Table of Contents Topics Letter of Transmittal Acknowledgement Abstract Table of Contents Chapter 1: Introduction Origin of the Report Background

of the Report Scope of the Study Objectives of the Study Methodology of the Study Limitation of the Study Chapter 2: Literature Review Accounting and Information Systems (AIS)- An Overview Role of AIS in the value chain Management Information Systems (MIS) and AIS Basic functions of AIS Documentation Techniques Basic Subsystems in the AIS Expenditure Cycle A Closer Look Internal Control and AIS Chapter 3: Company Profile Beximco Pharma at a Glance The Profile: Beximco Pharmaceuticals Limited Mission Statement of Beximco Pharma Managing the Champion Organization The Footprints Left Over by BPL Over Time Departments of Beximco Pharma Quality - The Passion of BPL Research and Development - A Promise Kept by BPL Blockbuster Products - BPL's Major Contributors 30 32 33 35 37 38 44 45 47 4 6 8 9 14 17 20 24 1 1 2 2 2 3 Page Number I II III IV

Chapter 4: Findings of the Study Accounting Information System of BPL Expenditure Cycle of BPL Local Purchase of Raw and Packing Material Input Information Information Processing Output Information Import of Raw and Packing Material Input Information Information Processing Output Information Capital Expenditure cycle Input Information Information Processing Output Information Revenue Expenditure Cycle Internal control for Expenditure cycle Chapter 5: Recommendations Chapter 6: Conclusion Bibliography Annexure 49 51 51 57 58 60 62 63 70 77 82 82 83 84 85 87 93 100 101

Origin of the Report The report was originated to make a study on the Expenditure Cycle of Beximco Pharmaceuticals Limited, one of the most important cycles and as a part of the fulfillment of internship program required for the completion of the Master of Business Administration (MBA) program of the Department of Accounting & Information Systems of the Faculty of Business Studies of University of Dhaka. Internship program is
an attempt to acquaint the students with the real world situations so that the knowledge gained from the classroom is further strengthened. As the classroom discussion alone can not make a student perfect in handling the real business situation, therefore it is an opportunity for the students to know about the real life situation through this internship program This internship report was prepared under the supervision of Pallab Kumar

Biswas, Lecturer, Department of AIS, Faculty of Business Studies, University of Dhaka and Mr. Jamal Ahmed Choudhury, Senior Manager, Finance and Accounts, Beximco Pharmaceuticals Ltd. Background of the Report Accounting Information System (AIS) is the oldest and most widely used information system in business as they record and report business transaction and other economic events. Computer based AIS records and reports the flow of funds through an organization on a historical basis and produce important financial statements such as Balance Sheet, Income Statement, Cash Flows, etc. Such systems also produce forecasts of future conditions such as Projected Financial Statements and Financial Budget. Advancement in information and communication technology in last twenty years has changed the traditional view of Accounting Information System for good. Computer based Accounting Information Systems has enabled us to enter data from different geographical locations simultaneously, process data at a very high speed, and generate reports very quickly. Control mechanisms for computer based AIS is also a little different from manual AIS. All these things have made me interested to have an in-depth look on the AIS of a large manufacturing concern. This report is an attempt to visualize the Expenditure cycle of Accounting Information System of the BEXIMCO Pharmaceuticals Ltd.

Scope of the Study The full package of Accounting Information System of a public limited company is a broad area. Within the time period of three months allotted for internship, it is virtually impossible to cover all aspects of AIS. So, the scope of my report is limited only to the survey of expenditure cycle, the recording, processing and disseminating of information produced from this cycle and related internal control issues. Objectives of the Study The broad objective of preparing this report is to broaden my knowledge and understanding of Accounting Information Systems by adding practical experience in a real business set up, its operation and culture to my acquired knowledge in the classroom. The specific objectives of the study are: To give a brief overview of Beximco Pharmaceuticals Limited (BPL). To be familiar with the corporate environment. To have an idea about the organization's product and mode of operations. To vividly understand how the functional areas of Beximco (BPL) operate and they are interlinked with each other. To have a comprehensive look into the expenditure cycle of a large manufacturing concern like BPL. To understand the nature, design, use and implementation of AIS and also reporting of financial information. Methodology of the Study This report has been prepared on the basis of experience gathered during the period of internship. For preparing this report, I have also got information from annual reports and website of the Beximco Pharmaceuticals Limited. The details of the work plan are furnished below:

Data collection method Relevant data for this report has been collected primarily by direct investigations of different records, papers, and documents. The interviews were administered by formal and informal discussion and no structured questionnaire has been used. Data sources The data and information for this report have been collected from both the primary and secondary sources. Among the primary sources, face to face conversation with the respective stuffs of the head office and the auditors of the company and practical work experience are important. The secondary sources of information are annual reports, websites, and study of relevant reports, documents and different manuals. Data processing Data collected from primary and secondary sources have been processed manually and qualitative approach in general and quantitative approach in some cases has been used throughout the study. Data analysis and interpretation Qualitative approach has been adopted for data analysis and interpretation taking the processed data as the base. So the report relies primarily on an analytical judgment and critical reasoning. Data Presentation Data / Information have been presented in a narrative manner; flow diagrams are also used to give a clear and precise understanding of the situation. Limitation of the Study In spite of all sincere and honest efforts the study/report contains a number of limitations, which was beyond my control. Major limitations of the study/report are: 1. All the comments made, conclusion reached and suggestions for possible improvement provided are purely based on my level of understanding, knowledge and my way of interpreting a particular statement. 2. Beximco Pharmaceutical Limited follows a policy of not disclosing all the information needed to prepare my report for obvious reason. 3. Because of the lack of information, I have to make some assumptions that may cause few errors or personal mistakes in the report.

Accounting and Information Systems- An Overview Accounting: Accounting can be defined as an information system. The operations concerned with accounting can be identified as a) recording economic data (data collection) b) data maintenance c) presenting quantitative information in financial terms (Information generation). Accounting can also be classified as the language of business. So in brief accounting may be viewed as an instrument of providing financial information needed for the overall functioning of an entity (a business firm). Information: Information is intelligence that is meaningful and useful to persons for whom it is intended. Information has value to the firms and to the managers. Information is

basically provided by AIS through financial statements to external parties and through various types of managerial reports to insiders. This information can be used by the managers for different types of decision making. At first data is made available for the organization. Data become information through three stages. These stages are input, process and output. System: A system is two or more interrelated components that interact to achieve a goal. Systems are almost composed of smaller subsystems, each performing a specific function important to and supportive of the larger system of which it is a part. A system can be defined as a group of interacting parts that function together to achieve its purpose. Some of the systems are natural and some of them are made by human. Suppose Mississippi river can be classified as a natural system whereas clock can be classified as a system made by human being.

Accounting and information systems: AIS is a structure within an entity such as a business firm, that employs physical resources and other components to transform economic data into accounting information to provide it to different types of user for the purpose of decision making.

Facilities Labor (human services) Material from Supplier Acquiring Materials

Manufacturing Firm
Supporting Operations

Producing Finished Goods

Storing Finished Goods

Shipping Finished
Goods

Goods to Customer

Data

Information

AIS
Funds
Data and information flow Physical flows

Funds

Fig 1: The operational system of a manufacturing firm (Wilkinson , Cerullo,

Raval and Wong-On-Wing, 2005,P-8)

According to Romney and Steinbart, An AIS consists of five components: 1. The people who operate the systems and perform various functions. 2. The procedures both manual and automated, involved in collecting, processing, and storing data about the organizations activities 3. The data about the organizations business process 4. The software used to process organizations data 5. The information technology infrastructure including computers, peripheral devices, and network communication devices.

The need for studying AIS The Accounting Education Change Commission recommended that the accounting curriculum should provide students with a solid understanding of three essential concepts: 1. The use of information in decision making 2. The nature, design, use and implementation of an AIS 3. Financial information reporting The knowledge of AIS for every Accounting student is very crucial for the following reasons: 1. The AIS course focuses on understanding how the accounting system works: How to collect data about an organizations activities and transactions How to transform that data into information that management can use to run the organization How to ensure the availability, reliability, and accuracy of that information 2. Auditors need to understand the systems that are used to produce a companys financial statements. 3. Tax professionals need to understand enough about the clients AIS to be confident that the information used for tax planning and compliance work is complete and accurate. 4. One of the fastest growing types of consulting services entails the design, selection, and implementation of new Accounting Information Systems. 5. A survey conducted by the Institute of Management Accountants (IMA) indicates that work relating to accounting systems was the single most important activity performed by corporate accountants. Role of AIS in the Value Chain The ultimate goal of any business is to provide value to its customers. A business will be profitable if the value it creates is greater than the cost of producing its products or services. An organizations value chain consists of nine interrelated activities that collectively describe everything it does (Porter and Millar, 1985, P.149-160). The five

primary activities consist of the activities performed in order to create, market, and deliver products and services to customers and also to provide post-sales services and support. The four support activities in the value chain make it possible for the primary activities to be performed efficiently and effectively. The nine value chain activities are: Primary activities: 1. Inbound logistics consist of receiving, storing, and distributing the materials that are inputs used by the organizations to create the service and products that it sells. 2. Operations activities transform input in to final products or services. 3. Outbound logistics are the activities involved in distributing finished goods or services to customers. 4. Marketing and sales refers to the activities involved in helping customers to buy the organizations products and services. 5. Service activities provide post sale support to customers. Support Services: 1. Firm infrastructure refers to the accounting, finance, legal support, and general administration activities that are necessary for any organization to function. 2. Human resources activities include recruiting, hiring, training and providing employee benefits and compensations. 3. Technology activities improve a product and service. Examples include research and developments, production design. 4. Purchasing includes all the activities involved in procuring raw materials, supplies, machinery and the buildings used to carry out primary activities. How an AIS adds value to a business: The AIS can add value to an organization by providing accurate and timely information so that the five primary value chain activities can be performed more effectively and efficiently. Well designed AIS can do this by:

1. Improving the quality and reducing the costs of products or services. 2. Improving the efficiency: A well designed AIS can help improve the efficiency of operations by providing more timely information. 3. Improved decision making: AIS can improve decision making by providing accurate information in a timely manner. 4. Sharing of knowledge: well-designed AIS can make it easier to share knowledge and expertise, perhaps thereby improving operations and even providing a competitive advantage. Management Information Systems (MIS) MIS provides information to the managers of the firm. MIS provides information needed to plan and control the activities of the firm. It includes all types of data including nontransactional data. Relationship between AIS & MIS: Some view AIS having the narrow scope of the MIS, since the data accepted by the MIS have a broader scope. On the other hand, AIS serves a wider group of users both internal and external. Thus in conclusion it can be said that AIS & MIS, each of them have particular mission & to some extent these are interrelated.

Sales/ Marketing

Production Info

AIS

Personnel

Finance

Fig 2: AIS as an MIS subsystem (Wilkinson, Cerullo, Raval and Wong-On-Wing,

2005, P-12)

Basic Functions of AIS An AIS performs three basic functions: 1. To collect and store data about the organizations business activities and transactions efficiently and effectively: Capture transaction data on source documents. Record transaction data in journals, which present a chronological record of what occurred. Post data from journals to ledgers, which sort data by account type. 2. To provide management with information useful for decision making: In manual systems, this information is provided in the form of reports that fall into two main categories: 3. financial statements managerial reports

To provide adequate internal controls: Ensure that the information produced by the system is reliable. Ensure that business activities are performed efficiently and in accordance with managements objectives. Safeguard organizational assets

Data collection and processing The data collection and processing cycle consists of four steps: data input, data storage, data processing and information output. The trigger for data input is usually business activity. Data must be collected about: Each event of interest The resources affected by each event The agents who participate in each event

Data Input: Historically, most businesses used paper source documents to collect data and then transferred that data into a computer. Today, most data are recorded directly through data

entry screens. Usually the data entry screen retains the same name as the paper source document it placed. Well designed source documents and data entry screens improve both control and accuracy of capturing data about business activities. Examples of source documents:

Source document Sales order Delivery ticket Credit memo To record customer order

Function

To record delivery of merchandise to customer. To support adjustments in customers account for sales return, sales discount etc.

Deposit slip

To record amounts of cash & cheques deposited in company bank account.

Purchase requisition Purchase order Receiving report Time cards

To request that purchase department orders specific goods. To request merchandise from vendors. To record receipt of merchandise from vendors. Record time worked by employees

Control over data collection is improved by: prenumbering each source document since it simplifies verifying that all transactions have been recorded and that none of the documents has been misplaced having the system automatically assign a sequential number to each new transaction employing source data automation such as ATMs used by banks, POS scanners used in retail stores

Data Processing: Once data about a business entity has been collected, the next step usually involves updating previously stored information about the resources affected by the event and the agents who participated in the activity. For example, data about a sales transaction result in updating the information about inventory to reduce the quantity on hand of the item

sold, as well as updating the customers account balance. This updating can either be done periodically, such as once a day or week, or immediately as each transaction occurs. Batch processing is the periodic updating of the data stored about resources and agents On-line, real-time processing is the immediate updating as each transaction occurs

Data Storage: An entity is something about which information is stored. Examples of entities include employees, inventory items, and customers. Each entity has attributes, or characteristics of interest, which need to be stored. An employee pay rate and customer address are examples of attributes. Generally, each type entity possesses the same set of attributes. For example, all employees possess an employee number, pay rate and home address. The specific data values for those attributes however will differ among entities.

Record transaction data in journal: After transaction data have been captured on source documents, the next step is to record the data in a journal. A journal entry is made for each transaction showing the accounts and amounts to be debited and credited. The general journal records infrequent or non routine transactions. Specialized journals simplify the process of recording large numbers of repetitive transactions.

Post transactions to ledger: In an AIS, the files used to store cumulative information about resources and agents are called ledgers. Most companies should have both general ledger and a set of subsidiary ledgers. The general ledgers contain summary data for every asset, liability, equity, revenue and expense account of the organization. A subsidiary ledger records all the detailed data for any general ledger account that has any many individual sub-accounts. For example, the general ledger contains one account that summarizes the total amount owed to the company by all customers. The subsidiary accounts receivable ledger has a separate record for each individual customer, each of which contains detailed information

about a particular customer. Subsidiary ledgers are commonly used for accounts receivable, inventory, fixed assets and account payable.

Chart of Accounts: Each general ledger account is assigned an a specific number. The chart of accounts is a list of all general ledger accounts an organization uses (Romney and Steinbart, 2003, P30). The structure of the chart of accounts is one of the most important aspects of AIS, because it affects the preparation of financial statements and reports. Data stored in individual accounts can easily be summed for presentation in reports, but data stored in summary accounts can not be easily broken down and reported in more detail. Consequently, it is important that the chart of accounts contain sufficient detail to meet an organizations information needs.

