Acc 451 (Accounting Systems & Controls)

EVALUATION OF ACCOUNTING INFORMATION SYSTEM IN ZAIN BAHRAIN Accounting Systems and Controls (ACC 451) Project

Zahra Khadhair Mearaj Shameem Ebrahim Naveed Karim Baksh Syed Sulaiman Shah Hussain Salah Mohammed

20124996 20126301 20124656 20111317 20111576

Sec 02 Sec 01 Sec 01 Sec 01 Sec 01

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Table of Contents 1. Introduction ......................................................................................... 3 2. Accounting Information System used in Zain ........................................ 7 3. Accounting Cycles .............................................................................. 10 4. Strengths and Weaknesses ................................................................. 18 5. Recommendations ............................................................................. 19 6. Conclusion ......................................................................................... 19 7. References ......................................................................................... 19

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1. Introduction 1.1 About Zain Zain Bahrain B.S.C., formed in 2003 as MTC Vodafone, is a telecom operator in the Kingdom having a market experience of more than a decade. It is a subsidiary of Zain Group and they were the first to break Batelco’s monopoly which had lasted for over two decades. Being a highly regulated industry, they provide telecom services under various licenses issued by the Telecommunications Regulatory Authority (TRA). They remained a closed joint stock company for eleven years until it went public in 2014.The demand for Zain’s offerings comes from two types of customers: consumer and business segments. Zain’s diverse product portfolio includes post-paid and prepaid services, devices, broadband, enterprise solutions, international roaming, mobile applications and Zain’s exclusive club membership. According to Zain’s last annual report, 78.1% of total revenues were generated from the mobile, while 4.3% was generated from interconnection and 9% from fixed wireless services. Zain’s Net Profit for the three months to September 2015 recorded an increase by 91%, compared to the same period in 2014. The profit rise is attributed to the exponential growth in mobile data subscribers, greater operational efficiencies along with increase in demand for broadband services. By June 2014, they controlled 34.9 % of market share, second only to Batelco. By October 2015, their customer base increased from 787,000 to 814,000, a yearon-year increase of 3%, indicated rising growth.

1.2 History Zain Bahrain B.S.C. is a Bahraini Joint Stock Company Closed incorporated in the Kingdom of Bahrain on April 19, 2003 under its former name, MTC-Vodafone Bahrain B.S.C and registered with the Ministry of Industry and Commerce under Commercial Registration (CR) number 50603. It was the first mobile telecommunications company to be started in the Middle East. Chairman Board of Directors is Asaad Ahmed Al-Banwan is and Zain Groups CEO is Nabeel Bin Salamah.” Zain grew speedily in both the Middle East and Africa in the course of the attainment of several mobile operators across the region. In 2008, Zain grew to be the 4th largest mobile operator on the planet. By 2010, Zain had taken tactical decision to focus on it’s highly cash generative operations. The company is an auxiliary of Mobile Telecommunication Company K.S.C, a Kuwaiti shareholding company listed on the Kuwait Stock Exchange. The Company commenced its services on December 28, 2003. Zain, today, Operates in Bahrain, Jordan, Kuwait, Iraq, Saudi Arabia, Sudan, South Sudan, and in Lebanon as well. As of March 31, 2016 Kuwait Investment Authority is the largest shareholder with a stake of 24.6%.

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Zain Bahrain has been representing to install, control and administer telecommunications operations in accordance with the authorization granted to it by the TRA. The group is also concerned in the transaction of handsets and accessories in the Kingdom of Bahrain. The Company has go into an elite Management Agreement with its Parent Company, Mobile Telecommunications Company K.S.C., which permits the Company to do good from the Parent Company’s technical expertise and commercial know-how in establishing, building and managing mobile telecommunications networks over the last 30 years.

1.3 Vision and Mission Zain aims to become the Kingdom’s telecom leader by offering care to all its stakeholders and supporting their lifestyle. Their mission is to provide Bahraini market quality services based on excellent customer care and to develop people centric organisation which cares about others.

