Warranty/Field Services Review Report

Insert Date

Table of Contents

 Executive Summary
Executive Summary Objectives, Scope & Procedures Performed 3 4

 Background
Background Statistics 5-6

 Action Matrix
Action Matrix Summary Action Matrix Detail 8 9

 Appendices
A: B: C: D: E: F: G: H: Internal Control Assessment Best Practice Scorecard Warranty/Field Services Process Map Proposed Warranty/Field Services Process Map Proposed Billable Services Process Map FSR Testing Process Testing Matrix Acknowledgments 18 23 29 30 31 32 33 34

Warranty/Field Services Review

Executive Summary
Internal audit conducted a review of the warranty/field services process with the objective of evaluating these functions for adequate controls and operational effectiveness. Specific areas of focus included billings, accuracy and integrity of data captured, and the repair/RMA response time. This review was completed in x/xxxx. The current warranty/field services process is not well defined and results in lost revenue. The lack of information systems in place prevents Company A from collecting the necessary data to report and bill services performed outside of standard warranty. Additionally, this lack of information does not allow management to make informed decisions that affect the process. Key observations noted during our review include: Field services performed outside the warranty contract terms are not consistently billed. In our testing, XX% of billable services were not invoiced. We were unable to quantify the dollar amount of the unbilled services as information recorded on field services reports (FSRs) was often incomplete. A detailed analysis of our testing is presented in Appendix F. A database to track field service reports (FSRs) does not exist; however, a beta version has been developed and is in testing stage. The current process of handling customer inquiries is not streamlined. Key information (i.e., extended service warranty info., tool repair history) is not captured nor readily available. Field service reports (FSRs) are not used to drive the billing process. The current repair/RMA cycle time is not consistent with Company As standard terms (XX days). According to an analysis performed, the current repair/RMA cycle time is approximately XX.X days. Standard field service contracts and pricing model are not consistently used. Tool failures and other repair item data are often not well defined, captured, and reported, resulting in inaccurate pricing of services.
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Warranty/Field Services Review

Objectives, Scope and Procedures Performed

Objectives
 Evaluate the internal control environment and
the effectiveness and efficiency of services revenue process for support, spares, and repairs. practices with Best Practices information. process improvements.

Scope

The scope of the work includes a review of the service revenue / warranty process and the associated warranty procedures at Company B, City A. The scope of the work does not include other Company A locations, i.e. Location X, City B and international locations.

 Benchmarking Company As warranty/service  Identify opportunities for internal control and

Summary of Procedures Performed

Reviewed existing policies and procedures relating to generating and accounting for services revenue. Reviewed existing policies and procedures relating to warranties. Interviewed key personnel in sales order management, revenue accounting, field services, customer service and support organization and executive management. Reviewed existing customer contracts in sales and servicing of products. Performed transaction testing of services revenue recognition for timeliness and accuracy. Reviewed repair/RMA data and analyzed cycle times. Evaluated the efficiency and effectiveness of business processes and internal controls, noting opportunities for improvement.

Warranty/Field Services Review

Background Statistics Key service revenue statistics:

Total service revenue for the period X/X/XX to XX/X/XX was X.XM with an average of X,XXX per invoice (XXX service invoices). There were XX total service customers (some customers received more than one type of service) during this one year period: # of Invoices Value Service Type 56 Billable Repair XXX XXX,XXX 46 Field Service XXX X,XXX,XXX XX,XXX 5 Installation XX The top 10 service customers account for approximately X.XM (XX%) of total service revenue. Operations performed billing audits in X and X of XXXX and discovered services that had not been billed. The spikes in service revenue in (insert month) and (insert month) in the graph below relate to services billed as a result of those audits.