Providing information for decision making A second function of the AIS is to provide management with information useful for decision making. Whether presented in the form of paper reports or displayed on a computer screen, the information an AIS provides falls in to two main categories: financial statements and managerial reports. Financial statements are primarily designed for external parties to use in making decisions about extending credit to or investing in the organizations. The following steps are used to: Prepare a trial balance. Make adjusting entries. Prepare the adjusted trial balance. Produce the income statement. Make closing entries. Produce the balance sheet. Prepare the statement of cash flows.

Managerial reports: An organizations AIS must be able to provide managers with detailed operational information about the organizations performance.

Budgets and performance reports: Two important types of managerial reports are budgets and performance reports. A budget is the formal expression of goals in financial terms. One of the most common and important type of budget is the cash budget. A cash budget shows projected cash inflows & outflows.

Performance reports, in contrast, are used for financial control. A performance report lists the budgeted and actual amounts of revenues and expenses and also shows the variances or differences between these amounts.

Internal Control The third function of an AIS is to provide adequate internal controls to accomplish three basic objectives: 1. Ensure that the information is reliable. 2. Ensure that business activities are performed efficiently. 3. Safeguard organizational assets. The two important methods for accomplishing these objectives are: 1. Provide for adequate documentation of all business activities. 2. Design the AIS for effective segregation of duties.

Adequate Documentation: Adequate documentation of all business transactions is the key to accountability. Documentation allows management to verify that assigned responsibilities were completed correctly. Well-designed documents and records can help organizations quickly identify potential problems. For example, gaps in the sequence of completed source documents might indicate that some documents have been misplaced, in which case some transactions may not have been recorded. Such a gap may also, however, be a sigh of more serious problem. For example, a missing check may have been written for fraudulent purposes. Adequate documents and records can also ensure that an organization does not make commitments it cannot keep.

Segregation of duties: Segregation of duties refers to dividing responsibility for different portion of a transaction among several people (Romney and Steinbart, 2003, P-37). The objective is to prevent one person from having total control over all aspects of a business transaction. Different person should perform the following activities: authorizing transactions recording transactions maintaining custody of assets Documentation Techniques Documentation encompasses the narratives, flowcharts, diagrams and other written material that explain how a system works. This information covers the who, what, when, where, why and how of data entry, processing, storage, information output and system controls. One popular means of documenting a system is to develop diagrams, flowcharts, tables and other graphical representations of information. These are then supplemented by a narrative description of the system, a written step-by step explanation of system components and interactions. Documentation: Documentation describes the procedures for recording data, the commands that run computer programs, the processing steps that AIS follow and the logical and physical flows of accounting data through the system.

Importance of documentation: 1. One of the basic purposes of documentation is to explain how AIS operates. Documentation helps employees to understand how does a system works, helps accountants to improve it and help managers to control it. 2. Documentation also includes the user guides, procedure manuals and operating instructions; which are so helpful. These are helpful to train users to operate AIS hardware and software, to solve new operating problems and to perform the jobs better.

3. Documentation also helps to develop new systems. It is also helpful to maintain the existing one. 4. Narrative descriptions may vary significantly, depending on who writes them. Similarly, the individual reading a narrative may interpret it differently from the way it was intended. But a system flowchart or data flow diagram that uses common symbol is more likely to be interpreted in the same way by all of the parties viewing it. 5. Documentation helps the auditors to determine the strengths and weaknesses of the organization so easily. Thereafter, the auditors can identify the scope & complexity of the audit. Different types of documentation technique An organization can use different types of documentation techniques available to it. Some major types are: Dataflow diagram A data flow diagram (DFD) graphically describes the flow of data within an organization. It is used to document existing systems and to plan and design new ones. There is no ideal way to develop a DFD. A data flow diagram (DFD) is composed of the following four basic elements: Data sources and destinations Data flows Transformation processes Data stores

Flowchart A flowchart is an analytical technique used to describe some aspect of an information system in a clear, concise, and logical manner. Flowcharts use a standard set of symbols to pictorially describe transaction processing procedures. Flowcharts are of three types:

Document flowchart: A document flowchart illustrates the flow of documents and information between areas of responsibility within an organization. Document flowcharts trace a document from its cradle to its grave. They show where each document originates, its distribution, the purposes for which it is used, its ultimate disposition, and every thing that happens as it flows through the system.

System flowchart: System flowcharts depict the relationship among the input, processing, and output of an AIS. A system flowchart begins by identifying both the inputs that enter the system and their origins. The input can be new data entering the system, data stored for future use or both. The input is followed by the processing portion of the flowchart, which is the steps performed on the data. The logic the computer uses to perform the processing task is shown on a program flowchart. The resulting new information is the output component, which can be stored for later use, displayed on a screen or printed on paper. In many instances, the output from one process is an input to another.

Program flowchart: A program flowchart describes the specific logic to perform a process shown on a systems flowchart. A flow line connects the symbols and indicates the sequence of operations. The processing symbol represents a data movement or arithmetic calculation.

Differences between DFDs and Flowcharts DFDs emphasize the flow of data and what is happening in a system, whereas a flowchart emphasizes the flow of documents or records containing data. A DFD represents the logical flow of data, whereas a flowchart represents the physical flow of data. Flowcharts are used primarily to document existing systems. DFDs, in contrast, are primarily used in the design of new systems and do not concern themselves with the physical devices used to process, store, and transform data.

Basic Subsystem in the AIS According to Romney and Steinbart, Accounting Information Systems consist of five subsystems. These are: 1. The revenue cycle: involves activities of selling goods or services and collecting payment for those sales. 2. The expenditure cycle: involves activities of buying and paying for goods or services used by the organization. 3. The human resources/payroll cycle: involves activities of hiring and paying employees. 4. The production cycle: involves activities converting raw materials and labor into finished goods. 5. The financing cycle: involves activities of obtaining necessary funds to run the organization, repay creditors, and distribute profits to investors.

Revenue Cycle: The revenue cycle is a recurring set of business activities and related information processing operations associated with providing goods and services to customers and collecting cash in payment for those sales (Romney and Steinbart, 2003, P-359) Romney and Steinbart identified four basic revenue cycle business activities. These are: 1 2 3 4 Sales order entry Shipping Billing and accounts receivable Cash collections

Sales order entry: Sales order entry process entails three steps: 1. Taking the customers order 2. Checking and approving the customers credit 3. Checking inventory availability

Shipping: The second basic activity in the revenue cycle filling customer orders and shipping the desired merchandise entails two steps: 1. Picking and packing the order 2. Shipping the order Billing and accounts receivable: The third basic activity in the revenue cycle involves: 1. Billing customers 2. Updating accounts receivable Cash collection: The fourth step in the revenue cycle is cash collections. It involves: 1. Handling customer remittances 2. Depositing remittances in the bank Expenditure Cycle The expenditure cycle is a recurring set of business activities and related data processing operations associated with the purchase of and payment for goods and services (Romney and Steinbart, 2003, P-415). The primary objective of the expenditure cycle is to minimize the total cost of acquiring and maintaining inventories, supplies, and the various services necessary for the organization to function. The three basic business activities in the expenditure cycle are: 1. Ordering goods, supplies and services 2. Receiving and storing goods, supplies and services 3. Paying for goods, supplies and services Production Cycle The production cycle is a recurring set of business activities and related data processing operations associated with the manufacturing of products (Romney and Steinbart, 2003, P-468). Accurate and timely cost accounting information is essential input to decisions about:

Product mix Product pricing Resource allocation and planning Cost management

There are four basic activities in the production cycle: 1. Product design 2. Planning and scheduling 3. Production operations 4. Cost accounting Human Resource/ Payroll Cycle The HRM/payroll cycle is a recurring set of business activities and related data processing operations associated with effectively managing the employee work force (Romney and Steinbart, 2003, P-505). Some of the more important activities include the following tasks: Recruitment and hiring Training Job assignment Compensation (payroll) Performance evaluation Discharge of employees, due to voluntary or involuntary termination

The three basic functions the AIS provide in the HRM/payroll cycle are: 1. Processing transactional data about employee activities 2. Safeguarding the organizations assets 3. Providing information for decision-making The basic activities performed in the payroll cycle are: 1. Update master payroll file

2. Update tax rates and deductions 3. Validate time and attendance data 4. Prepare payroll 5. Disburse payroll 6. Calculate employer-paid benefits and taxes 7. Disburse payroll taxes and other deductions General Ledger and Reporting Activities This part discusses the information processing operations involved in updating the general ledger and preparing reports that summarize the results of an organizations activities. The four basic activities performed in the general ledger and reporting system are: 1. Update the general ledger 2. Post adjusting entries 3. Prepare financial statements 4. Produce managerial reports

Expenditure Cycle - A Closer Look The expenditure cycle is a recurring set of business activities and related data processing operations associated with the purchase of and payment for goods and services. The primary objective of the expenditure cycle is to minimize the total cost of acquiring and maintaining inventories, supplies, and the various services necessary for the organization to function. Key decisions: What is the optimal level of inventory and supplies to carry? Which suppliers provide the best quality and service at the best prices? Where inventories and supplies should be held?

 How can the organization consolidate purchases across units to obtain optimal prices? How can information technology be used to improve both the efficiency and accuracy of the inbound logistics function? Is sufficient cash available to take advantage of any discounts suppliers offer? How can payments to vendors be managed to maximize cash flow? Business activities: Romney and Steinbart identified three basic business activities in the expenditure cycle. These are: 1. Ordering goods, supplies and services 2. Receiving and storing goods, supplies and services 3. Paying for goods, supplies and services Activity 1: Ordering goods, supplies and services The first major business activity in the expenditure cycle is ordering inventory or supplies. The traditional inventory control method is often called economic order quantity [EOQ]. This approach is based on calculating an optimal order size so as to minimize the sum of ordering, carrying, and stockout costs. Alternative inventory control methods are: 1. MRP (material requirement planning) This approach seeks to reduce required inventory levels by scheduling production, rather than estimating needs. 2. JIT (just in time) JIT systems attempt to minimize both carrying and stockout costs. A major difference between MRP and JIT is: MRP systems schedule production to meet estimated sales need, thereby creating a stock of finished goods inventory where JIT systems schedule production to meet customer demands, thereby virtually eliminating finished goods inventory.

Documents and procedures: The purchase requisition is a document that identifies the following: requisitioner and item number specifies the delivery location and date needed specifies descriptions, quantity, and price of each item requested may suggest a vendor

The purchase order is a document that formally requests a vendor to sell and deliver specified products at designated prices. It is also a promise to pay and becomes a contract once it is accepted by the vendor. Frequently, several purchase orders are generated to fill one purchase requisition. Activity 2: Receiving and Storing Goods, Supplies and Services The second major business activity involves the receipt and storage of ordered items. Key decisions and information needs: The receiving department has two major responsibilities: Deciding whether to accept a delivery Verifying quantity and quality Documents and procedures: The receiving report documents details about each delivery, including the date received, shipper, vendor, and purchase order number. For each item received, it shows the item number, description, unit of measure, and count of the quantity received.

Activity 3: Pay for Goods and Services Approve Vendor Invoices: The third activity entails approving vendor invoices for payments. The accounts payable department approves vendor invoices for payment The cashier is responsible for making the payment

The objective of accounts payable is to authorize payment only for goods and services that were ordered and actually received.

Improving accounts payable: Processing efficiency can be improved by: Requiring suppliers to submit invoices electronically, either by EDI (Electronic Data Interchange) or via the Internet Eliminating vendor invoices. This invoiceless approach is called

evaluated receipt settlement (ERS). Pay approved invoices: The cashier approves invoices The combination of vendor invoice and supporting documentation is called a voucher package. A key decision in the cash disbursement process is determining whether to take advantage of discounts for prompt payment. Information needs: The third function of the AIS is to provide information useful for decision making. Usefulness in the expenditure cycle means that the AIS must provide the operational information needed to perform the following functions: Determine when and how much additional inventory to order. Select the appropriate vendors from whom to order. Verify the accuracy of vendor invoices. Decide whether purchase discounts should be taken. Monitor cash flow needs to pay outstanding obligations. Efficiency and effectiveness of the purchasing department Analyses of vendor performance such as on-time delivery, quality, etc. Time taken to move goods from the receiving dock into production Percentage of purchase discounts taken

Internal Control and AIS Internal Control: The traditional definition of internal control is that internal control is the plan of organization and the methods a business uses to safeguard assets, provide accurate and reliable information, promote and improve operational efficiency, and encourage adherence to prescribed managerial policies. Management control: Management control encompasses the following three features: 1. It is an integral part of management responsibilities. 2. It is designed to reduce errors, irregularities, and achieve organizational goals. 3. It is personnel-oriented and seeks to help employees attain company goals. The specific control procedures used in the internal control and management control systems may be classified using the following four internal control classifications: 1. Preventive, detective, and corrective controls 2. General and application controls 3. Administrative and accounting controls 4. Input, processing, and output controls

In 1992, COSO (Committee of Sponsoring Organization) issued the results of a study to develop a definition of internal controls and to provide guidance for evaluating internal control systems. The report has been widely accepted as the authority on internal controls. The COSO study defines internal control as the process implemented by the board of directors, management, and those under their direction to provide reasonable assurance that control objectives are achieved with regard to: effectiveness and efficiency of operations reliability of financial reporting compliance with applicable laws and regulations

COSOs internal control model has five crucial components: Control environment Control activities Risk assessment Information and communication Monitoring

The Information Systems Audit and Control Foundation (ISACF) recently developed the Control Objectives for Information and related Technology (COBIT). COBIT consolidates standards from 36 different sources into a single framework. The framework addresses the issue of control from three vantage points or dimensions: 1. Information: needs to conform to certain criteria that COBIT refers to as business requirements for information 2. IT resources: people, application systems, technology, facilities, and data 3. IT processes: planning and organization, acquisition and

implementation, delivery and support, and monitoring Elements of Internal Control The elements of internal control as identified by COSO are briefly discussed below: Control Environment The first component of COSOs internal control model is the control environment. The control environment consists of many factors, including the following: 1. Commitment to integrity and ethical values 2. Managements philosophy and operating style 3. Organizational structure 4. The audit committee of the board of directors 5. Methods of assigning authority and responsibility 6. Human resources policies and practices 7. External influences

Control Activities Generally, control procedures fall into one of five categories: 1. Proper authorization of transactions and activities 2. Segregation of duties 3. Design and use of adequate documents and records 4. Adequate safeguards of assets and records 5. Independent checks on performance Proper Authorization of Transactions and Activities: Management lacks the time and resources to supervise each activity and decision. So they establish policies for employees to follow and then empower them to perform accordingly. This empowerment is called authorization. Certain activities or transactions may be of such consequence that management grants specific authorization for them to occur. For example: the approval is often required if the credit sale is over TK 30,000. In contrast, management can authorize employees to handle routine transactions without special approval, a procedure known as general authorization. Authorization is the empowerment management gives employees to perform activities and make decisions. Digital signature or fingerprint is a means of signing a document with a piece of data that cannot be forged. Specific authorization is the granting of authorization by management for certain activities or transactions. Segregation of Duties: Good internal control demands that no single employee be given too much responsibility. An employee should not be in a position to perpetrate and conceal fraud or unintentional errors. The following three types of function should be segregated. Authorization means approving transactions and decisions. Recording means preparing source documents, journals, ledgers, or other files, preparing reconciliations and preparing performance report. Custody means handling cash maintaining an inventory storeroom, receiving checks, writing checks.