1.4 Product and Services The Company has urbanized and commenced a series of products and services and tariff strategies which have been designed with suitable consumer segmentation. The Company proposes tailored consumer and business packages or collection in relation to voice, messaging (SMS and MMS), high-speed data connectivity and VAS services as well as roaming services. The beginning of fresh and inventive products and services alongside the Company’s uninterrupted efforts to place itself as the finest value scheme for its customers has been solitary of the key success aspects behind the development of the Company’s mobile customer foundation. Zain Bahrain provides a varied range of Prepaid, Post-paid, broadband and enterprise services whilst keeping in mind the wide-ranging telecommunication service requirements of its residential and business customers in Bahrain. An abstract of the product compilation and services is set out below Smart Phones Zain Bahrain place forward Post-paid packages, bagged with products from the leading global Smart phone producers to make sure that its customers in Bahrain have access to the cutting-edge global advancement at reasonably priced services. These packages comprise the following: 

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Smart Plan Zain Bahrain offers the users of smart phones with a package including free bundled minutes and unlimited use of date making it very competitive among the other existing telecommunication industries in the Bahraini market. IPhone plans

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Zain Bahrain in partnership with the Apply company ensures that they are the first to provide their customers the latest iPhone as well as other iOS devices along with better-quality packages involved making them superior among other competitors Easy talk Offering prepaid customers, a rich communication experience at the same time retaining control and flexibility. Customers having access to unlimited data, unlimited blackberry and unlimited calling add on’s facilitating them to have the benefit of browsing, chatting, downloading limitlessly.

The “Hewar” voice plans, Blackberry and voice add-on’s, Blife and signature plans are certainly varied packages provided by Zain Bahrain ensuring to deliver its consumers the best of what they intend to provide Broadband Zain Bahrain offers inclusive internet connectivity products and services by means of its home broadband guaranteeing that its customers are connected at home and on the go. 

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Home Broadband Zain Bahrain offers matchless value in catering for household internet as well as for unchanging connectivity needs. It is the breaking new ground operator in Bahrain contributing truly unbeatable home internet packages with no usage thresholds and speed downgrades. By means of home broadband, customers are presented with on- net calls free of charge. 4G LTE Broadband Zain Bahrain provides its customers with whopping high speed Home Broadband products appreciably enhancing the users experience with video streaming and other online applications. Postpaid Mobile Broadband Zain Bahrain presents to its consumers post-paid e-GO packages with unlimited supply of data by granting them free tablets, USB dongles, Portable Wi-Fi devices. Prepaid Mobile Broadband Zain Bahrain was the first telecommunication company in the country to offer unlimited mobile broadband packages. It offers customer more control over their mobile broadband usage. International Roaming Zain Bahrain customers travelling abroad have a good quality access to all the services provided in Bahrain because they reached a service agreement with more than 450 partner operators in over 160 countries. Content Services Portal Zain Bahrain with the help of this Service offers ring-back tunes, information channels and games. Zain wallet 5|Page

Zain Bahrain is the foremost and the only operator in Bahrain that offers full finance resolution via its wallet services whereby customers have access to a fully functioning mobile wallet with transactions counting international money transfer, peer to peer transfer.

Shaikh Ahmed Bin A. Al khalifa

Chairman

Assad Ahmed Al Banwan Deputy Chairman

Bader Nasser Al Kharafi Vice Chairman

Jamal Shaker Al Kazemi

Abdulaziz Yaqoub Al Nafisi

Shaikh Rashid Bin A. Al Khalifa

Waleed Abdullah Al Roudan

Board Member

Board Member

Board Member

Board Member

Figure 1 Board of Directors

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2. Accounting Information System at Zain In general, Accounting Information Systems (AIS) refer to the process of collecting data, processing or transforming them into information and distributing processed information to the users that are both internal and external to the organisation. Such systems are used by the companies with a purpose to collect and store data and process the collected data into useful information which can be used by managers and other users to the organisation to make decisions. Most companies, these days, maintain computerised accounting system. Elements of AIS includes:      

