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THE RESTRUCTURE OF PROJECTS & FIXED ASSETS ACCOUNTING DIVISION AS A MEAN OF ADVANCING INTERNAL CONTROL AND OPERATIONAL EXCELLENCE Contents EXECUTIVE SUMMARY2 ACKNOWLEDGMENT3 INTRODUCTION4 Problem Background6 Problem Definition7 Management Decision Problem7 Accounting Research Problem7 LITERATURE REVIEW7 Internal Control and Segregation of Duties (SOD)8 Operational Excellence (OE)10 OE Program of Saudi Aramco11 Asset Management Enabling Element of OE13 RESEARCH METHODS15 ANALYSIS & DISCUSSION16 The Restructuring Process16 Linkage to B2D Cycle17 Main Functions of Units of P&FAAD27 Operational Excellence Journey28 OE Program of FAD & P&FAAD Involvement28 CONCLUSION AND RECOMMENDATIONS35 EXECUTIVE SUMMARY This report provide an insight over the restructure of Projects & Fixed Assets Accounting Division (P&FAAD) of Financial Accounting Department (FAD) as part of the agile vision of the Controller Organization as a mean of advancing internal control and operational excellence (OE). In this research, participative observation is documented andinterviews with the decision makers, unit heads, team leaders, and staff were conducted to assess the restructure of P&FAAD and how it is fitting its purpose. The main objective of the study was therefore to explore the resulted changes and how they are impacting the way the work is performed. Being a team leader of Master Appropriation Group of Projects Accounting Unit which is the biggest unit of P&FAAD, I got the chance to be part of this change where this helped in collecting the data for this research through observation and record field notes. Additionally, unstructured interviews to gather in‑depth information were conducted utilizingdifferent forms of interviews including non-directive, focused, and informal. It was found that the restructure of P&FAAD has met its objectives which is supported by the outcomes of the latest operational excellence score. However, this research could be extended to look after the quantitative results of P&FAAD operations to supplement the qualitative findings which could uncover hidden areas that might need further improvements. . INTRODUCTION Today, Saudi Aramco stand out as a fully integrated, global petroleum and chemicals enterprise and a world leader in hydrocarbons exploration, production, refining, distribution, shipping and marketing, and is the world’s top exporter of crude oil and natural gas liquids (NGL). In order to proceed with its vision, Saudi Aramco introduced five corporate values to be the essence of company’s activities where all employees are gathering around them(Saudi Aramco, 2018): · Accountability · Citizenship · Integrity · Safety · Excellence Supported with the view of its CEO, Aramco is paving the way toward building on its long legacy of integrity, trust and reputation through fulfilling its corporate objectives of(Saudi Aramco, 2018): · Maximizing profitability · Remaining a reliable supplier of oil and gas · Efficiently meeting the kingdom’s energy demand · Enhancing research and technology · Intensifying the focus on safety and protection of the environment · Preparing the work force for the future To be achieved, the mentioned objectives has to be implemented company-wide where Finance Business Line has to contribute positively. Being part of the Finance Business Line, Controller Organization is not exception from this where FAD (one of the departments of Controller Organization) represented by its four divisions has to enforce that through its practices which are guided by its mission statement.(FAD Sharek Website, 2017)In its mission, FAD is committed to: 34 · · Provide reliable and timely financial statements and income tax reports to Saudi Aramco's internal and external stakeholders. · Maintain financial control over project expenditures, fixed assets records, and general ledger accounts. · Review and provide assurance to the business plan, funding, accountability, and post project appraisal related to capital and public support projects. · Develop and empower the staff, encourage collaboration, and reward high-performers. · FAD’s mission was built around its vision of excelling as a trusted partner in driving business performance to achieve the company's strategic intent by providing commercial assurance, governance, and value added financial reports, analysis and insights where FAD will focus on the following pillars: · Enhancing risk and ratio based reporting capabilities to support management decision making and efficiently responding to changes in a fast paced business environment. · Building appropriate governance and compliance controls to enable an agile organization, capable of adapting to the changes in business. · Daily and proactive collaboration with all business & service lines, and senior management to strengthen our position as a valued business partner. · Promoting and supporting internal collaboration within the Finance Organization. · Driving ongoing process improvements to ensure that FAD makes best use of the available systems, which allow maximum time to focus on critical areas where we add the most value, and minimize manual work. During 2017-2019, FAD is regarded to be the Controller's main point of contact to develop and support the IPO Readiness that includes preparation for accelerated completion of financial consolidation and financial reporting in accordance with public listing requirement. Moreover, FAD will continue to represent and serve as the Company's partner in driving business performance to achieve Saudi Aramco’s strategic goals.(FAD Sharek Website, 2017). As the owner of the processes and systems related to the accounting for projects and fixed assets, FAD/ Projects & Fixed Assets Accounting Division (P&FAAD) has a major role to play in achieving these goals through its structure, functions, processes and activities. Problem Background The structure of any organization is important since it provides guidance and clarity in relation to authority and functionality. Structure and functions are related where both are built around each other. The right structure is a main step toward achieving successful functionality. The complication of today’s business, make it hard for several organizations to implement the basicinternal control of segregation of duties.