Custodial Functions Handling cash Handling assets Writing checks Receiving checks in mail Recording Functions Preparing source documents Maintaining journals Preparing reconciliations Preparing performance reports
If two of these three functions are the responsibility of a single person, problems can arise. Segregation of duties prevents employees from falsifying records in order to conceal theft of assets entrusted to them. Design and Use of Adequate Documents and Records: The proper design and use of documents and records helps ensure the accurate and complete recording of all relevant transaction data. Documents that initiate a transaction should contain a space for authorization. The following procedures safeguard assets from theft, unauthorized use, and vandalism: effectively supervising and segregating duties maintaining accurate records of assets, including information restricting physical access to cash and paper assets having restricted storage areas Adequate safeguards of assets and records: Once upon a time, people had been thinking to have the safeguard for cash or for physical assets. But now a day, information is also the valuable one. The following procedures safeguard assets from theft, unauthorized use, and vandalism. Effectively supervising and segregating duties. Maintaining accurate records of assets including information.

Authorization Functions Authorization of Transactions

 Restricting physical access to assets. Protecting records and documents. Restricting access to computer rooms, computer files. The following can be used to safeguard assets: cash registers safes, lockboxes safety deposit boxes restricted and fireproof storage areas controlling the environment restricted access to computer rooms, computer files, and information

Independent check on performance: We have here various types of independent checks. Reconciliation of two independently maintained sets of records: Bank reconciliation is the example. Another example is comparing the accounts receivable subsidiary ledger total with the accounts receivable total in the general ledger. Comparison of actual quantities with the recorded amounts. The cash in a cash register drawer at the end of each clerks shift should be the same as the amount recorded on the cash register. Independent review: After one person processes a transaction, a second person sometimes reviews the work of the first. Risk Assessment The third component of COSOs internal control model is risk assessment. Companies must identify the threats they face: strategic doing the wrong thing financial having financial resources lost, wasted, or stolen information faulty or irrelevant information, or unreliable systems

Information and Communication The fourth component of COSOs internal control model is information and communication. The people of the organization will capture and exchange the information needed to conduct, manage and control its operation. According to AICPA, an AIS has five primary objectives. These are: Identification and recording of all valid transactions. For example: if a company records fictitious sales, at that time revenue is overstated. Proper classification of transaction. For example: improperly classifying an expense as an asset overstates assets and net income. Recording transactions at their proper value. For example: an accounts receivable that becomes uncollectible should be written off. . Recording transactions in the proper accounting period. Properly presentation and related disclosures in the financial statement is important. For example: A lawsuit against the company will be disclosed in the disclosure.

Monitoring Performance The fifth component of COSOs internal control model is monitoring. The entire process will be monitored and the modification will be done as needed. Key methods of monitoring performance include effective supervision, responsibility reporting and internal auditing. Effective supervision: It includes training and assisting employees, monitoring their performance, correcting errors, safeguarding assets by overseeing employees who have access to them. Responsibility accounting: Responsibility accounting system includes budget, schedules, standard costs and quality standards. Internal auditing: It is important to identify the internal control effectiveness.

BEXIMCO PHARMA at a Glance Beximco Pharmaceuticals Ltd. is a leading edge pharmaceutical company and is a member of the BEXIMCO Group, the largest private sector industrial conglomerate in Bangladesh. The strategic strengths of Beximco Pharma are its strong brand recognition, highly skilled work force and diversified business mix. Beximco Pharma brands Neoceptin R (Ranitidine), Napa (Paracetamol), Amdocal (Amlodipine), Neofloxin (Ciprofloxacin), Bexitrol F (Salmeterol Plus Fluticasone), Bextrum Gold (Multivitamin and Multi Mineral) and Atova (Atorvastatin) are among the most recognized brands in the Bangladesh Pharmaceutical industry.

Beximco Pharma started its operation in 1980, manufacturing products under the licenses of Bayer AG of Germany and Upjohn Inc. of USA and now has grown to become nation's one of the leading pharmaceutical companies, supplying 15% of country's total medicine need. Today Beximco Pharma manufactures and markets its own `branded generics' for almost all diseases from AIDS to cancer, from infection to asthma, from hypertension to diabetes, both nationally and internationally.

Beximco Pharma manufactures a range of dosage forms including tablets, capsules, dry syrup, powder, cream, ointment, suppositories, large volume intravenous fluids, metered dose inhalers etc. in several world-class manufacturing plants, ensuring high quality standards complying with the World Health Organization (WHO) approved current Good Manufacturing Practices (cGMP).

The recipient of three times `gold' national export trophy, Beximco Pharma is the largest exporter of pharmaceuticals from Bangladesh, spreading its presence in many developing and developed countries across the globe. Beximco Pharma is the only company in Bangladesh to receive this highest national accolade for export, for record three times.

Beximco Pharma markets its brands through professional sales and marketing teams in African, Asian and European markets. It also supplies its products to renowned hospitals and institutions in many countries, including Raffles Hospital and K K Women & Children Hospital in Singapore, MEDS and Kenyatta National Hospital (KNH) in Kenya, Jinnah Hospital, Agha Khan Hospital and Shaukat Khanum Memorial Hospital in Pakistan. Beximco Pharma is also an enlisted supplier of WHO and UNICEF.

Another important business activity of Beximco Pharma is the contract manufacturing for major international brands of leading multinational companies.

Beximco Pharma is acclaimed domestically and internationally for its outstanding product quality, world class manufacturing facilities, product development capabilities and outstanding service.

Beximco Pharma has a strong market focus and is anticipating continued future growth by leveraging business capabilities and developing superior product brands and markets. In particular the company is very interested in developing a strong export market in USA and Europe. To meet the future demand Beximco Pharma has invested US$ 50 million to build a new state-of-the-art manufacturing plant, confirming to USFDA and UK MHRA standards. This new plant will also offer contract-manufacturing facility to leading pharmaceutical companies, especially from Europe and US.

Company Profile: BEXIMCO PHARMACEUTICALS LIMITED

Corporate Headquarter Operational Headquarter Factory Year of Establishment Commercial Production Status Business Lines

17 Dhanmondi R/A, Road No. 2 Dhaka 1205, Bangladesh 19 Dhanmondi R/A, Road No. 7 Dhaka 1205, Bangladesh 126 Kathaldia, Tongi, Gazipur 1976 1980 Public Limited Company Manufacturing and marketing of pharmaceutical finished products and Active Pharmaceutical Ingredients (APIs)

Overseas Offices & Associates

UK, USA, Pakistan, Myanmar, Singapore, Kenya, Yemen, Nepal, Czech Republic, Vietnam, Cambodia and Sri Lanka

Export Markets

Bhutan, Cambodia, Czech Republic,Germany, Hong Kong, Iran, Iraq,Kenya, Malaysia, Mozambique, Myanmar, Nepal, Pakistan, Philippines,Russia, Singapore, South Korea, Sri Lanka, Thailand, Ukraine, Vietnam,Yemen

Authorized Capital (Taka) Paid-up Capital (Taka) Net Turnover 2004 (Taka) Number of Shareholders Stock Exchange Listings Number of Employees

1,000 million 559.76 million 2,402.7 million 50750 (As on Dec 31, 2004) Dhaka, Chittagong, London 1,385

Mission Statement of BEXIMCO PHARMA The mission statement of BEXIMCO PHARMA implies its keenness to be socially responsible in true sense. It says:

Each of our activities must benefit and add value to the

common wealth of our society. We firmly believe that, in the final analysis we are accountable to each of the constituents with whom we interact; namely: our employees, our customers, our business associates, our fellow citizens and our shareholders. Each of our activities must benefit and add value to the common wealth of our society. We firmly believe that, in the final analysis we are accountable to each of the constituents with whom we interact; namely: our employees, our customers, our business associates, our fellow citizens and our shareholders .

The motto of BPL is to bring

happiness and smile to life through fulfilling responsibilities. their words: In

M e d ic i n e r e l a t ed

is

directly to h u m a n l i f e a nd t he r e f o r e , i t s ma n u fa c t u r e r s ha v e i mm e n s e s o c i a l responsibility of p r o v id i n g s a fe and e ff e ct iv e m e d i c at i o n, d e m a nd i n g u nc o m p r o m i s i n g e ff o r t s a t a l l le v e l s o f i t s a c t iv i t i e s . B e x i m c o P ha r m a ce u t i ca l s L t d. - t h e le a d i ng h ea l t h ca r e c o mp a n y in Bangladesh, ha s been ma k i n g of t he at every ef f o rt to it ensure t he e f f ec t iv e n e s s medicines of a nd safety medicines the time t ha t of p r o d u ce s . n e ed s

P h y s i c i a n s a nd p a t i e n t s of t he c o u nt r y r e l y o n t h e e ff ic a c y of t he Beximco Pharma c r it i c a l d e m o n s t r a t i n g t h e ir c o n f id e n c e a nd t r u s t o n B P L p r o d uct s . "

BPL has a promise to make a healthier tomorrow for the society where the citizens will enjoy a better life. The highlights of BEXIMCO PHARMAs endeavor towards a healthier society are innovation and the adventure of risk taking through bold decisions:

BPLs history is one of innovation and adventure, of risks taken and bold decisions made towards a noble purpose building a healthier tomorrow where our fellow citizens can live longer, healthier and better. In 2003, we have redefined success as something broader than mere performance in the marketplace and have taken initiatives to prepare for the f uture. BPL enter paid is the foreign us off. first local company of who dared culture to and invest in

manufacturing Active Pharmaceutical Ingredients (APIs) and to markets Now our diversified in stringent APIs and regulatory environment. Over the last decade, the risk taken has capability manufacturing expertise in exploration of foreign markets have placed us in a relatively better position over other local companies to face the post-WTO era. Above all what adds more to our pride is our commitment to t he society. This is reflected in our launching of Anti -HIV/AIDS drugs first ever in Bangladesh, which was further reinforced through the introduction of anti-cancer drugs. With our in continuous the improvement in performance and increase and the

commitment to our customers, we are confident to strengthen our position marketplace further shareholders value.

Managing the Champion Organization The management of BEXIMCO PHARMA is simply exceptional in comparison to any other listed companies in this country. It has a blend of professionalism and wisdom,

which plays a key role in managing the champion organization. The Board of Directors includes:

A S F Rahman Salman F Rahman Iqbal Ahmed M.A. Qasem O.K. Chowdhury Dr. Abdul Alim Khan A.B. Siddiqur Rahman Dr. Farida Huq C. H. Rahman Barrister Faheemul Huq Ahsanul Karim

Chairman Vice Chairman Director Director Director Director Director Director Director Director Director

A dedicated Management committee and an Executive Committee make sure that BEXIMCO PHARMA achieves its target with sheer professionalism. The committees are:

The Management Committee: Nazmul Hassan, CEO Osman Kaiser Chowdhury Ali Nawaz Afsar Uddin Ahmed

The Executive Committee: Osman Kaiser Chowdhury Chowdhury Hafizur Rahman Nazmul Hassan Ali Nawaz Afsar Uddin Ahmed

The responsibility of the company secretary is carried out by Mr. Md. Asad Ullah, FCS.

The Footprints Left Behind by BPL Over time

1976-1987

1976 : Registration of the company 1980 : Started manufacturing and marketing of licensee products of Bayer AG of Germany and Upjohn Inc. of USA 1985 : Listing in the Dhaka Stock Exchange (DSE) as a Public Limited Company 1988-1997 1990 : Commissioning of Basic Chemical Unit 1992 : Started export operation with Active Pharmaceutical Ingredients (APIs) 1993 : First export market operation with finished formulation 1998-2005 1998 : First pharmaceutical company of the country achieving National Export Trophy (Gold)for 1994-95 1999 : UNICEF approval of BPL as an enlisted supplier 2000 : Agreement to manufacture Metered Dose Inhaler (MDI) for Glaxo SmithKline 2001 : Introduction of Small Volume Parenterals (Injectables) Establishment of AnalgesicAntiinflammatory API plant 2002 : Won the first prize of ICAB National Awards 2000 for Best Published Accounts and Reportsin Non- Financial Sector Category The first Bangladeshi company to supply pharmaceuticals to Raffles Hospital- the most prestigious hospital of Singapore 2003 : Received National Export Trophy (Gold)for consecutive 2 years (1998-99, 19992000) Won the Silver prize of ICAB National Awards 2003 for Best Published Accounts and Reportsin Non-Financial Sector Category. Won a tender to supply Neoceptin R and Neofloxin to Raffles Hospital of Singapore for the whole years consumption Introduced Anti-HIV drugs for the first time in Bangladesh. Diversification into Anti-Cancer therapeutic class. 2004: Signed contract with Novartis to manufacture their liquid, cream, ointment and suppository products under toll Manufacturing agreement. 2005: Merger of Beximco Infusions Ltd. with Beximco Pharmaceuticals Ltd. Departments of Beximco Pharma BPL has major functional departments headed by highly qualified professional staff. Introduction of various divisions are as follows:

Central Product Management (CPM) Department The activities of CPM are: Market research Selection of new product Design and testing of product (DTP) Sample store (logistics) management Making strategy The department deals with the controllable marketing variables, the 4p's. This department takes decisions in the following areas:
Product - Size, color, shape, packaging etc. Price - Raw materials cost, customer ability, regulatory body's approval etc. Promotion - Promotional aids include brochure, pads, folder, and plant visit by

physicians, health-related people, students, and people of different student. Purchase Department The purchase department deals with all the purchase (pharmaceuticals raw materials, packaging materials, office equipment, machinery's etc.) of the organization. Based on the information provided by the planning department, the purchase department prepared the import authorization formats. Then the format is sent to be he director (commercial) for approval. After an L/C is opened all information about its latest status is documented in a 'purchase consignment (PC) folder' preserved by the purchase department. And for the monitoring (current status & information record) of all L/C, such books are essential.