People which includes managers, accountants, sales staff and analysts. Procedures: set of instructions on how to collect and store data, process them and distribute. Data i.e. raw or unprocessed information Software that is used for processing data Information technology and Internal control

At Zain, Oracle accounting software is used to collect, store, process and distribute information. Ever since Zain’s formation in 2003, the company has been using Oracle. Not only Zain Bahrain, but the entire Zain group and its subsidiaries relies on oracle for processing their accounting information. It is a database management system which have been developed by Oracle Corporation. It creates efficient, detailed, reconcilable and auditable accounting information for its users. Information is stored in the form of tablespaces in Oracle Database Management System (DBMS). These tablespaces are further exploded into segments and segments are broken down into extents. Extents comprises of data blocks which are the basic unit of data storage in oracle DBMS. Advantages of using Oracle include:    

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It is very reliable and users find it easy to use. A new staff can easily learn how to use the system in hours. It helps in creating accounting for multiple source systems. Its helps the users to create accounting methods and events at once and then use it many times, Whenever there is a change in accounting rules, it is quickly updates to meet the new requirements. It integrates new systems rapidly. The rules engine allows the users to define and reuse setups separately for each component such as journal lines, summarisation criteria, etc. It enhances internal controls and auditability. Oracle’s centralised system provides numerous enhancements to ensure successful audit and compliance reviews. 7|Page

The two main oracle modules used are Fixed Asset (FA) and Project Module. 1. Fixed Asset (FA) module FA module is an oracle module that keeps the track of fixed assets at Zain. It identifies all applicable transaction and events that happens during it’s useful life. Fixed assets are those assets used by the company for long period and cannot be liquidised easily. The FA module lets the user to update details regarding fixed assets, copy existing details for new fixed asset, etc. In order to process fixed assets using the module, the following information needs to be maintained: 

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Category of Assets: assets that are of similar nature are grouped together which makes it easier for charging depreciation rates that is common. Assets useful life is also defined for each category. Location codes: a unique code is used to represent location where assets physically exist. Branch parameters: functions such as depreciation period, residual value, etc. are defined in branch parameters. Location restrictions: restrictions for certain classes are defined Asset category restrictions: restrictions for each asset categories are maintained. Asset Rule Definition: for each category and location combination, depreciation rates can be recorded.

Figure 2 Fixed Asset Module in Oracle

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2. Project Module: Projects module in oracle provides a single and accurate view of projects that the organisation undertakes. Project module can be further broken down into project costing, project billing, resource management and project management. 3. Financial Module: includes Oracle Assets, General Ledger, Payables, Receivables, Cash management and tabs. The financial applications enable Zain to conduct procure to pay business as well as order to cash business. Other modules include supply chain management (SCM), customer relationship management (CRM), human resource management (HRMS) and Procurement. All the modules in oracle are integrated thus making it easier for Zain to process data and provide information. Users have restricted access to the system based on the needs. For eg: the accounts staff can access the accounts receivable module whereas the sales staff is denied access to them. Zain recently updated oracle to its latest version in 2016. The update process is done every five years making it more reliable. The American Institute of Certified Public Accountant (AICPA) defined the five most important principles that makes an organizations accounting system more reliable. They are listed as follows: a. Security: Zain restricts users access to AIS by means of password. Each employee or users who use AIS have their own password which provides access to only what is required to them. The password is changed every 3-4 weeks. b. Confidentiality: just like other companies, whether listed or not, Zain doesn’t not provide its sensitive information to its third party. c. Privacy: Confidentiality of customer and other details are maintained properly. d. Processing integrity: appropriate authority authorisation is maintained at Zain when there are transactions involving huge amounts e. Availability: The system is made available to meet their operational and contractual needs.

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3. Accounting Cycles at Zain The major accounting cycles in any company includes: revenue cycle, expenditure cycle, production cycle, human resource management and payroll cycle and financing cycle. Since Zain is a service company, all expect production cycle are applicable.