(A risk-based approach, 2010) Prior to July 2017, P&FAAD structure and related allocation of functions was lacking harmony. Naming of the units of the division was limiting the scope of their functions. Two units of the three forming P&FAAD were almost doing the same functions. One of the units was overloaded while another was doing the minimal. The division was suffering from deviating from the established guidelines of Saudi Aramco GI 287.007 which covers segregation of duties since the segregation of duties wasn’t achieved in many of the processes which in turn weaken the internal control and increase the vulnerability of risk. Furthermore, part of the work was outsources to a third party (TATA Consultancy Services –TCS) that was reporting to the two unites although the scope of the work is similar. One of the units (Fixed Assets Unit (FAU)) was assumed to be responsible for reporting and reconciliations, however, reports and reconciliations works were scattered between the three units of the division.Per the access reports obtained from Accounting Policy and Systems Department (AP&SD), in absence of segregation of duties (SOD), where there shouldn’t be a single individual who has control over two or more conflicting sensitive transactions, all staff were having access to the sameprocesses and transactions. Based on the interviews conducted with involved parties including the decision makers, the division head, unit heads, team leaders, and staff of P&FAAD, we came up with following highlights: · In-depth assessment for the structure and functionality of P&FAAD and its units is required. · The activities of the different units are to be analyzed to find out how they are linked to each other. Mapping the processes will be helpful. · Functions need to be reorganized, so, segregation of duties is achieved. · Naming of the units should be changed to match related functions. · Access to the different processes and systems need to be revised. · Changes to current structure, allocation of functions, and access to the different systems need to be aligned with the requirements and goals of operational excellence (OE). Problem Definition Based on the interviews with the decision makers, the division head, unit heads, team leaders, and staff of P&FAAD, the management decision problem and the accounting research problem were defined: Management Decision Problem The management decision problem is stated as follows: “What should be done to restructure P&FAAD and its functions in order to advance the internal control and operational excellence?” Accounting Research Problem Based on the management decision problem, the accounting research problem was stated as follows: “Assess the structure and functions of P&FAAD and how they can be enhanced to advance the internal control and operational excellence?” LITERATURE REVIEW Since this research has a main focus if analyzing and assessing the restructure of P&FAAD as a mean of advancing the internal control and operational excellence, the literature review would covers two main aspects: · Internal Control and Segregation of Duties (SOD), and · Operational Excellence (OE) Both scopes will be defined and explained. Internal Control and Segregation of Duties (SOD) Internal controls whether being defective or preventive are vital for every organization since they represent ‘the processes impacted by the Board of Directors, Management and other personnel to provide reasonable assurance regarding the achievement of objectives’.(Internal Control Environment: Key Considerations & Developments, 2014) Being related to any aspect of the business, from human resources to IT, criticality of internal controls is obvious. Transactional access authorizations, establishment of internal policies and procedures, reconciliations, and monitoring of business resultsare examples of internal control practices. The business environment is changing where leading businesses are derived to evolve their internal control systems as a response to an increasingly complicated, technologically driven and global business environment with an aim of addressing the key issues to achieve organizational success. Certain frameworks can be utilized for designing, implementing, assessing and establishing requirements for an effective internal control. The context of these frameworks is regularly updated to accommodate the new business challenges and to provide clarity of requirements and procedures. (Internal Control Environment: Key Considerations & Developments, 2014) As an example, the Committee of Sponsoring Organizations of the Treadway Commission (COSO) developed a framework to provide guidance on enterprise risk management, internal control and fraud deterrence. COSO is a joint initiative of the five private sector organizations(COSO, n.d.): · American Accounting Association, · AICPA, · Financial Executives International, · The Association of Accountants &Financial Professionals in Business “IMA”, and · The Institute of Internal Auditors “IIA”. Having a well-established system of internal controls, including a segregation of duties are major things that businesses need to take care of. As defined by the American Institute of CPAs, segregation of duties (SOD) is a basic building block of sustainable risk management and internal controls for a business. Its principle of is based on shared responsibilities of a key process that disperses the critical functions of that process to more than one person or department. Without this separation in key processes, fraud and error risks are far less manageable. In its insight on governance, risk, and compliance of May 2010, Ernst & Young defined the segregation of duties as a basic internal control that attempts to ensure no singleindividual has the authority to execute two or more conflictingsensitive transactions with the potential to impact financial statements. Segregation of duties provides critical oversight and deters fraud and theft via applying controls over custody of assets, ability to authorize the use