Planning Department The planning department is concerned with the production planning and raw material procurement. After getting the sales forecast from the sales department, the planning department goes through the current stock information of different raw materials. The

statement shows the position of raw materials in the pipeline (under process, awaiting shipment, in transit, at port, under clearance, delivery / receiving). Considering the status of stock, the planning department then decides about which materials (active pharmaceutical ingredients, packaging materials etc.) should be procured. It first calls for limited tender among the enlisted sources (local agents) for the supply of particular materials. The list of suppliers is kept in a database preserved by the planning dept. Within 15 days, the quotations are submitted by the competing suppliers. Then the planning dept. prepares a comparative statement and forwards it to the purchase department. Sales Department Sales department is a marketing execution department. It supplies sales forecast to the planning department. It is headed by the Director, Marketing who is aided by the Sales Manager. The sales manager looks after the activities of the Assistant Sales Managers. Each Assistant Sales Manager supervises 5 Regional Sales Controllers (RSC). Each RSC supervises 5 to 8 Field Supervisors (FS). Each FS supervises and monitors the activities of 4 to 5 Medical Representatives (MR). The core responsibility of an MR is to generate demand of products. An MR is given 42-day training (about anatomy, human body, basic sales skill etc.) by the SE&T department one he successfully goes through the written and oral test. Then a territory is assigned to an MR based on Geographical location Communication Number of customers Business potentiality

A monthly tour program is developed for each MR. Then the day-wise breakdown is done. The sales / promotional plan is developed (for chemist coverage 15 calls have to be made, or for doctor's coverage 16 calls have to be make each day). The guideline is given to the MRs by the CPM / Sales / Medical / training

department in each cycle conference. Promotional strategies are also set there. Performance analysis of MRs is received. FS sometimes goes for surprise visit to see whether things got going as planned. He is required to ensure the achievement of target within the time frame. His main responsibilities are
People management; and Time management

FS meets MRs prior to call, during call and after call to monitor their activities. An RSC maintains the prescription trend up. He is concerned with
Territory development; and Supervisor development

RSC reports to the Sales Manager whose main responsibilities are

Interaction with distribution and production department Giving feedback to CIM Human Resources development Visit the critical customers Donation management.

Distribution Department Beximco Chemical Division carries out its distribution activities through its own distribution company called I & I Services Ltd. A senior distribution Manager is charged with ensuring the smooth functioning of the distribution system. He is aided by two Asst. Distribution Manager one looks after the operations and the other looks after the administration. There are 9 Senior Distribution Officers. There are also Distribution Officers and Asst. Distribution Officers. BPL has 15 depots throughout the country located in Dhaka, Narayangonj, Comilla, Kushtia, Khulna, Barisal, Chittagong, Sylhet, Mymensingh, Faridpur,

Rajshahi, Noakhali, Bogra, Rangpur and Cox's Bazar. Each depot is headed by a depotin-charge. BPL is a retail-oriented company selling to more than 22,000 retail outlets throughout the country. Wholesale is less than 1% and sales to Govt. are less than 0.5%. The field force promotes in its own territory to give delivery order by sending an invoice for allocation. The allocation is made by the distribution assistant in each depot. He also gives the amount received as cash sales to the distribution cashier. A sales summary (a sales journal) is prepared each month for each depot. It is the sales report of the month that shows how much is sold in cash and how much in credit. Human Resource Department Two major types of activities are accomplished by this department. These are: Administrative functions (maintenance and protocol services) Human resource related functions

The objectives of Human Resource Department are: Recruitment policy and procedure Conformation policy and procedure Placement of employees Human Resource Development Organizational structure review and modification Career planning Hiring and firing Job description preparation Conducting appraisal at the end of each year Maintaining and developing employees personal files
Safety-security

Business Research & Development Department Business R&D Department began its operation from January l, 2000. It is working on market development, both domestic and international. The functions that are done by this department are:

Outsourcing negotiated New product study New technology study Project feasibility study Commercial negotiation Observing the world pharmaceuticals market

MIS Department The MIS Department takes care of total automation of BPL. It supports the hardware and software network of the company and the factory. This department provides services through SNA Server, WIN NT Server, SQL Server. BPL operational headquarters is linked to the corporate headquarters through fiber optic cable. The department also established a Wide Area Network (WAN) with the 15 depots around the country. MIS department develops the access Control & attendance monitoring System internally. The department maintains the radio-link between the factory and the head-office. The software section is to work for developing software solutions as per organizational requirements. Multimedia Department Functions of the multimedia department are:

Web page designing. Developing multimedia presentation for presentation programs. Making videos of conferences, meeting etc. Making video for products. Making video for company. Keeping the records of annual meeting and other meeting.

Medical Department This department is a unique department in this industry as BPL established this first ever in order to create easy relationship through using the professional linkage with the doctors, the ultimate customer of the pharmaceutical companies. It provides

services (e. g. slide preparation, providing different journals, books etc.) to the health professional on different issues and receives feedback from them. It arranges seminars on different issues such as deseases and their cures in different parts of the country. Factory BPL's production facility is situated in Tongi. It has state of the art technology for its solid, liquid, semi solid production plants. There is also a plant for inhaler production. The construction of a FDA approved plant is on the pipeline. Accounts & Finance Department The activities of the finance department are carried over by 40 persons whose operations are divided under the three heads: Treasury Accounts Cost and Budget

Treasury section deals with (i) cash at banks and (ii) bills. It also looks after the cash planning and management. A review is made every week for this purpose. Accounts section is the custodian of all records and transactions. A computer software program called 'MAPICS' (Management Accounting Planning

Information Control System) is used to aid the activities. Cost and Budget Department identifies the cost centers and prepares the budget. There are almost 40 cost centers. The annual budget preparation starts at October. The past data is provided there. Standard operating guidelines are also there. Budget review is done quarterly (internally) and half-yearly (by the top management). Quality: The Passion of BPL Over the years the trust and reliability on their products has emerged as one of their core competencies. Today the name BPL has been synonymous with trust and reliability inherent in the term quality. Quality is their relentless passion. Quality is ingrained in

their values and in all what they do. Their business processes and practices are designed to achieve quality results that would meet the expectation of patients and physicians through getting highest quality products, of shareholders and stakeholders through achieving returns. When it comes to manufacturing, this guiding principle places even more social responsibility of ensuring quality in terms of quantity, purity, stability, safety, efficacy, and overall presentation of the products. Their quality assurance system establishes control or checkpoint to ensure the quality of the products during production and upon completion of production. It starts with raw material and component testing and includes in-process quality control, packaging, labeling, and finished product testing as well as batch auditing and stability monitoring. Standard Operating Procedures (SOPs) developed in accordance with the latest WHO approved current Good Manufacturing Practices (cGMP) are being strictly followed in every step.

To ensure all these, a highly dedicated academically sound and professionally competent team comprising of pharmacists, chemists, biochemists, microbiologists, and engineers are using most modern and sophisticated equipment like High Performance Liquid Chromatography (HPLC), Gas Chromatography (GC), Infrared (IR) Spectrophotometer, Ultraviolet (UV) Spectrophotometer, Homogenize, In-Vitro Bioavailabilty tester, Lung simulator, Disintegrator, Dissolution tester, & many other latest computer-aided quality control instruments and accessories. This passion to the total quality has helped BPL from its inception to create many blockbuster brands in a fiercely competitive generic pharma market.

Research and Development: A Promise Kept by BPL BPL employs a significant part of its resources in R&D that makes BPL a forerunner in the Bangladesh pharmaceutical industry. The R&D team comprises of academically

sound and professionally competent personnel who have firm commitment to new product development. R&D team of BPL is consistently striving towards:

Developing new formulations Simplifying manufacturing processes Bringing cost efficiency

The sincere and relentless effort of our R&D team has taken the company a step further in 2004 by developing Ultrafen Plus (Drug for pain & inflammation) and Pretin-D (Drug for allergic rhinitis with congestion) applying unique formulation technology for the first time in Bangladesh. These two drugs added new momentum to the sales revenue of 2004.

A good number of APIs are also in the development pipeline to ensure availability of raw materials in the pharmaceutical patent regime. Many APIs of different therapeutic classes have already been developed and manufactured and some more drugs of antifungal, antihistamine, cardiovascular, antiinflammatory, anti-HIV, anticancer and other therapeutic classes are in the final development stage.

This reverse engineering capability of our R&D team would be an added advantage for BPL in the pharmaceutical patent regime.

Environment, Health and Safety: BPLs Commitment to Care

One of the primary goals of BPL is to contribute to keep the earth clean. BPL is aware of its responsibility of caring for the environment and the importance of reducing environmental effects of manufacturing activities to a practical minimum.

BPL is committed to a green operation and its facilities are carefully designed and operated to prevent all forms of pollution. Discharge of conventional substances from the companys manufacturing plant is subject to stringent controls. Regular environmental monitoring is carried out. Effluent treatment plant reduces the hazardous impact of the emissions to a minimum. Solvents used in the synthesis processes are recovered in efficient recovery plants.

Wherever practicable, BPL works to reduce the impact of its operations on the environment. BPL continuously strives to improve performance and optimize the use of all material and human resources, thereby minimizing adverse impact on environment.

Blockbuster Products: BPLs Major Contributors

Success of a pharmaceutical company depends on how effectively it establishes its brands in the market. The excellent blending of world class manufacturing technology and innovative marketing strategies made BPL successful in achieving brand equity for its products. As a result the number one product by value and the number one product by unit in Bangladesh Pharmaceutical Market and also the highest selling drug in the cardiovascular class belong to BPL.

Neoceptin R - the number one product by value One of the major revenue earning products of BPL is Neoceptin R. It is also the highest selling product by value and is the undisputed leader in Bangladesh Pharmaceutical Market.

Napa - the number one product by unit Napa is the highest selling product by unit. Napa has become a household brand in the mind of physicians as well as consumers of Bangladesh.

Amdocal - the highest selling drug in cardiovascular market. Amdocal is one of the most prestigious and revenue earning products of BPL. It is the highest selling product in the cardiovascular market.

Findings of the Study

Beximco Pharmaceuticals Ltd. (BPL) is the biggest company of Beximco's Chemical Division. It is also one of the largest manufacturers of pharmaceutical products in the

country. It not only satisfies the domestic needs with its vast range of products, but also exports to many different countries. To manage this huge business, to keep track of numerous everyday transactions, to facilitate management for different types of decision -making and to keep the stakeholders informed with different kind of information in different times are daunting tasks. Various types of information need to be generated, accumulated and customized according to the users' requirements. Accounting Information System (AIS) is one of the major information systems that play a vital role in this regard.

Being an accounting professional today requires far more than just a textbook understanding of debits and credits, journalizing and posting steps and the latest accounting and auditing pronouncements. The accounting professionals of 21st century must also stay abreast of the many technological advances, which continually reshape the business world. These advances have sparked an information revolution, which in the past few decades has transformed almost every aspect of accounting. Perhaps the greatest impact of the information revolution has been on the accounting system itself indeed, accounting systems and the world of computers and data processing has become inseparable. Recognition of this fact has given rise to a new accounting specialty are a known as Accounting Information System. The dynamic and systematic Accounts and Finance department with established network and different sophisticated and user friendly softwares are the keys for such organized and reliable AIS that BPL possesses. Over the years the AIS of BPL has been developed to meet almost all the accurate and timely information needs both for the internal and external requirements.

Accounting Information Systems of BPL An accounting information system is a unified structure within an entity, such as a business firm, that employs physical resources and other components to transform economic data into accounting information for the purpose of satisfying the information needs of a variety of users.

In fact the AIS is a subsystem of a broader information system that encompasses all information generating activities. The AIS consists of people, procedure and information technology. It performs the following three functions in the organization: It collects and stores data about activities and transactions so that the organization can review what has happened. It processes data into information that is useful for making decisions that enable management to plan, execute and control activities. It provides adequate controls to safe guard the organization assets, including its data. These controls ensure that the data is available when needed and that it is accurate & reliable. This study has identified one of the major components of the accounting information system of BPL Expenditure cycle, the technology, the output & users, and the control mechanisms related to this cycle. Some of them are input to the system, some work to process the input, and some represent the output. Regardless of what they are, they work together to achieve the system's objective which is to satisfy the information needs of the users. Business events, also called transactions, are the steps, within the physical & financial processes of firms. We may group the business events of BPL into process sequences called transactions cycles. Most Organizations engaged in many similar and repetitive transactions. These transaction types can be grouped into four basic cycles, each of which constitutes a basic subsystem in the AIS. These four cycles (or subsystems) of the AIS are related to one another and each feeds data to the general ledger & reporting system that provides information to both internal & external users. Accounting Softwares BPL uses a computer software program called "MAPICS" for its transaction processing purpose. "MAPICS" is the acronym of "Management Accounting Planning Information Control System". The software was developed and launched in the market by IBM Corporation in 1980; BPL uses the 1995 upgraded version. It is DOS

based. MAPICS is batch processing software. In BPL transactions are entered in batches for a month and the batch is then posted and reports are generated according to pre designed format. By structure MAPICS is a modular software. BPL uses the following modules of MAPICS: General Ledger. Budget Preparation. Financial Ratio Analysis. Fixed Asset Accounting. Accounts Receivable. L C Monitoring System. Apart from MAPICS, BPL uses some other software for accounting purpose such as: Fixed Assets Management System. Payroll System. Inventory Control System. Sales and Billing System. Production Information System. All these softwares are developed by the MIS department of BPL and these softwares are not integrated with MAPICS. Furthermore, MS Excel is extensively used by the accounts department.

Expenditure Cycle The expenditure cycle is a recurring set of business activities and related data processing operations associated with the purchase and payment for goods and services. The expenditure cycle of BPL includes:

1. Acquisition of raw and packing material Local Purchase Import

2. Acquisition of fixed asset 3. Other revenue expenditure The focal point of this report is to put light on the acquisition of raw and packing material form local and foreign sources and related accounting treatments. Acquisition of fixed assets and other revenue expenditures are discussed briefly. Local Purchase of Raw and Packing Material The domestic purchase of raw material includes following business functions; 1. 2. 3. 4. Processing purchase order Receiving goods, material and services Recognizing the liability Processing and recording cash disbursement

Processing Purchase Order The procedure begins with need recognition. The respective department identifies its need, gets approval of the departmental head and with the approval an authorized person sends purchase requisition to purchase department to initiate purchase. In case of property, plant and equipment acquisition, before sending purchase requisition, a budget has to be prepared by the user department. If the departmental head or higher authorities, whichever is required, approve the proposed budget a purchase requisition is sent to purchase department. And in case of raw or packing materials, the planning department determines the quantity and timing of raw materials. This department informs the purchase department when to buy materials. When the purchase department got the requisition, it calls for quotation or tender. After receiving the quotation or tender, supplier has been selected. The supplier may be local or international. If the terms and conditions are in favor of both BPL and the selected supplier, an order for the purchase is than issued by the purchase department. In case of raw or packing material, the purchase order is issued by the factory. A purchase register

is maintained by the purchase department in which they maintain all the required information relating to a consignment. Receiving Material, Goods and Services Generally the goods and services are received by the user department who has issued the purchase requisition or in some cases by the authorized department. Materials are received by Quality Assurance Department (QAD) in the factory. After receiving materials, goods and services an MRR (Material Receiving Report) is issued for material and other than material a GRR (Goods Receiving Report) is issued by receiving department to purchase department. In the mean time the invoice or bill is received by the purchase department. Before using the product by user department that is at the time of delivery, it has been inspected by the inspection team or QCD (Quality Control Department), by user department or by authorized department. QCD examined the materials on a sample testing basis and provide a certificate. Normally, 1. 2. 3. QCD inspects standardized items like raw material, packing material etc. User department inspects non standardized items like services, stationeries etc. Inspection department inspects machineries, plants etc.