3.1Revenue Cycle: Revenue cycle consist of transactions that involves customers and the company. The company provides products or services to customers and get cash in return. The information from revenue cycle is used in other cycles such as expenditure cycle and payroll. Revenue Cycle can be exploded into sales, billing and cash collection. Sales start with customer enquiry followed by checking customer’s credit limit and then delivering product or rendering service. Sales is then followed by billing stage and ends with cash collection. Zain’s main source of revenue comes from billing and cash sales. Billing consist of contract payments. Cash Sales mainly consist of prepaid and post-paid packages. Prepaid services require customers to pay in advance and are charged according to their usage. On the other hand, post-paid customers pay for their usage on a monthly basis. For prepaid customers, it is similar to cash basis of accounting. Customers pay first and recharge the balance for the same amount. Once it is recharged, cash is credited in their accounting system and a liability recorded for prepaid revenue. Amount is deducted from prepaid revenue as it is used by the customer and is recognised as revenue. When a new customer arrives, the sale staff first checks the national ID to check that the required information is valid and to suggest an appropriate plan. The amount the customer will have to pay as down payment is based on the employment status. Those with low employment status will have to pay high amount as down payment compared to customers with high employment status. This suggest the credit limit for customers. The down payment is advance payment of bills for certain number of months depending on their credit limit. This reduces the risk of bad debts. Once the credit limit or down payment is agreed, the sales staff then checks for the availability of inventory on the system. Once the inventory is made available, the customer then signs the contract for certain number of months. Each customer is assigned with a contract number. The contract number acts as a primary key and provides information regarding customer’s details, contract details, type of package, etc. Since, all Zain outlets have their oracle database centralised and integrated, it enables them to access any customer’s information from any outlets or location. When the sales staff inputs the required information regarding a new customer, an update is automatically made to the database. 10 | P a g e

When the customer makes a call or uses data package, the information regarding the usage, that includes customer data, location, time and date of usage are recorded in their billing system. The billing system collects usage data for all customers together. The data is then pooled on the basis of contract number that is mapped to each customer. It is then summarised into one invoice that is sent to the customers on a monthly basis. For a post -paid customer, each month the customer’s accounts receivable is debited for the services provided and used. Once the accounts receivable is updated, a bill is issued to the customer specifying the amount to be paid and the due date. This is when the revenue is recognised in the income statement. Customers can pay their bills through various channels including Quick Pay, Sadad, or through their sales agents. Once the payment is made the accounts receivable is debited and cash is debited. Zain has 4 billing cycles.    

1-30th of a month 16th to 15th of a month 10-9th of a month 23rd to 22nd of a month

Suppose a customer signs a contract in the middle of the month for one of their services, the contract amount will be distributed among two months using pro rata basis. The down payment that customer pays for a certain number of months is recorded as prepaid revenue and then allocated equally to the specified period. When the customer exceeds the usage limit within the down payment period, extra charges will be taken from the remaining period or charged to their bill in the very next month. Cash collected for billing services and other services via sales agents are deposited on a daily basis to Zain’s bank account. Zain maintains their bank account with National Bank of Kuwait. A daily and monthly sales report is prepared by the sales agent using excel and then sent to the accountant. Sales report is used to reconcile the amounts that have been automatically updated on their database.

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Figure 3 Copy of Daily Sales Report

3.2 Expenditure Cycle: Expenditure cycle involves transactions the occur between the company and their supplier. This results in outflow of cash and inflow of good or services. Main sources of expenses for Zain are classified as: Direct Payables and Purchase Order Direct Payables: any invoice that is entered manually has a direct effect on gross margin. Prepayments: For e.g.: Zain sponsors E-Learning at UOB. If the amount is paid in advance for a contract period of 12 months, allocate the amount over 12 months and then amortize it. it’s done using Microsoft Excel. Accruals: Accruals mainly arise for general expenses. Each year the company forecasts their contracts and their approximate amount. Accruals are credited and expenses are debited. It goes directly to the income statement. When the contract is signed, contract balance up to that date is taken from accruals and additional amount is adjusted for. 12 | P a g e

