ACC 542 Week 1 Business Information Systems Example

From Job Folders to One System: How a Composite Electrical Contractor's Accounting Information System Supports Its Value Chain, and What Changing It Would Cost

[Student Name]

University of Phoenix

ACC/542: Accounting Information Systems

Week 1 Assignment

[Instructor Name]

[Date]

The contractor, its systems and all figures are composites written for a model paper; frameworks and research findings come from the sources listed.

A composite electrical contractor employs 140 electricians and 30 office staff and completes about 400 commercial and industrial jobs a year, from warehouse lighting retrofits to wiring new schools. Its estimators use one program, project managers track jobs in spreadsheets, payroll runs through an outside service and accounting uses a small-business package. Each system works; together they do not. The contractor has plenty of data; what it lacks is a system in which the same fact is recorded once and trusted everywhere. This paper analyzes its accounting information system and the case for replacing it.

What an AIS Is

An accounting information system collects, records, stores and processes data to produce information for decision makers, and it includes people, procedures, data, software, infrastructure and internal controls (Romney et al., 2021). Its purpose is not only to produce financial statements but to support operations and decisions, from bidding a job to deciding which customers are profitable.

The Contractor's Value Chain

The contractor's primary activities are winning work through estimates and bids, buying materials and scheduling crews, performing installation in the field and billing and closing out jobs, including warranty service. Support activities include safety and training, fleet and tool management, human resources and accounting itself. Each activity generates data: an estimate lists materials and labor hours, a purchase order commits costs, a timesheet records hours by job and cost code and a pay application bills a percentage of completion.

Transaction Cycles

Those data flow through transaction cycles. The revenue cycle covers bids, contracts, pay applications, retainage and collections. The expenditure cycle covers purchasing materials and paying suppliers and subcontractors. The payroll cycle covers union and nonunion wages, fringe benefits and certified payroll for public jobs. The general ledger and reporting cycle turns all of these into job cost reports and financial statements.

Following One Job

On a recent warehouse retrofit, the estimator entered 1,800 labor hours and $210,000 of fixtures in the estimating program. The project manager retyped the budget into a spreadsheet by cost code. Purchase orders were written by hand and later entered in accounting as invoices arrived. Timesheets came from the field on paper, were keyed by payroll staff and sent to the outside service, which returned a summary that accounting keyed again by job. The project manager learned the job was over budget on labor only when the monthly job cost report appeared three weeks after month end, too late to adjust crew assignments.

The same data were entered four times, and each entry was a chance for error. The controller estimates that office staff spend about 90 hours a month rekeying data and reconciling differences between systems.

Types of Systems

The contractor's current programs are transaction processing systems: they record events but share little. An enterprise resource planning system integrates the cycles in one database, so an estimate becomes a budget, purchase orders commit costs against it, field hours post to jobs daily and billing draws from the same records. Business intelligence tools built on that data can show labor productivity by crew, margin by customer and cash tied up in retainage. Construction-specific ERP systems add features such as certified payroll, retainage tracking and pay application formats required by owners.

Costs and Benefits

The controller obtained quotes for a construction ERP system. Software subscriptions would cost about $95,000 a year, implementation services about $180,000 and internal staff time about 1,200 hours during a nine-month project. Mobile time entry for field crews would require tablets costing about $40,000.

Benefits include eliminating most of the 90 monthly hours of rekeying, worth about $50,000 a year, billing jobs about ten days sooner, which would reduce average receivables by roughly $600,000 and save about $40,000 a year in interest on the credit line, and, most important but hardest to quantify, weekly job cost reports that let project managers correct overruns while jobs are under way. If better information reduced labor overruns by even one percent of the contractor's $38 million of annual labor cost, the savings would be about $380,000 a year.

Implementation Risks

Research on ERP systems warns that benefits depend on implementation. Grabski et al. (2011) reviewed accounting research on ERP and found that outcomes depend heavily on organizational factors such as top management support, training and process change, not only on the software. Common failures include converting bad data, customizing the system to reproduce old habits and underestimating the change for field staff. For the contractor, the largest risks are field adoption of mobile timesheets and cleaning up cost codes that differ between estimators and project managers.

Control Implications

Integration also changes internal control. A single database with role-based access reduces errors from rekeying but concentrates risk: a user with too much access could affect every cycle. The controller would need to redesign segregation of duties within the system, for example separating who can create vendors from who can approve payments, and review access periodically, consistent with the control activities component of the COSO framework (Committee of Sponsoring Organizations of the Treadway Commission, 2013).

Data Governance

Integration also forces decisions the contractor has avoided. Someone must own the list of cost codes, the customer and vendor master files and the rules for opening and closing jobs. Today, estimators and project managers use slightly different codes for the same work, which makes comparing estimated and actual costs unreliable. The controller proposes a data governance group of three people, the chief estimator, a senior project manager and the controller, who will approve changes to master data and review exceptions monthly. Without this discipline, a new system would simply store the same inconsistent data in one place.

Measuring Success

The contractor will judge the project by measures set before it begins: days from month end to job cost reports, currently 21 and targeted at 5; hours of rekeying, currently about 90 a month and targeted below 15; time to prepare each monthly pay application, currently 12 days and targeted at 4; and the share of field hours entered within 24 hours, targeted at 95%. Reporting these measures to the owners monthly during the first year will show whether the promised benefits arrive.

Recommendation

The contractor should adopt a construction ERP system, implemented in phases: job costing and accounting first, then purchasing, then mobile time entry. It should standardize cost codes before conversion, assign a project manager and a field superintendent to the implementation team and set measures of success, such as days to issue job cost reports and hours spent rekeying, before starting.

Conclusion

The contractor's current systems record transactions but fragment them, costing time, delaying information and weakening control. An integrated system would connect the value chain from estimate to closeout. The financial case is favorable, but only if the implementation addresses data, people and process as seriously as software.

References

Committee of Sponsoring Organizations of the Treadway Commission. (2013). Internal control, integrated framework.

Grabski, S. V., Leech, S. A., & Schmidt, P. J. (2011). A review of ERP research: A future agenda for accounting information systems. Journal of Information Systems, 25(1), 37-78. https://doi.org/10.2308/jis.2011.25.1.37

Romney, M. B., Steinbart, P. J., Summers, S. L., & Wood, D. A. (2021). Accounting information systems (15th ed.). Pearson.