Again at BPL there are some authorized departments for inspection. For example, computer or IT related products are inspected by IT department, furniture are by HR department. If the received goods, material and services are not according to purchase requisition BPL may Refuse the order Reorder the item Received on condition

Before taking any action, there is a discussion between BPL and the supplier. After recommunication it has been decided whether the payment to the supplier will be made or not.

Packing Slip

Vendor
Goods & services

Accept Delivery by User department/ Factory

Packing slip Goods & services

Purchasing order by Purchase/ Planning Dept

Vendor

Count & Inspect goods by respective departments

MRR/ GRR

MRR/GRR

Goods & services

Warehouse/ Factory/ Ready for Use Figure 3: Receiving Function

Recognizing the liability The purchase department compares the invoice/bill and MRR/ GRR/ QC with the purchase order. If every thing has been complied, the amount payable to supplier is approved by the purchase department. There is a seal on the invoice named Approved By with the signature of purchase manager. It means the purchase department is satisfied with the information mentioned in the bill. A copy of all this documents is kept by purchase department and the main copies along with copies not negotiable are sent to accounts and finance department.

The accounts and finance department is then ready for giving provision voucher. An authorized person is liable for giving provision voucher. He examines the not negotiable

copy of bill/ invoice at the time of giving provision voucher. Generally the liability is recognized when the vendor sends the invoice or bill. But in some cases it may be recognized at the time of goods received. Processing and Recording Check/ Cash Disbursement After a certain period of time when the date becomes matured for the liability the payment is made by BPL. The matured date has been calculated in the aged payable report for each vendor. The due amount for an individual vendor is identified from vendor business position report. In this stage another report is prepared for forecasting cash requirement. An individual person enters data in MAPICS for having this reports and forecasts. The same person checks the arithmetical accuracy, casts, cross casts, deductions and payable amounts. If the checking is matched with those reports checks are issued to pay vendor. The mode of payment is usually pre numbered check. In most cases the payment is made by payee only check. In some cases the payment may be made by cash or by bearer check or paid in advance fully or partly. Issuing check is a sensitive issue. It is prepared by that person who will give the payment voucher. And it is signed by senior management. The payment voucher is given by the same person who has checked the reports and payable amounts. This voucher includes original bills, MRR/ GRR, Vat (musok 11) and challan. It is recorded in the record book after the sign has been made.

After all the procedure has been completed the check is given to vendor and the counter foil of that check is preserved by BPL. If the payment amount is large part by part payment is made.

Purchase Department

Factory/ User department

Vendor

Purchase order

MRR/GRR Vendor invoice Approve vendor invoices by purchase department

Accounts & Finance Department

Bill/ Invoice Purchase Order MRR/ GRR VAT

A/P Payment Voucher

Pay Vendor (cash disburseme nts

A/P Provision Voucher Checks

Figure 4: Pay for Goods Function The acquisition and payment procedure are summarized below with the help of a flowchart:

1. Requisition of respective department

With approval of the departmental head

Tender / Quotation call

Issuing order

By Purchase Department or by User Department

Receiving goods / Services by factory/ Respective Department

By QAD, or by receiving department

Produce MRR / GRR

Receiving bills by purchase department Comply the bills with order, MRR / GRR and approve Sent bills to accounting department Accounts payable journal voucher/ provision voucher

Payment procedure is complied with sec 51(A), 52 of income tax ordinance-1984 and rule 16 of income tax Rule1984 and Musok 11 of VAT Act 1991

Ready for payment

Accounts payable payment voucher

Figure 5: Procurement of local material

Issuing check

Input Information 1. Purchase Requisition Its a requisition generate by respective department. Data elements conveyed by a purchase requisition of BPL include unique number of purchase requisition, CEP and purchase order number with date name and description of material and service, unit number, required quantity, unit price and quantity ordered. It also includes signature and approval of authorized person, suppliers name; mode of payment, advance payment (if any), terms and conditions, MRR number, invoice number etc.

If the requisition is for fixed asset then a CEP (Capital Expenditure Proposal) is raised by the user department. In this case, proposed suppliers name, estimated budget, justification for proposed expenditure and estimated life of proposed expenditure is also required. A sample of CEP is given in the annexure.

2. Purchase Order Its a document through which an order is made. The heading contains the purchase order number, purchase requisition number and date. The body contains the description of required item, quantity required and ordered, amount with unit price, suppliers name and address, terms and condition of order, due date, other relevant dates etc. Besides, it also describes the mode of purchase, advance payment (if any), purchase reference and other relevant information.

3. Material Receiving Report (MRR) / Goods Receiving Report (GRR) Its a report produced by the inspection department or receiving department. It is used to reflect the receipt of goods on consignment or goods returned to supplier. The report indicates item ordered, name of the material and supplier with the date of arrival of products, its quantity, quality and description of the received item. It also includes MRR number, order number, signature of the authorized person etc. The report is also used as inspection report. Because it mentioned information regarding to Quantity ordered before quality test Quantity received after quality test

Quality Whether as per specification or not Country of origin Deliver in time or not Pricing Legal requirements etc.

4. Invoice / Bill This document is generated by supplier/ service provider that mentions the quantity and amount, bill number with date etc. The bill is attached with MUSOK 11, delivery challan etc.

5. Tax and VAT (Musok 11) Report BPL prepares these reports for calculating the amount of Tax and VAT deducted at source of suppliers. Tax and VAT amount is deducted from the total amount due. Deduction and calculation is made according to section 51(A), 52 of ITO- 19841, rule 16 of ITR-19842, and the VAT Act-1992 (Mushok 11). The reports contain vendor number, vendor name, and period, total amount due, tax amount, amount excluding tax amount, VAT amount and amount excluding VAT. A sample of tax and VAT report is added with annexure.

Information processing Accounts Payable Provision Voucher Under this document provision i.e., entry is given against acquisition. Accounts payable is credited here. From the sample (given in the annexure) we see that information relating to voucher no, vendor no, invoice no, MRR no is required with their date for provision journal. Besides, information about due date for payment, item name, item number, unit, party name and the number of the account under which the item belongs to is also required. Using this journal voucher, an entry is given in MAPICS for recording
1 2

Income Tax Ordinance 1984. Income Tax Rules 1984.

inventory and also for valuation of inventory. Information regarding price is taken from suppliers bill and information regarding quantity received is taken from MRR/GRR. The following journal entry is given: Inventory (Raw Material) VAT Accounts Payable DR DR [100% of VAT] CR

VAT Rules 1991: Section 9 &13: The registered person who sells locally and exports taxable goods for the production of which he uses raw materials purchased paying VAT, can claim rebate by including the paid amount of VAT into the Treasury Deposit and Rebate column of form VAT-18. Accounts Payable Payment Voucher The accounts payable recognized in the earlier part are paid through this payment voucher after deducting appropriate taxes. The voucher contains he information of the payment date, mode of payment, item or batch no, voucher no with date, AP journal voucher number with date, amount, party name and other related information. A sample of this voucher is given in the appendix. The following entry is given in MAPICS: Accounts Payable TDS(applicable rate) Bank DR CR CR

ITO 1984: Section 52: Where any payment is to be made, whether in full or in part, or by way of advance, on account of indenting commission shipping agency commission or supply of goods or execution of contract, to any such person or class of persons as may be prescribed, the person responsible for making the payment shall, at the time of making such payment deduct tax on the amount so payable at such rate as may be prescribed.

Output information Output information can be of two types: Information Affecting the Annual Report Figures or External Reporting Information for Internal Management or Internal Reporting.

External report The entire process of import procurement and accounting for its related transactions affects several heads in the Annual Financial Reports. Below I mention the affected heads with reference to Annual Financial Report for 2006. Cost of Goods Sold: The detail of cost goods sold is provided in the Note#40. Under this head the affected subheads are: Raw Materials Consumed (Purchase) [Note #41]: This amount is the total of raw materials purchased during a financial year. When raw materials are received RAW MATERIAL PURCHASE A/C is debited. The end balance is the amount shown in the Annual Report. Packing Materials Consumed (Purchase) [Note #41]: Similarly, it is the total of packing materials purchased during a financial year. When packing materials are received PACKING MATERIAL PURCHASE A/C is debited. The end balance is the amount shown in the Annual Report. Inventories: The inventories affected by import operations and related accounting are found in Note #22: Raw Materials Inventory Packing Materials Inventory Laboratory Chemical Inventory Raw and Packing material in transit Spares and accessories

Internal report To serve the internal reporting needs the following reports are prepared: Accounts payable payment voucher Vendor ledger Vendor account balance Journal register Cash requirement report Aged payable Tax report VAT (Musok 11) report Vendor business position Report on purchase Report on payment

Vendor account balance It is nothing but a report about the due amount payable to an individual vendor or a number of vendors on a certain date. The report includes vendors name, code and the total due amount. Journal register From this register management of BPL will get all related information of accounts payable transaction for a certain period of time. For example, if management wants to know about the amount of purchase of an individual vendor for a certain period of time with related deductions they can get it from journal register. Even the register also informs about whether any payment has been made or not and the due amount of that period. A sample of the register is given in appendix.

Cash requirement report Its a managerial enquiry regarding vendors payable amount to forecast the current liabilities. From this report management of Finance and Accounts Department can be informed about the cash to be paid to individual vendor for a certain period of time. A sample of this report is given in the annexure.

Aged Payable Report Its a report about forecasting the maturity date of payable. It reflects the status of old unpaid invoices or vouchers. After the maturity date the payment will be made. The date will be matured according to purchase order contract. The reference date for age calculation is the voucher date or due date at when the product has been received. Vendor Business Position It is the evaluation of overall vendor position with BPL. In this report BPL generates information about vendors net due amount at a certain period of time. From this report management can have knowledge about the amount of gross payable; amount of tax, Vat, payment and other deduction deducted from gross payable amount and the net amount has to be paid to those vendors on that period. Import of Raw and Packing Material Another source of raw and packing material is importing from overseas market. For this purpose, purchase department must open a letter of credit at bank. It ensures the liquidity of foreign supplier. After opening a letter of credit, Purchase department maintains a file where all the related documents are kept separately for each LC and sends a copy of each document to the Finance and Accounts department for further processing of information and to prepare the cost sheet for the materials received against each LC. This file is called PC (pharmaceutical consignment) file. The finance and accounts department has three sections: Treasury Cost and Budgeting

Accounts The processing of information related to import procurement takes place in the Cost and Budgeting section. For the convenience of the users I have discussed the whole thing into three parts. They are: INPUT INFORMATION INFORMATION PROCESSING OUTPUT INFORMATION

Input Information Source of information: Three departments are involved in the entire materials procurement process. They carry their own responsibilities in this regard. The departments are: Sales Department Planning Department Purchase Department

The entire process looks like: Planning Dept.

Import Procurement

Sales Department Sales Forecast

schedule

Purchase Dept. Pro forma Invoice LC openning

Accounts PC, IV, BC Files

The planning department is concerned with the production planning and material procurement. After getting the sales forecast from the sales department, the planning department goes through the current stock information of different raw and packing materials. It prepares an import procurement schedule which helps them manage the procurement planning. The tabular format of the schedule is too large to accommodate here. Therefore I am just mentioning the column heads. The column heads are: General 2. Name of the Material: 4. Unit cost: Stock Stock:

1. Material ID: 3. Procurement Time: 5. Monthly Requirement: Factory Stock: Under Process: At port: I&I3

Stock in Hand: In transit: Received:

Pipeline Await Shipment: Under Clearance:

Total stock in all stages: Balance to be ordered: Month Covered:

Summary Total Req. As per Factory: EOQ: To be procured this Month:

I&I Services is the sole distributor of BEXIMCO PHARMA and a sister concern of BEXIMCO GROUP.

After considering this stock information it first calls for limited tender among the enlisted sources (local agents) for the supply of particular materials. The list of suppliers is kept in a database preserved by the planning dept. Within 15 days, the quotations are submitted by the competing suppliers. Then the planning dept. prepares a comparative statement and forwards it to the purchase department. Purchase Procedure: The purchase department is concerned with all the purchases of the firm. Usually the lowest bidder gets the offer to supply materials (considering their past performance, credit terms etc.). Then an Import Authorization Format' is prepared by the purchase dept. The format is then sent to the Director (commercial) for approval. The dept. then asks for pro-forma invoice (;in case of direct purchase from foreign suppliers) or indent (in case of supplies by local agents). Then the firm applies for `Block List' (for approval from Drugs authority) to import the raw materials. After doing all these prior works, the firm proceeds to open an L/C. The purchase dept. first collects a form of application for the opening of letter of credit from a bank. An LCA form (in quintuplicate) is also collected. After filling up these forms, they are submitted to the bank along with the pro forma invoice approved by the Block list of Drug Administration and IMP form of Bangladesh Bank. The L/C margin (a certain percentage of L/C amount), bank charges and commissions for opening the L/C, insurance payment (if made at that time) etc. are also made. The insurance covers all risks from the beginning of transit. The opening bank sends a copy of L/C to the advising bank and another copy is also sent by the company to the local agent or indenting company. The supplier then takes necessary measures to ship the materials. It sends the non-negotiable shipping documents (copies of bill of lading / airway bill, invoices, certificate of analysis of each batch. Form-9, packing list, certificate of origin etc.) to the buyer (the firm) by courier within 7 days and submits negotiable copy of all documents to the negotiating bank. Then the supplier asks the advising / negotiating bank to make the payment. After paying off the supplier, the advising bank asks the L/C opening bank to pay the amount within 72 working hours (3 working days). The opening bank then pays it off within the stipulated time. The bank then collects the L/C payment from the firm (applicant) on an agreed upon date. In case where the materials are borne in air transport, the firm needs the endorse copy document to get clearance from the customs authority after it reaches the airport. The Drug Clearance of

invoice issued by the Drug authority is also required. The C&F agent of the firm is engaged in the goods clearance formalities. After getting the clearance, the materials are borne to the factory. Documents received Purchase department sends copies of all the relevant documents to the Cost and Budgeting section of Finance and Accounts department. The documents are kept in three types of files according to their purpose: PC File (For Raw and Packing Materials and Also spare parts for pharmaceuticals machinery) IV File (For Infusion Raw and Packing materials and Also spare parts for Infusion machinery) BC File (For Basic Chemical)

The documents kept in these files can be categorized as follows: Documents with relevant financial information

1. L/C Related Documents from Bank: The L/C slip and the copy of banks L/C book is received. The books contain detail information on L/Cs. The relevant information extracted from this book are: L/C Margin Opening charge Amendment Charge Telex/ Courier service Charge Bank Charge Document Retirement

2. Premium Bill: Premium bill is prepared by the insurance company. This bill is non negotiable. The information included in this bill is:

A.