Sales commission and outsourcing: Zain outsources most of their retail branches in order to reduce their costs. They pay supplier/contractor a fees which is based on monthly achievement. The sales department contacts the accounting department to inform about the sales achieved. Depreciation: When a department identifies that an asset is required, a purchase request (PR) is made. PR is a paper or an electronic document that consist of information regarding the department that has requested and the items they had requested for. The purchase request must be authorised by appropriate level of management based on the amount involved. The purchase request is sent to the purchase department. Once the purchasing department validates the request, it then draws a purchase order which is sent to the supplier. Zain’s purchasing department maintains a list of verified suppliers so that they can ensure they get quality goods at the right time at the right price and place. When the good are received, a staff at the purchasing department checks the purchase request note and verifies the order. A Goods Received Note (GRN) is drawn which is moved to Project Module. A report is pulled from project module, which mentions the items received or purchased. For any asset, there’s a category assigned to it which is mapped to depreciation expense and to the department that uses the asset. System transfers it to Capital in Process account. The capital in process account is like a work in progress account. Assets are classified into two: 1. Non-CIP: where assets are capitalised when they’re received. 2. CIP assets: till the asset is placed for service, it is not capitalised or depreciated. Depreciation only starts when the asset is placed for service. FA module is then used to run depreciation and then transfer it to the general ledger and post it directly to the financial statements. Salaries and Wages: Another major expense that Zain incurs is that related to wages and salaries of Zain employees. it comes under operating and administration expenses in the statement of profit or loss and other comprehensive income. How the salaries are processed by the accounting system is explained in detail in the payroll section.

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Enter requisition data from other departments

Purchase department validates

Issue purchase order

Copy to the departments

Supplier copy

Supplier

Enter PO number

Shipping document

Compare quantities with PO quantities

Department

Figure 4 Context diagram of Purchasing an asset at Zain

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3.3 Human resource management and payroll cycle: Human resource management and payroll cycle are interrelated. Human resource cycle involves getting labour, while payroll cycle focuses on paying them. Recruiting and hiring employee, training and assigning job, paying compensation and evaluation are the activities involved in this cycle. Any candidate who is interested in working with Zain has to register his details on Zain’s applicant centre which is powered by Cazar, which is a popular online recruitment service used by clients worldwide. The candidate registers using a valid email id. Cazar uses their smart technology and helps Zain to achieve their recruitment objective.

Figure 5 Applicant Centre powered by Cazar

The candidate then fills the required information including their name, job agent, qualifications, locations preferred and other personal details. Whenever there is a need for labour Zain, the human resource department first checks for the appropriate candidate internally. When they are not able to find an appropriate candidate, a vacancy is posted on Zain’s career site. When the user logs into his account, he will be able to see a notification for the same and will be able to apply. Once he applies for the vacancy, an automated acknowledgement is 15 | P a g e

sent to his email ensuring that the application has been sent to the department or if there is any mismatch in the details that he has given. Once the HR department ensures that he/she is an appropriate candidate, an interview is conducted and the person is employed. He/she will sign a contract and a copy of it is maintained by the HR department, the department that hires him and the employee. The information regarding the new employee is stored in their payroll system. The information includes the name of the employee, the department that hires him, contract length, International Bank Account Number (IBAN), etc. The above information is input manually by the HR manager to the system and updates the payroll list. The HR department maintains a master file that contains employee information. They also maintain an excel file which records the attendance of employees. Employees swipe their ID cards to record in and out which is mapped to the payroll database. Every department and outlets are given time sheets are used to record employee’s start time, end time and break time. It also calculates the total hours worked on a weekly and monthly basis. The time sheets are send to the HR department on a weekly basis so as to update the excel file. At the end of each month, time sheets are reconciled with the payroll system in order to check if there’s any employee whose attendance wasn’t recorded but was present. The excel file is also updated accordingly. At the end of the month, the HR department sends the updated and final list of employees to the payroll department. The payroll personnel then send letters containing information regarding the employees and their salaries to National Bank of Kuwait (NBK). The bank then transfers their salaries to the employees bank accounts. And a payment slip is sent bank to the payroll division who then updates the system to show that salaries are paid. The employees receive a message regarding the deposit. The HR department reconciles the bank payment with the list in order to ensure that genuine employees are paid the right amount. Employees at Zain are assessed on a monthly basis especially at the sales and service centres. For selling a particular number of sims and packages, employees are entitled to receive a small percentage of the total sales he/she made during that month. Zain also maintains a minimum and maximum salary to ensure all employees are paid equally and are not overpaid or underpaid.

