department organizational chart, manuals, and

departmental control policies

 Reconciliation of account balances with supporting documents

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Systems Security Control

These controls ensure that data storage are well secured, records are properly backed up,

and recovery controls are established. This system security protects not only data but also

computer equipment, facilities, and programs from any errors or data theft.

 The main computer is separated from other computers. It should be placed in an

isolated, secured part of the building and must be restricted from access.

 Back up and recovery plans should be adopted and implemented.

 Back up files should be preserved in a secured part of the building.

 Computer terminals should be turned off during non-office hours.

 After three unsuccessful attempts to access the main computer, an alarm will

sound to alert security personnel.

Basic Features of Accounting System

Generally Accepted Accounting Principle (GAAP)

Generally Accepted Accounting Principle refers to the common set of accounting

standards, procedure, and principles that are followed to create and obtain financial statements.

The Accounting System of North District Hospital is applied within the GAAP framework as

governing rules and a combination of authoritative standards set by policy boards, and simply

the common ways of recording and reporting accounting information.

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Accrual Accounting

 A method that measures the performance and position of a company recognizing

economic events regardless of when cash earned.

 Economic events are recognized by matching revenue to expense when incurred

rather than when payment is made.

 Allows current cash inflows and cash outflows to be combined with future

expected cash inflows or outflows to give a more accurate picture of current

financial position.

Prepayments

 Prepayments are recorded under the Asset Method.

 Asset accounts are debited for payments in advance.

Double-Entry Bookkeeping

 Involves the use of debit and credit accounts to record transactions as they occur,

but moves beyond cash-only transactions.

 Financial transaction has equal and opposite effects in at least two different

accounts.

 Satisfies the equation Assets = Liabilities + Equity

 Transactions are recorded in terms of debit and credit.

 Debit in one account will be an offset by a credit account, vice versa.

 The sum of all debits must equal the sum of all credits

 Makes it easier to prepare financial statements directly from the books of

accounts.

 Easy to detect errors.

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Books of Account

1. Journal – the book of original entry. Financial transactions are recorded in order of date.

 Holds account information that is needed to prepare financial statements.

 Includes contra-account for assets, liabilities, equity, revenues, and expenses.

 General Journal - nonrecurring, infrequent, and dissimilar transactions are

recorded.

 Special Journal - specific classes of recurring transaction that occur in high

volume.

2. Ledger – the book of final entry. Complete record of financial transaction over the life

of the entity.

 General Ledgers - shows highly summarized accounts.

 Subsidiary Ledgers - contains the details of the individual accounts that

constitute a particular account.

Petty Cash System

 A small fund of cash kept on hand for purchases or reimbursements.

 Require strict documentation of any use of petty cash to prevent theft.

 Petty cash fund is periodically audited to ensure that the balance of the fund is

correct.

 Use Imprest Fund System for fixed amount reserved.

 Replenishment is through check disbursement process.

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Revolving Fund

 Similar to Petty Cash however maximum amounts are larger than the Petty Cash.

 Cash kept for immediate purchases of recurring inventories which would be delayed if

formal procedures are followed.

 Requires strict documentation to prevent theft.

 Revolving Fund is periodically audited.

 Replenishment is through check disbursement process.

Voucher System

 Document used in recording a liability to be paid at a future date.

 It is held by the Payee.

 Used as evidence that a transaction has taken place and there is a liability by one of the

parties to the transaction.

Payroll System

 Involves payment of employees’ salaries and wages and the filing of employment

taxes.

 The Payroll system is automated and contains the names, employee ID numbers,

authorized deductions, rate of pay and other significant information.

 Master File is updated regularly for additional employees, termination, and updates in

employee’s information.
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Automated Accounting Information System

 Uses multiple computers which consist of small processing units that are distributed to

different end user.

 Other restricted information processing units are placed under the control of authorized

personnel.

 This will improve availability, increased user satisfaction, cost savings and cost control

responsibility.

 Transactions are processed at the moment economic transaction occur.

 Reduced use of physical documents and lesser paperwork.

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Figure 1.1 Systems Overview

Information

Investing and
Funds Financing Information
Subsystem
Funds

General Ledger
Funds
Revenue Expenditure and Financial
Information
Subsystem Inventories Subsystem Reporting
Subsystem

Service Payroll Subsystem Information

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Figure 1.2 General Accounting Plan

GENERAL ACCOUNTING PLAN

Purchases on Petty Cash / Revolving Materials and

Billings Cash Reciepts Accounts payable Other Bills Refunds Payroll Adjustments
account Fund Insurance

Purchase Petty Cash Request for Materials

Statement Temporary Purchase Related Statement
Source Request Requisition Refund Pay Slip files
Of Account Reciept Request Documents of Accounts
Documents Receiving Liquidation Document
Collection Purchase Insurance
Order Report Report Documents
Reciept
Receiving Purchase Petty Cash
Charge Slip
Report Order Voucher
Statement Supporting
of Account Cash Invoice Cash Invoice Documents

Petty Cash Payroll

Billings File System/ Summary
Revolving Fund
System

Check
Voucher
PACKAGE

Transaction Income Cash Purchase Materials and

Files/ Books Cash Disbursements
Register Register Order File Insurance
of Original Records
Register
Entry

General
Ledger
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