Non Negotiable Premium Bill: Marine @ x.xx% War and Strike @ x.xx% Net Premium Add: VAT 15% Stamp Duty Total Premium

XXX.XX XX.XX XXX.XX XX.XX X.XX XXXX.XX

3. C & F Bill: The C & F bill is prepared by the clearing and forwarding companies. Different C & F agencies operate at different land, sea and airports. Imports are made through all these three types of ports. The C & F agent does the necessary formalities with the customs authority and sends the materials to the destination. They contain the following: B. C & F BILL Against PC #_________
Amount #### ### ## ### ## ## ### ### ### ##### (##) (#####) ###

Customs Duty and Taxes Wherfrent and Removal Documentation Cooly wages Transport Misc. Expenses Expenses under section 82 Audit/ treasury/ Bank Exp. Agency Commission @ 0.0x% TOTAL Less: Income tax on Agency commission ADVANCE DUE

4. Shed Bill with Jetty Challan: This bill is prepared by the Biman Bangladesh Airline Authority (in case air port); the Chittagong port Authority (in case of sea port); Benapole Land port Authority (in case of land port). This is prepared for the dock or warehouse charges. For reporting purpose two types of information are extracted from this bill. Total DEM VAT on DEM

5. Bill of Entry and Assessment Notice: These two documents are the most important in regards to reporting and accounting purposes. The Customs authority prepares this bill against the C & F Agency. It includes the information on the Duty and taxes and VAT payable on imported materials. In all the ports the same type bill is prepared without any exception because the customs authority uses identical software for all the ports. Some materials need to go through PSI (Pre Shipment Inspection); so they are subject to PSI charges. The detail of the duty and taxes and their rates are discussed in the later chapter.

The bills include following information:

C.

Bangladesh Customs Authority Bill of Entry

Consignor: Consignee: Agent: Name of Carrier: Description: Invoice No: Nationality: HS Code: Gross Weight: Net Weight: Item Assessable Value: [a] Bank Name: LC Type: LC No:

Type

Calculation of taxes: Tax base Rate

[a] [b] [b] [a] [a] * * * * *

Amount
[b] [c] [d] [e] [f]

Customs Duty Supplementary Duty VAT AIT Development Surcharge

Note: The alphabets used in this table will used for further reference in the chapter to come.

D. Bangladesh Customs Authority Assessment Notice Office: Dhaka/ Chittagong Customs Customs Declaration No: No & Date of Assessment: Agent: Reference: Importer: Mode of Payment: Cash / Cheque
CD SD VAT AIT DSC Advance Trade VAT PSI TOTAL TAXES Document Processing Fee VAT on C&F Commission Income Tax on C&F commission TOTAL GLOBAL TAXES TOTAL ASSESSED AMOUNT AMOUNT TO BE PAID

Items:

Account No: Statement no & Date:

[b] [c] [d] [e] [f] [g] [h] [m] [p] [q] [r] [s] [m]+[s] [m]+[s]

Documents with relevant non-financial information Invoice from Supplier:

Although it contains financial information about the cost of raw materials, it is not needed for financial reporting. Because the amount that concerns is the L/C margin and the payment on L/C Retirement. As there is no direct transaction with the suppliers the original invoice is not needed for reporting. Packing List or Weight List:

This list contains the detail information on the quantity of materials shipped; the number of packages; the type of packaging and the gross and net weight before shipment.

Certificate of Analysis:

Certificate of Analysis contains chemical analysis of the materials. The chemical contents, weight, color and other related information is disclosed and certified by the producing country are presented in the certificate. Certificate of Origin:

Certificate of Origin is issued by the trade body (Chamber of Commerce) of the respective country and certifies that it is a product of their country. Form -9:

Form-9 is required under the European regulation. All the countries producing chemical or pharmaceutical materials adopted it. This contains decoration from the producer regarding the permission to use the product which is licensed by them. It also sets the limit of using that licensed product. Airway Bill:

Airway bill is just like ticket of the materials shipped. It contains the information on the material shipped, the destination, the carrier and the airport of departure. Consignment Presentation Slip:

Consignment presentation slip is prepared at the port by the port authority and certifies the possession of the consignment. The slip includes following information: Part A: Consignment Details Part B: Examination Transfer to delivery warehouse Part C: Paper Checking and Collection of Charges Part D: Final Delivery Information

Information Processing
Information processing is done through three stages. The records and reports prepared in those stages are different. The stages are: L/C Opening Stage L/Cs in Transit Stage Post Clearance Stage

L/C Opening Stage

L/C opening process: The purchase dept. first collects a form of application for the opening of letter of credit from a bank. An LCA form (in quintuplicate) is also collected. After filling up these forms, they are submitted to the bank along with the pro forma invoice approved by the Block list of Drug Administration and IMP form of Bangladesh Bank. The L/C margin (a certain percentage of L/C amount), bank charges and commissions for opening the L/C, insurance payment (if made at that time) etc. are also made. The insurance covers all risks from the beginning of transit. Purchase Department (Pro Forma Invoice, Drug, IMP) Local Bank (L/C Margin, Opng Chrg, Bank Charge)

Foreign Bank

As mentioned earlier (see: 1.2.1) the accounts department gets copy of the L/C and the Banks statement mentioning other related cost. It is done through the foreign exchange account of BEXIMCO PHARMA held with different banks.

Records and Reports: Various records are kept during this stage. Data related to L/C are maintained in two ways. They are: MS Excel Worksheets MAPICS

MS Excel Worksheets: Two different sets of spreadsheets are prepared. The spreadsheets contain the following information. I am just mentioning the column heads of the spreadsheets and explanations where necessary. Spreadsheet containing Data on L/C Margin and Opening Charges: o L/C Number o Margin in Taka o Opening Commission [p] o Courier service Charge [q] o Supplementary Tax [r] o VAT [s] o Amendment Charge [t] o Total taka ([p]+[q]+[r]+[s]+[t])

Spreadsheet containing Data on Document Retirement o L/C number o PC/IV/BC Number o Retirement Date o Payment o Payment Date

MAPICS Entries: MAPICS (Management Accounting Production Inventory Control System) is a

software custom made for BEXIMCO GROUP which serves the both the financial and management accounting needs. In the L/C opening stage two types of entry are made into the software: Database Entry Journal Voucher

Database Entry: This entry is made to maintain a database of L/Cs and shipments. The entry includes: L/C Number PC Number Shipment Date Retirement Date This database is also linked with the accounting system built within the software. Whenever a journal entry is made with the L/C account this database is linked with that entry. It detects any inconsistency with the L/C number and PC number.

Journal Entry: The journal entry made at this stage includes the opening charges, L/C margin, Bank charges, Courier Charges, Amendment Charges, etc. The Journal Entry made through the Bank Voucher. The entry is: L/C Margin Opening Charge Amendment Charge Courier Service VAT Bank Charges Bank A/C DR DR DR DR DR DR CR

VAT Rules, 2006. Rule 19(2): The tax payer can claim 60% of the VAT as claim against input tax in respect of charges for . L/C services.. All the debit entries are posted to the L/C group account. These are all considered as expenditures. All the amounts are found in the summary spreadsheet prepared with MS Excel.

L/Cs in transit stage

The opening bank sends a copy of L/C to the advising bank and another copy is also sent by the company to the local agent or indenting company. The supplier then takes necessary measures to ship the materials. It sends the non-negotiable shipping documents to the buyer (the firm) by courier within 7 days and submits negotiable copy of all documents to the negotiating bank. Then the supplier asks the negotiating bank to make the payment. After paying off the supplier, the advising bank asks the L/C opening bank to pay the amount within 72 working hours (3 working days). The opening bank then pays it off within the stipulated time. The bank then collects the L/C payment from the firm (applicant) on an agreed upon date. Records and Reports prepared at this stage: Two records could take place during this stage. Both the records are made using the MAPICS software in the form of journal entries through Payables voucher and Bank Voucher. The transactions are: Payment of Insurance Premium: Insurance premium is set on the invoice price. The materials are normally insured to make cover for fire/marine and war/strike risks. A VAT of 15% is imposed on the insurance premium. To facilitate the journal entry a spreadsheet analysis is made using MS Excel, which contains: I. L/C Number II. PC Number III. Item name

IV. Total Insurance Premium (see figure A: premium bill) V. VAT on Insurance Premium (see figure A: premium bill) VI. Net Insurance Premium (Total Premium-80%of VAT) The journal entry is often made through payables voucher. The entry is: Insurance Premium DR [VI] VAT DR [80% of VAT] Accounts Payable (Insurance Company) CR VAT Rules, 2006. Rule 19(1): The tax payer can claim 80% of the VAT as claim against input tax in respect of charges for . Insurance services..

Advance payment to the C&F Agent: The C&F agents are responsible to make customs clearance from the ports and make delivery to the factory at Gazipur or wherever required. The estimated amount for clearing and forwarding process is paid in advance. The journal entry is made through Bank voucher using MAPICS software. The entry is: C&F Agent (Advance) Bank A/C DR CR

Post Clearance stage

After successful clearing and delivery of the consignment the C&F agent sends all the relevant documents. The documents include: C&F Bill Shed bill with Jetty Chalan Bill of Entry Assessment Notice Consignment Presentation slip

This marks the completion of the import process. After receiving these documents the PC/IV/BC files are completely ready.

Records and Reports Prepared during this stage: A detailed spreadsheet is prepared to facilitate the journal entry in the first place. The entire spreadsheet is presented into different parts for convenience.

DUTY TAXES SPREADSHEET: Part A: General Information: 1. SL# 2. L/C Number 3. PC/IV Number 4. Item Name 5. Item Type (Raw/Packing/Spares)

PART B: Currency and Quantity: 1. Foreign Currency (US$/EUR) 2. Cost in Foreign Currency 3. Unit 4. KG/PC PART C: Bank Charge and Insurance Premium: 1. Bank Charge 2. Insurance Premium 3. VAT on Insurance Premium 4. Net Insurance Premium ([2] - 80%of [3] PART D: Duty
Column ID Column Head Source/ Formula Assessment Notice [b] Assessment Notice [c] Assessment Notice [f] Assessment Notice [h] K+L+M+N

K L M N O

Customs Duty Supplementary Duty Development Surcharge Pre-shipment Inspection Total Duty

PART E: VAT and AIT (Advance Income Tax)

Column ID Column Head Source/ Formula Assessment Notice [d] Assessment Notice [s] Assessment Notice [r] [R]-[S] [Q]+[R]-[S] Assessment Notice [e]

Q R S T U V

VAT DF(Documentation fee) VAT AIT (On C&F commission) DF/VAT less AIT(c&f) Total VAT AIT

PART F: Total DUTY, VAT and AIT

Column ID Column Head Source/ Formula [O]+[U]+[V]

Total DUTY, VAT, AIT

PART G: DEM (Warehouse and Other charges)

Column ID

Column Head

X Y Z AA

DEM
DocumentationAuction Cooly wages VAT DEM Transport Net DEM Misc. Expenses Expenses under section 82 Audit/ treasury/ Bank Exp.

Source/ Formula Shed Bill/ Jetty Chalan Shed Bill/ Jetty Chalan Shed Bill/ Jetty Chalan [X]+[Y]-[Z]

PART H: Miscellaneous Expenses and C&F commission These two are extracted from the C&F bill. Miscellaneous Expenses could include:

C&F commission is imposed on the assessed value of imported materials.

Column ID Column Head Source/ Formula C&F Bill C&F Bill

AB AC

Misc. Exp. C&F Comm.

PART I: Agent
Column ID Column Head Source/ Formula [W]+[AA]+[Z]+[AB]+[AC] C&F Bill [AD]-[AE] Agent Name

AD AE AF AG

Total Amount Advance Amount Due Agent

PART J: Final summary for Journal Entry

Column ID

Column Head

AH AI AJ AK AL AM AN

DUTY VAT AIT DEM MISC C&F Commission TOTAL

Source/ Formula [O] [Q]+[R]*60%+[Z] [V] [AA] [AB]+[R]*40%-[S] [AC] AH+AI+AJ+AK+AL+AM

Claim for VAT Rebate: VAT rebate is claimed 100% on the VAT paid on cost of materials and VAT paid on warehouse charges. 60% VAT rebate is claimed on VAT paid on C&F commission. The law in this states as follows: VAT Act 1991: Section 9 &13: The registered person who sells locally and exports taxable goods for the production of which he uses raw materials purchased paying VAT, can claim rebate by including the paid amount of VAT into the Treasury Deposit and Rebate column of form VAT-18. VAT Rules, 2006. Rule 19 (2): The tax payer can claim 60% of the VAT as claim against VAT paid in respect of charges for .C&F Commission ..

Therefore VAT is claimed 100% on VAT paid on cost and DEM VAT and 60% on VAT paid on Total Global Taxes. The rest 40% is added to the miscellaneous expenses and the income paid on C&F commission is deducted from the miscellaneous expenses amount to match the total amount due to the Agent. 2.3.2. THE JOURNAL ENTRY FOR DUTY, TAX AND VAT: The amounts for the journal entry are summarized in the spreadsheet (see part G). The journal entry is made as follows using the MAPICS software:

Duty TAXES DR [AH] VAT DR [AI] AIT DR [AJ] DEM DR [AK] Misc. Exp. DR [AL] C & F Comm. DR [AM] C&F Agent (Liability) CR [AN] *See Part J of spreadsheet for references of the amounts. The duty tax; miscellaneous expenses and C&F commission goes to the L/C group account. The other accounts are posted through general journal.

Output Information
As I have discussed the necessary journal entries in the previous chapter, it is already clear about the output information of these activities. Better output of information reflects better accountability to the stakeholders and greater efficiency of the decision makers or managers. Output information can be of two types: Information Affecting the Annual Report Figures or External Reporting Information for Internal Management or Internal Reporting.

The transactions involved in the process of import procurement affects both the above. But it is more important from the internal reporting point of view. The net effect of these activities on the external report and the decisions of the investors are very remote. But it has a materially significant part to play in internal decision making (eg. costing, inventory control, pricing, etc.). External report The entire process of import procurement and accounting for its related transactions affects several heads in the Annual Financial Reports. Below I mention the affected heads with reference to Annual Financial Report for 2006.

Cost of Goods Sold:

The detail of cost goods sold is provided in the Note#40. Under this head the affected subheads are: Raw Materials Consumed (Purchase) [Note #41]: This amount is the total of raw materials purchased during a financial year. When raw materials are received RAW MATERIAL PURCHASE A/C is debited. The end balance is the amount shown in the Annual Report. Packing Materials Consumed (Purchase) [Note #41]: Similarly, it is the total of packing materials purchased during a financial year. When packing materials are received PACKING MATERIAL PURCHASE A/C is debited. The end balance is the amount shown in the Annual Report.

Advances: Advances are current assets and it is detailed in Note #24. The import procurement process affects two types of advances: C & F Agent: As mentioned earlier C & F agents are paid in advance for smooth fulfillment of their responsibility. The C & F account is debited on payment of the advance. The year end balance appears in the annual reports as an advance. VAT: As I have shown earlier the amount of VAT subject to rebate is debited to VAT account. The VAT amounts payables are credited to the same account. If it has a debit balance at the end of the year then it appears as current asset.