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3.4 Financing Cycle: Financing cycle involves selling the shares of the company to investors or creditors. It’s the interaction with investors and creditors. Zain obtain funds to run the company, repay the creditors, and distribute all the surplus funds as dividends to the investors. This cycle interacts mainly with the bondholders, lenders and stockholders. The transactions that occur in the financing cycle may involve more money than the other cycles. The main transactions in are forecasting the cash needs, selling securities to the investors, borrowing funds from the lenders, paying dividends and interest to the lenders, retirement of the debt, and preparing management reports. In addition, the financing cycle interacts with the other cycles of the company. The revenue cycle provides funds the financing cycle whereas the expenditure cycle and the Human Resource and payroll cycle gets funds from the financing cycle. In the beginning, Zain was a private company, not publicly shared. Shareholders contributed with a percentage and took this percentage and got capital and invested it in network outlets in laptops for financing loans. Take a loan and invest it in their capital expense. Presently, the company has taken 3 loans to meet its capital expenditure.

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4. Strengths and Weaknesses of Accounting Information system at Zain Strengths:      

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The accounting information system is simple and easy to use for its users. The system is password protected. Only authorised users have access to master files. The password is changed every three to four weeks. The database is integrated and centralised making it easier for the users to access them from any location. Effective Internal controls Segregation of duties: No individual performs two tasks at a time. Different tasks are assigned to each individual. Appropriate authorisation: when it comes to expense, their purchase request has to be first authorised by appropriate level of management. For amounts exceeding B.D. 10000, the general manager has to authorise the request. This ensure that only valid requests are processed. All transactions are processed only when they are evidenced by their respective source documents which is authorised.

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The process of updating oracle is time consuming and costly. When updating, all the information has to be transferred from the old system to the new system. This could also result in loss of data due to human negligence. Once the system is updated, it takes time for the users to get used to the latest system. We are not sure if the systems are tested for virus. If a virus exists and is undetected, the entire system could be damaged as there are no backup for the centralised data. There is no testing for human errors. If an immaterial error is made and undetected, the errors could be material when aggregated with numerous immaterial errors. Oracle is updated only once in 5 years. This reduces the reliability of the system with rapidly changing business environment.

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5. Recommendations     

AIS needs to be updated more frequently in an easy manner such that it will not require much time to set up and get used to it. Antivirus software needs to be installed in all systems. They should also be updated on a regular basis. Regular back up of database needs to be carried out. The backup should be secured. Staffs need to be properly trained. They can also be asked to do Oracle certification course. This helps them to be more efficient and effective. In order to make sure no fraud or attempt to fraud takes place, staffs could be rotated on a yearly basis.

6. Conclusion This project examined the efficiency and usefulness of the accounting information system used at Zain Bahrain. Three employees from Zain were interviewed for the purpose of our project. Zain uses Oracle for all of its accounting solution. It maintains a centralised and integrated oracle RDBMS. The centralisation helps all Zain outlets and head office to access the required data. Application of accounting information system lead to enhanced quality of the financial reports of the company, better decision-making by managers and smoothing the transaction processes.

References  

www.bh.zain.com Interviews and multiple email exchanges with Mohammed A. Karim (accounts department), Abdulla Saeed Alhawaj (revenue department) and Fahad Bin Abubacker (branch manager)

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