Service Revenue Generated from Top 10 Customers (by value)

Company Company E Company F Company G Company H Company I Company J Company K Company L Company M Company N Total Revenue $ XXX,XXX $ XXX,XXX $ XXX,XXX $ XXX,XXX $ XXX,XXX $ XXX,XXX $ XX,XXX $ XX,XXX $XX,XXX $ XX,XXX

Service Revenue by Month

$ $ 5 $ $ 5 $ $ 5 $ $5 $J r A r J J A N D

Service Revenue by Type

(Total revenue = x,xxx,xxx)

Field Service x,xxx,xxx (xx%)

Installation xxx,xxx (x%)

Billable Repair xxx,xxx (xx%)

Note: Above statistics are Company B numbers only and cover the period from X/X/XXXX TO X/XXXX

Warranty/Field Services Review

Background Statistics
Key Service/Billable Repair Revenue/Cost Statistics:
X.X% in F XXXX. X.X% in F XXXX (X/XX XX/XX). Service/Billable Repair Revenue and Costs from X/XX XX/XX: Revenue = X.XM Costs = X.XM Service revenue as a percentage of total revenue for Company A is substantially lower than other companies in the same industry. (See Action Matrix Items 1, 4, 6, 7, & 9 for further discussion.) Based on services revenue information gathered from two companies in the same industry it was noted that the services revenue as percentage of total revenue was X% and X.X%.
Note: Above statistics are based on consolidated numbers taken from data from X/XXXX/XX.

Service Revenue vs. Consolidated Revenue

Service revenue as a percentage of total revenue is as follows:

Consolidated Revenue

Key Repair/RMA Statistics:

Per discussion with the Global Spares and Logistics Manager, the RMA process at Company A is used to provide general repair services for customer (both warranty and billable). Only XX% of all Repairs/RMAs meet the 10 day repair standard (see Action Item #5). The average turnaround time for Repairs/RMAs is xx.x days. Days in Repair(DIR) x-xx xx-xx xx-xx xx-xx >xx # of RMAs xxx xxx xxx xx xx % of Total xx% xx% xx% x% x% Avg. DIR x.x xx.x xx.x xx.x xxx.x

ii

RMA

Note: Above statistics taken from data during x/xx/xxxx x/xx/xxxx.

Warranty/Field Services Review

Total Service/Billable Revenue

Action Matrix

The following pages detail observations and recommendations for internal controls and process improvements at Company A.

Action Matrix Summary

Observation

Page

Priority

1. Field services performed outside the warranty contract terms are not consistently billed. 2. A database to track field service reports (FSRs) does not exist. 3. The current process of handling customer inquiries is not streamlined. 4. Field service reports (FSRs) are not used to drive the billing process. 5. The current repair/RMA cycle time is not consistent with Company As terms and conditions. 6. Standard field service contracts and pricing model are not consistently used. 7. Tool failures and other repair item data are often not well defined, captured, and reported. 8. A formal authorization matrix for field service contract negotiations does not exist. 9. The billing process for services is inefficient.

9 10 11 12 13 14 15 16 17

Priority Rating:

High

Medium

Low 8

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Action Matrix Detail

Observation Recommendations/ Action Steps Responsible Person Due Date

1. Field services performed outside the warranty contract terms are not consistently billed. During our testing of Field Service Reports (FSRs), it was noted that XX% (XX out of XX) of billable services performed were not invoiced to customers. A summary of our testing process is included in Appendix F. According to current Company A practice, all services performed in the field are billable unless a field service contract (beyond the standard warranty) is in place. The standard warranty provides for 2 years parts and 1 year labor and stipulates that if any repairs are needed they will be performed at an Company A repair depot (the standard warranty does not cover field services). Per discussion with the Global Spares and Logistics Manager, customers often demand field service support even though only a standard warranty is in place. Per discussion with the X Region Field Service Manager, Company A often provides these services without billing the customer. Additionally, all the costs associated with these services are not being captured and analyzed. Also, a documented pricing policy for service exists, but is not being followed by sales personnel when service warranty offers are made (i.e., discounts on service warranties). This situation results in several problems: Sales personnel may be providing services without charging for them, or pricing services incorrectly. Billable field services are not invoiced because customers perceive the standard warranty coverage includes field service support. Warranty and non-warranty costs are not tracked separately. Business Impact: Lost revenue from unbilled services. Lost revenue from service warranties that are not correctly priced.

A. Establish periodic training for types of warranty coverage for both sales personnel and field engineers. In addition, establish accountability for billing field services provided outside of the standard warranty. B. Create review process to ensure that services provided agree to the warranty coverage per the contract. C. Inform and educate customers regarding types of coverage available. D. Establish procedures to periodically report on warranty and non-warranty costs.