Inventories: The inventories affected by import operations and related accounting are found in Note #22: Raw Materials Inventory Packing Materials Inventory Laboratory Chemical Inventory

Raw and Packing material in transit Spares and accessories

Internal reports The most important destination of the accounting reports related to import of raw materials is the internal management. For efficient decision making the internal management is constantly is need of timely and appropriate reports on costing. To serve the internal reporting needs the following reports are prepared:

The Cost Sheet: This is the most important report prepared on the import procurement process of raw materials. Cost sheets are prepared for individual raw and packing material items, as well as spares and capital machinery. Cost sheet is generated by the MAPICS software. It is the summary of entries debited through the journal voucher of L/C. It is used for costing and pricing decisions. The cost sheets include the following:

COST SHEET
Company Name: BEXIMCO PHARMA Supplier Name: L/C No: Invoice No: PARTICULARS Date: Date: 1 Shipment No: Date: Exchange rate: CEP: 2 Date: Total

Material Name
MRR No MRR Date: Invoice Quantity FC Cost/ Unit Total FC Cost L/C Margin

Opening Charge Document Retirement Duty, LCA, IDSC & others C & F Commission Insurance Premium Miscellaneous Expenses TOTAL COST COST PER UNIT

Cost Summary: Cost summary is a summary of the cost sheets prepared on a monthly basis. It is a MS Excel worksheet. All the information are extracted from the cost sheet. The column heads are: Month L/C Number PC/IV/BC Number Materials Name Quantity C&F Rate Foreign currency Cost Currency [US$/EURO/YEN] Exchange rate C&F in Taka [Exchange Rate*FC Cost] Other costs [Duty/ LCA, C&F Commission, Insurance premium, Misc. Exp., Opening Charge] Landed cost [C&F in Taka + Other Costs] Cost per Unit [Landed Cost / Quantity]

Supplier Name and Country

L/C Balance: This is prepared to facilitate the payment of L/C liabilities. It is used by various departments including the treasury. The columns are: L/C Number Opening Date C&F Value in Taka Total Taka

Capital Expenditure Cycle BPL has a well-defined policy guideline for capital expenditure. This cycle involves acquisition of property, plant and equipment. First, the capital expenditure must be included in the yearly budget. Then the head of the department raising the capital expenditure proposal (CEP) must justify the proposal. A sample of CEP is given in appendix. The CEP includes following information: 1. Classification of the asset such as new purchase or replacement of an asset. 2. Description of the item 3. Reason or justification for the proposed expenditure 4. Economic life

5. Estimated expenditure 6. Budget provision for the proposed expenditure 7. Suggested supplier 8. Approval with signature of Departmental head, Director, Commercial and Director, Finance 9. Final approval by CEO(Chief Executive Officer) Then the Director, Finance verifies the CEP along with the business research and development department and the CEP is sent to the CEO for final approval. After getting the CEO approval, purchase department acquires the capital asset from the enlisted local or foreign suppliers. Accounts department records the transaction and makes the payment as per terms. Recording aspects of capital expenditures: Input Information All the necessary information for the purpose of recording acquisition of fixed assets are taken from Capital Expenditure Proposal, Purchase order, Budget prepared for this purpose, chart of accounts, suppliers bill approved by purchase department, Bill of entry, Assessment notice, L/C related documents for import of machineries. Information processing BPL initially records all property, plant and equipment at cost and charges depreciation over their expected useful life. The cost of acquisition of an asset comprises its purchase price and any directly attributable cost of bringing the asset to its working condition for its intended use inclusive of inward freight, duties and non-refundable taxes. In respect of major projects involving construction, related pre-operational expenses form part of the value of asset capitalized. Expenses capitalized also include applicable borrowing cost. Exchange loss is also capitalized as an addition to the cost of the asset. Expenditure incurred after the assets have been put into operation, such as repairs & maintenance, is normally charged off as revenue expenditure in the period in which it is incurred. In situation, where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefit expected to be obtained from the

use of the fixed assets, the expenditure is capitalized as an additional cost of the assets. Software expenses are generally charged off as revenue expenditure. On retirement or otherwise disposal of fixed assets, the cost and accumulated depreciation are eliminated and, any gain or loss on such disposal is reflected in the profit and loss account which is determined with reference to the net book value of the assets and the net sales proceeds. The gain or loss resulted from disposition of an asset are treated as other income which does nor result from companys major operating activities and so are not included in gross profit. BPL charges no depreciation on land and uses reducing balance method for charging depreciation n respect of all other fixed assets. Depreciation is provided to amortize the cost of the assets after commissioning, over their expected useful economic lives. Full year's depreciation is charged on additions and no depreciation is provided on retirement, irrespective of date of addition or retirement respectively. The annual depreciation rates applicable to the principal categories of assets are:
Assets Rate

Building and other Construction Plant and other Machinery Furniture and Fixtures Transport and Vehicle Office Equipment

10% 15% 10% 20% 10% to 50%

BPL maintains a separate module named Fixed Asset Accounting in MAPICS where journal entries are given to record the acquisition of new asset, replacement, renewal and disposition of asset and related depreciation according to the rate. In the MAPICS, only control ledgers for principal categories of assets are kept. For the purpose of keeping subsidiary ledger, a separate software named Fixed Assets Management System is used where another person gives entry for the same transaction. This is basically a duplication of work. Output Information Output information can be of two types: Information Affecting the Annual Report Figures or External Reporting Information for Internal Management or Internal Reporting.

External reports: The entire process of capital expenditure and accounting for its related transactions affects several heads in the Annual Financial Reports. Below I mention the affected heads with reference to Annual Financial Report for 2006. Property, Plant and Equipment Carrying Value The details of all property, plant and equipment are given in the Note #20. In the notes to the financial statements section, BPL discloses all the necessary information regarding property, plant, and equipment including the cost of the assets at the beginning of the year, additions and disposals in the current year, adjustment on disposal, exchange loss, accumulated depreciation at the beginning of the year, depreciation charged for the current year and carrying value at the end of the year. Internal Report: The sum of all assets is reflected in annual report. But for the preparation of budget and making decisions regarding the current status of each class of assets, periodic statements are prepared where detailed breakdown of each major class of asset are included.

Revenue Expenditure Cycle The expense cycle of BPL is little difficult to describe because of the varying nature of expenses. For the sake of simplicity, expense cycle is presented here in a segregated manner according to the major types of expenses namely factory overhead, administrative expense and selling, marketing and distribution expense.
Factory overhead The major types of factory overhead are salary and wages, power, insurance, stores and spares consumed repairs and maintenance, research and development, municipal tax and land revenue, telephone and postage expense etc. These expenses are incurred in the factory. Whenever an expense is incurred, it is reviewed and recommended by the immediate

supervisor of the person incurring it. Then it is sent to the head of the respective department for approval. After getting the approval finance and accounts department records the transaction to the appropriate cost center and makes the payment.

Administrative Expenses The major types of administrative overhead are salary of the executives of head office, utility, rent, legal and professional fees, printing and stationary, AGM expenses, audit fees, entertainment, petrol and fuel etc. These expenses are incurred in different departments of the head office. Whenever an expense is incurred, it is reviewed and recommended by the immediate supervisor of the person incurring it. Then it is sent to the head of the respective department for approval. After getting the approval finance and accounts department records the transaction to the appropriate cost center and makes the payment.

Selling, Marketing and Distribution Expenses The major types of selling and distributive overhead are advertisement, promotional expense, traveling and conveyance, training of medical representatives, books and periodicals etc. These expenses are incurred by the sales and promotion department. Whenever an expense is incurred, it is reviewed and recommended by the immediate supervisor of the person incurring it. Then it is sen t to the head of the respective department for approval. After getting the approval finance and accounts department records the transaction to the appropriate cost center and makes the payment. Recording aspects of revenue expenditures: Input information Input information for recording purpose is obtained from the respective department where the expenses are incurred. Each department sends the bill to Accounts and Finance department. This bill is used as the source document. After verifying supporting documents, a person records the expense as overhead item through appropriate code in MAPICS. Information Processing

After verifying supporting documents, a person records the expenses as overhead items or operating expenses through appropriate code in MAPICS. The appropriate code is determined by chart of accounts. Depending upon the nature of expenses, input is fed into the software against a code. Besides this, some other custom made softwares are used to record the advance payment to different parties including employees, utility expenses, event management etc. Output Information Out put information are of two types: Information Affecting the Annual Report Figures or External Reporting Information for Internal Management or Internal Reporting.

External report In annual reports, administrative expenses and selling, marketing and distributive expenses are shown as operating expenses. Factory overhead is included in the calculation of costs of goods sold. These information are reported in the notes to the financial statements. Related parts are extracted in the appendix. Internal reports A report highlighting the actual expenses, budgeted amount for those expenses and variance is prepared monthly for internal decision making.

Internal control for Expenditure Cycle The internal control of BPL for expenditure cycle is strong enough to detect, prevent and correct any errors and mistakes made in authorizing, recording, processing transactions and providing output to user groups. Some internal control mechanisms are discussed below: Authorization of Purchase As described earlier in recording process section, at BPL the user department sends purchase requisition to purchase department with the approval of departmental head. An authorized person checks that requisition and made the purchase order. Without purchase requisition no purchase order will be made. In case of materials, the planning department identifies the required quantities of materials and sent requisition to purchase department. And in case of fixed asset BPL required approval of CEO or deputy chairman. But before

requisition a budget has been made for that asset. In each case there is a limit amount for ordering goods. The purchase order document contains a unique number. This unique number is used as reference for further proceeds. It also contains the signature of the person raising requisition. The purchase department is responsible for making the order only. It is not responsible for authorizing or receiving goods. It maintains a purchase register where all given orders are recorded with ordered item, quantity, unit price and suppliers name. Separation of Asset Custody from Other Functions Usually, the ordered items are received by user department. But in case of inventoriable item, that is raw or packing material, it is received by factory. The receiving department produces the MRR/ GRR. The same report is also used as inspection report. In case of raw or packing material, Quality Control Department generates Quality Assurance report. One copy of MRR/ GRR/ QA is kept by the receiving department, one copy is sent to purchase department and another copy is sent to accounts department. So the personnel are separate from each other. Again there is a physical control over item from their acquisition to disbursement. A cross departmental monitoring activity is a common scene here. The bank reconciliation statement is prepared monthly by an employee independent of recording cash disbursements or custody of assets. Timely Recording and Independent Review of Transactions BPL recognizes accounts payable as its liability at the time of vendors invoice is received. It recognizes the liability by analyzing the following documents; Not negotiable copy of purchase order MRR/ GRR Not negotiable copy of invoice/ bill Vat report If the person is satisfied with those documents he will then give the provision voucher. This person does not have the access to handle the cash, securities or other assets. Authorization of Payments BPL pays its vendors after the date has been matured for payment. Normally the payment is made by pre-numbered check. A specially designed check is designed for this purpose.

A separate person gives the payment voucher. Before giving payment voucher he checks all the documents and reports relating to that transaction and also examined that the bills are approved by purchase department. The payment voucher includes original bills, MRR/ GRR, VAT (MUSHOK 11) and challan. When the authorized person signs the checks, he just skims through the attached documents with the payment voucher. Normally these signs are made by managers or director of accounts and finance. Physical Security Measure BPL has instituted some physical security measures to protect its assets and records from being misappropriated or misused. For example, a gate pass is needed to take out any kind of moveable property both at head office and at factory, cash in transit is insured and cash at office is placed under lock and keys, all the records and documents are placed under the supervision of responsible company officials. The company has also employed closed circuit television (CCTV) system to monitor every entry and exit. Budgetary control Budgetary control is primarily used for the revenue expenditures. For each class of revenue expenditure, a budget is prepared for each month and the actual expenses are compared against the budgeted amount. Threats and Control Procedure Another function of a well-designed AIS is to provide adequate controls that meet the following objectives: 1. All transactions are properly authorized 2. All recorded transactions are valid 3. All valid, authorized transactions are recorded 4. All transactions are recorded accurately 5. Assets are safeguarded from loss or theft 6. Business activities are performed efficiently and effectively

The documents and records described in the previous section play an important role in achieving these objectives. Simple, easy-to-complete documents with clear instructions facilitate the accurate and efficient recording of transaction data. The following table lists the major threats and exposures in the expenditure cycle and the applicable control procedures that are placed in operation to mitigate them. The table is organized around the stages of the expenditure cycle. Activity Threats Applied Control Procedure 1. To guard against these threats, BPL establishes an accurate inventory control Preventing stockouts and/or excess inventory system. The perpetual

inventory method is used to ensure that information about inventory

stocks is always current. 2. BPL selects suppliers who are

Order goods

known

to

meet

the

delivery

commitments. 1. BPL is very much aware of Requesting unnecessary items purchasing items that are not

currently needed. To ensure this, every purchase requisition is

approved by the departmental head.

1. To prevent this, an open tender is arranged for the suppliers. BPL selects those suppliers who are capable of delivering highest quality Purchasing goods at inflated price or of inferior quality goods as reasonable price. 2. BPL prepares a monthly budget for the purchase of goods. Actual costs are compared periodically To with

budget

allowance.

facilitate

control, these reports highlight any significant deviations from budgeted amounts for further investigation. 1. To avoid the purchase of goods of inferior quality, BPL has established a list of approved suppliers known to provide goods of acceptable quality. Purchasing goods of inferior quality 2. In addition, supplier performance data is collected and periodically reviewed to maintain the accuracy of this approved suppliers list.

1. Receiving departments accept only those deliveries for which there is an Receive and store goods Receiving unordered goods approved copy of the purchase order and matches the quantity mentioned in the purchase order with goods received.

1. Inventories are stored in secured locations with restricted access. Stealing inventory 2. All transfers of inventory are properly documented. 3. Separation of asset custody from recording responsibility. 1. Vendor invoices may contain errors such as discrepancies between quoted and actual prices charged or Failing to catch errors in vendor invoices miscalculations of the total amount due. To detect mathematical accuracy of vendor invoices, those invoices are compared with purchase order and Approve and pay vendor invoices receiving report. 1. The control procedure used here is that the person responsible for

payment to the vendors compares the Paying for goods not received quantities indicated on the vendor invoices with the quantities

mentioned in the materials or goods receiving report.

1. Invoices are approved for payment only when accompanied by a

complete voucher package (purchase order and receiving report) 2. Payments are made only on the basis of original invoices. Duplicate Paying the same invoice twice. invoices are marked clearly that these are duplicate. 3. Payments are never authorized for a photocopy of an invoice 4. When the check to pay for an invoice is signed, the invoice and the voucher package are marked paid and canceled 1. The person making the payment compares the difference in supplier account balances before and after Recording and posting errors in accounts payable processing checks with the total amount of invoices processed. 2. Here the control is deficient in one aspect i.e. the non existence of limit test. 1. Use of prenumbered cheque. 2. Access to cheque writing machine is restricted as well. Misappropriating checks 3. Proper segregation of duties i.e. custody of cheque is segregated from the authorizing function. 4. Every cheque is signed by two persons before making the payment. General Control Losing data 1. All the supporting documents are

kept separately in a file. 2. Both internal and external labels are attached to each file. 3. Access control is established via use of passwords and user ID.

Recommendations The effort and skill put behind the entire process of recording and reporting related to expenditure cycle is exceptional. The staffs demonstrate their knowledge and experience with sheer professionalism. Despite these efforts some shortcomings may remain and there is always an opportunity to overcome those and step ahead in the race to be more accountable and socially responsible. I have found some area where the practice should have been better.

Inconsistency with the law on a few VAT related issues

VAT on C&F Commission: Before getting into the analysis of the practice let us first go though the law itself: VAT Rules 2006. Rule 19(2): The tax payer can claim 60% of the VAT as claim against input tax in respect of charges for telephone, tele-printer, fax, internet, freight forwarders, C&F agents, audit and accounting firms, supplier, security services, carrying agents, L/C services, Electricity, and other related taxable services. The issue under the spotlight is the VAT paid on the C&F agents commission. The law has clearly mentioned the term VAT paid charges for C&F agents. But current practice is different.

Currently 60% VAT rebate is claimed on the Total Global Taxes (See [Column #AI] in Part G of the Duty taxes spreadsheet). The amount considered as DF VAT is in fact the amount of Total Global Taxes (See [s] in the Assessment Notice; also refer to column

R in Part E of the Duty taxes spreadsheet). The total Global taxes amount is the aggregate of: Document Processing Fee VAT on C&F Commission Income Tax on C&F Commission.

The last item- Income Tax on C&F Commission is the income tax on the income of the C&F agent deducted at source by the customs authority. The importer is not liable to pay this amount in any circumstances. This amount is deducted from the C&F bill which means BEXIMCO PHARMA never pays the income tax amount on the C&F commission and it is not supposed to pay. The question arises when a 60% VAT rebate is claimed for this amount; because it is quiet clear that: The importer can never claim VAT rebate on an amount that he never paid. The item eligible for rebate is not the income tax, it is the VAT paid on C&F commission. The obvious question that arises is how it is possible that an amount is debited which has never had any payment against it or any liability. This should have caused an error in the balances in the financial statements. The mismatch is avoided by deducting the Income Tax on C&F Commission amount from the miscellaneous expenses. Let us go through the entire process of dealing with Income Tax on C&F Commission: First of all 60% of the amount is debited as VAT rebate (as it is included in the Total Global Taxes on which rebate is currently being claimed). Secondly 40% of the amount is added to miscellaneous expenses (as the unclaimed amount is to be treated as expenses). The 100% amount is then again deducted from miscellaneous expenses. Although apparently the amount is deducted and the net effect seems to be zero, it leaves a trail of misreporting.
The Effect of the Inconsistency on the Financial Report:

It leaves a two fold effect. They are:

Firstly, an excess VAT rebate claimed for an amount equal to 60% of the income tax paid by C&F agent. Which means current asset is increased. Secondly, miscellaneous expenses are under cast with an amount equal to 60% of the income tax paid by C&F agent which causes an increase in profit figures. This happens because 40% of the amount is added to miscellaneous expenses and subsequently 100% is deducted.

The figures might not be as big to have an effect on the investors decision, but the bottom line is that, it involves the companys social responsibility. Some times the Total Global Taxes include fees and penalties which causes an inconsistency of an even bigger amount. Certainly people wont like a socially responsible company to ignore these facts and figures. The Recommended Practice in this Regard From the Total Global Taxes only the VAT paid on the C&F Commission is subject to VAT rebate. The company has nothing to do with the Income Tax paid on the C&F commission which paid by the agent. The Documentation fee (a very negligible amount) might be added to the miscellaneous expenses. The inclusion of this negligible amount with the VAT will not create any considerable difference because after all it is paid by the company. VAT on Demurrage Charges: When clearance of the consignment is delayed at the port the port authority charges an amount for each days delay with some other charges (eg. use of fork lifts). This service by the port authority is also taxable under VAT rules 1991. Currently a 100% rebate is claimed on this VAT. Now again let us look at the law:

VAT Act 1991: Section 9 &13: The registered person who sells locally and exports taxable goods for the production of which he uses raw materials purchased paying VAT, can claim rebate by including the paid amount of VAT into the Treasury Deposit and Rebate column of form VAT-18. VAT Rules, 2006. Rule 19(2): The tax payer can claim 60% of the VAT as claim against input tax in respect of charges for telephone, tele-printer, fax, internet, freight forwarders, C&F agents, WASA, audit and accounting firms, supplier, security services, carrying agents, L/C services, Electricity, and other related taxable services. The law indicates that 100% rebate on VAT paid can be claimed on the VAT charged on the raw material and 60% rebate could be claimed on related services. Demurrage- which is basically charged for using the port warehouse and other facilities, should not be considered as inclusive in the raw materials taxable price. Although the name Warehouse Services is not explicitly mentioned in the law, this can be considered as a related service which is entitled to a 60% rebate. But I think, the correct practice is to treat this expense as an item of miscellaneous expense and not to claim rebate because demurrage is like a fine or penalty for not releasing the goods from port warehouse timely. Currently practice shows that 100% of the VAT paid on this regard is debited (See COLUMN AI in PART G of the spreadsheet where [Z] implies VAT on DEM).
The Effect of the Inconsistency on the Financial Report:

The apparent effects on the balances are: Excess VAT is claimed equal to 40% of the VAT paid on DEM; as a result current asset is inflated. DEM expenses are under-cast by 40% of the VAT paid on DEM which causes a rise in the net profit figure. The Recommended Practice in this Regard: 60% of the VAT paid on DEM charges should be claimed as rebate and the amount is debited. The rest 40% cannot be claimed as rebate thus it should be added to the DEM expense which is debited.

Therefore the amended analysis of the spreadsheet would be: PART G: Final summary for Journal Entry
Column ID Column Head Source/ Formula [O] [Q]+[T]*60%+[Z]*60% [V] [AA] + [Z]*40% [AB]+[T]*40% [AC] AH+AI+AJ+AK+AL+AM

AH AI AJ AK AL AM AN

DUTY VAT AIT DEM MISC C&F Commission TOTAL

Currently: [Q]+[R]*60%+[Z] Currently: [AB]+[R]*40%-[S] Currently: [AA]

Data Redundancy
Existence of multiple systems Traditionally, the AIS has been referred to as a transaction processing system because its only concern was financial data and accounting transactions. For example, when a sale took place, the AIS would record a journal entry showing only the date of the sale, a debit to either cash or accounts receivable, and a credit to sales. Other potentially useful nonfinancial information about the sale, the time of day that it occurred, would traditionally be collected and processed outside of the AIS. Consequently many organizations developed additional information systems to collect, process, store and report information not contained in the AIS. Even sometimes two supporting softwares

are used to record the same transaction which are not interlinked. Unfortunately the existence of multiple systems creates numerous problems and inefficiencies. BPL also experiences this problem. Since MAPICS cannot generate subsidiary ledger for each class of assets, BPL uses Fixed Asset Management System software to generate management report. Often the same data is captured and stored by two systems, which not only results in redundancy across systems, but also leads to discrepancies if data are changed in one system but not in others. In addition, it is difficult to effectively integrate data from the various systems. The Recommended solution in this Regard: Enterprise resource planning (ERP) systems are designed to overcome these problems as they integrate all aspects of a companys operations with its traditional AIS. Thus when the sales force enters an order, the effect of the transaction automatically flows to all affected parts of the company. Inventory is updated, production schedules are adjusted and purchase orders are initiated to acquire any needed raw materials and supplies. Moreover important nonfinancial data, such as the time the activity occurred, is collected and stored in the same system. A key feature of ERP systems is the integration of financial with other nonfinancial operating data. The value of such integration suggests that there may be strategic benefits to more closely linking the traditionally separate functions of information systems and accounting, and many organizations are beginning to combine these two functions. MS Excel Worksheet The summary reports prepared with MS Excel are often subject to data redundancy. On a few occasions same set of data is used in different spreadsheets. This causes redundancy and makes the data entry process unnecessarily lengthy. It really does kill valuable time of the responsible staffs and as a result he/she might fail to deliver reports on time when he/she is burdened with excessive data entry and related jobs. Proposed Changes: MS Access could be viable option as it gives the user flexibility through SQL. By linking the large MS Excel spreadsheets as tables in MS Access could provide a solid base to go

use SQL options. The reporting flexibility of MS Access could also be useful to generate On Demand reports for the management in the quickest possible time. The auditors also ask for different reports which are not always readily available. Using MS Access different types of reports can be produced and it takes little time.

Internal Control Issues

Limit Test Internal control regarding expenditure cycle of Beximco Pharmaceuticals Limited is quite satisfactory. BPL has introduced a number of control policies to ensure proper recording and reporting of different types of expenses. In the previous part, I have mentioned one area where internal control is deficient. The area is to writing the cheques and making the payments. When a check is prepared, all supporting documents are verified by the person preparing the cheque. At the time of writing the cheque, an error may occur resulting into the possibility of overpayment. This may occur when 10 to 15 invoices are paid at a time. Though every check is signed by two different persons (at least one from top management), it is not always possible to verify all the invoices and sum up total figure. For example, an invoice of Tk. 2,25,000 can be written as Tk. 2,52,000 while giving entry in MAPICS to record the payment causing debit balance in accounts payable account. There is no built-in checking system in the software that will not accept any amount in excess of provision made earlier for this purpose. Proposed solution: The software used (MAPICS) to record the payment to suppliers should incorporate a limit test which will not allow the user to write an amount in excess of the provision made. When the accounts payable ledger account will have a debit balance, the software should show a message that a particular suppliers account is going to be overpaid. BPL follows a policy that the person making the payment should compare the difference in supplier account balances before and after processing checks with the total amount of invoices processed. This could be regarded as a compensating control for the same purpose. But the inclusion of limit test in the software can make this task more easy and with less effort.

Problems with coding BPL uses a five segment, twelve digit code for its general ledger accounts. Most of the items are assigned a code. But due to varying nature of expenses, sometimes confusion arises as to how a particular expense is to be treated and which code is appropriate for this. Sometimes no codes are available for an item. The decision in this regard is taken by the person recording the transaction. If that person cannot understand the nature of expenses, a wrong code may be used by him. Proposed solution Chart of Accounts must be detailed enough to cover all types of items to avoid the use of personal judgment.

Conclusion In today's complex yet highly competitive business environment management needs quality information for decision making purpose. Now a days two things make the difference between a successful firm and a failed one quality of managerial decision and the ability to adapt new technology. The quality of managerial decision of BPL is proved in its success in the market; also BPL has successfully adapted latest technological breakthrough in ICT. The MIS department of BPL is constantly working on the development of new soft wares and on the improvement of the existing soft wares. It is hoped that the BPL would be the

first local company, as they have been in many other cases, to implement a complete ERP solution system. BEXIMCO PHARMACEUTICALS LTD. is the first Bangladeshi company to be listed with the London Stock Exchange. This was an added challenge to all the accounting staffs as the listing the accountability of the organization has gained a global reach. The ever expanding export trade also indicates greater responsibility to the world. The Finance and Accounts department took the challenge and prove their mettle by the timely publication of 2005 Annual Financial Reports globally. Each and every section in the department deserves to be complemented for their endeavor. From raw material import to the bringing of smile for the society, on every level, professionalism and dedication is the key to this success.

Bibliography
Annual Report of Beximco Pharmaceuticals Limited. 2006. Marshall, B. R. and P.J. Steinbart. 2003. Accounting Information Systems. Ninth edition. Singapore, Pearson Education. Porter, M.E. and V.E. Millar. 1985. How Information Gives You Competitive Advantage. Harvard Business Review (July-August). Wilkinson et al. 2003. Accounting Information Systems: Essential Concepts and Applications. Fourth Edition. New York, John Willey & Sons. Inc.

Website
www.beximcopharma.com

Annexure
A Sample of CEP

BEXIMCO .DIVISION CAPITAL EXPENDITURE PROPOSAL (CEP) SPARE PARTS APPROVAL 1. Classification: Replacement

Unit Depth Date Serial # Development

Addition

2. Description of item with ID Number (if Any): 3. Reason/ Justification for proposed expenditure: 8. Remarks

4. Economic life (Years) 5. Supplier: 6. Estimated Expenditure 7. Budget Provision:

Signature of Budget Officer Approved By

CEO/ Deputy Chairman Submitted By Recommended By

Recommended By

Departmental Head Date:

Director, Commercial Date:

Director, Finance Date:

Sample of Purchase Order

Purchase Order No. SL No . 1 2 Name and Description of Material / Service Unit No

Purchase Requisition No Date of Receipt by PD Quantity Unit Quantity Amount Ordered Price Ordered

MRR NO. __________DATE __________ MRR NO. ___________ MRR NO. __________DATE __________ MRR NO. __________DATE __________ MRR NO. __________DATE __________

Invoice/ Voucher No________Date_________ Amount for Refund______________________ Amount Due for Payment_________________ __________________________ ________ Passed for Payment/ Adjustment Date

Date

From

Accounts Payable Provision Voucher Beximco Pharma .. Voucher No To Vendor No Invoice / Bill Due Date Description : .. AP Journal Voucher Date:

Original Voucher No: .. : : Date: MRR/QC/WO : . : :

0/00/00 0/00/00

Tax and VAT Report Vendors Vendors Period no name Tax and VAT Report Total Tax VAT Other Net amount amount Amount deductions amount due due

Accounts Payable Payment Voucher Beximco Pharma .. AP Payment Voucher (Cash / Bank) Batch/item No : .. Voucher No : Date:

Original Voucher No: ..

0/00/00

8. Vendor ledger

Sample of Journal Register Beximco Pharma Journal Register From 0/00/00 to 0/00/00 Payment Upto 0/00/00 Vat Amount Tax Amount Other Amount Net Paid Due Amount

Summary by Vendor Vendor No & Name Purchase

Sample of Cash Requirement Report

Beximco Pharma

Cash Requirement Report (Summery) By Invoice Upto 0/00/00 Payment Upto 0/00/00
Payable Amount & above days old Payable Paid Deduction Due Amount

Ref. Date for Age Calculation: Voucher Date Vendor No Vendor Name

Sample of Aged Payable Report Beximco Pharma Aged Payable Report (Summery) By Invoice Upto 0/00/00 Payment Upto 0/00/00
Payable Amount & above days old 31-60 Days 61-90 Days Above 90 Days Unclassified Total Due Amount 0-30 Days

Ref. Date for Age Calculation: Voucher Date Vendor No Vendor Name

Sample of Vendor Business Position Report Beximco Pharma Vendor Business Position Report From 0/00/00 to 0/00/00
Payable Vat Tax Payment Other Deduction Due Amount

Vendor No

Vendor Name