Person A Person B Person C

QX'XX

QX'XX

QX'XX

QX'XX

Warranty/Field Services Review

Action Matrix Detail

Observation Recommendations/ Action Steps Responsible Person Due Date

2. A database to track field service reports (FSRs) does not exist. Currently, field engineers fill out an FSR after field service has been performed. The current FSR form is a MS Word document (template). Engineers fill out the FSR and email the document to the Customer Support Analyst at Company B. The Customer Support Analyst reviews the FSR for tool failure information, prints a hard copy of the FSR to be filed, and saves the electronic version of the completed FSR form on the network. The FSR information is not captured in a database, making it difficult to ensure that services are properly billed. It was also noted during our testing that several of the data fields were not filled out completely (see Appendix G for further detail). Thus, important information is not readily available for management analysis. It should be noted however that the Customer Satisfaction Dept. is currently working on an FSR database and has developed a beta version for testing. Current implementation of the beta version FSR database (in the X Region only) is estimated to occur in Q4 F XXXX. In addition, management is evaluating implementing an enterprise wide software package--either System X or System . Either of these software packages will allow integrating the FSR database with the existing System Z system for billing purposes. Business Impact: Difficult to ensure that billable services were billed as access to the FSR population is limited (see Appendix F for more detail). Lack of visibility for work performed. Difficulty in monitoring the tool failure/reliability history. Lack of performance metrics.

A. Ensure the new FSR database is implemented. Continue evaluating an enterprise wide software package to manage services operations in the long term. B. Establish performance metrics for data that should be captured in the FSR database.

Person A Person B

QX'XX

QX'XX

QX'XX C. Initiate regular training on the FSR database (how it works, options available, etc.) for field engineers. Ensure engineers understand that the FSRs drive the billing process (i.e., if the FSR is not generated or has incorrect information, then billings related to the incorrect/incomplete FSR will be wrong). Quarterly D. Review FSR database design periodically to ensure the it meets the needs of Field Services.

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Action Matrix Detail

Observation Recommendations/ Action Steps Responsible Person Due Date

3. The current process of handling customer inquiries is not streamlined. The Product Support Engineer (PSE) receives calls from customers when they experience problems with Company As products. The PSE first attempts to resolve the problem over the phone (i.e., technical support). If the PSE determines that the problem cannot be solved over the phone, the customer is informed that either a field engineer needs to be dispatched or the tool needs to go through the RMA process. The PSE will get the serial number of the tool from the customer (the serial number gives the date the tool was made to determine standard warranties); however, this is not performed consistently. Additionally, the PSE sometimes provides an estimate of the cost of repairs for billable work based upon his judgement and experience (no formal pricing model for repairs and estimates exists--see Action Item #6). The call is then forwarded either to a Field Service Manager or to the RMA Dept. based on the service required/requested. The current process does not provide adequate support to customers. Currently, one individual is primarily responsible for answering all calls from customers related to technical support. Because tech support, RMA, and field services are not integrated and centralized, the customer sometimes has to interact with several individuals before obtaining service. Also, there is no information system (i.e., System X or System ) to capture all the relevant information related to the customer call and integrate it with services provided. Business Impact: Key information (i.e., extended service warranty info., tool repair history) is not captured nor readily available to the PSE. Estimates may be inaccurate as they are not based upon a standard pricing model.

A. Establish a centralized Call Center. In addition, evaluate implementation of System X or System to capture customer call information. See Appendix D & E for proposed process maps. B. The Call Center should be equipped with an information system that integrates information on technical/product support, field services, and RMA services. Some of the information that should be captured/available when a customer calls should include: customer name warranty coverage tool serial numbers tool repair history C. Create a documented, standardized pricing model to facilitate providing customers with more accurate estimates for field service and RMA work at the time of the call. D. Periodically review call center documentation to ensure appropriate data is captured.

Person A Person D Person B

QX'XX

QX'XX

QX'XX

QX'XX

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Action Matrix Detail

Observation Recommendations/ Action Steps Responsible Person Due Date

4. Field service reports (FSRs) are not used to drive the billing process. Field service reports are not used to drive the billing process. The customer purchase order (PO) drives the billing process in the System Z system. As such, POs are required to generate an invoice. POs are not consistently obtained from customers prior to billable field service or billable RMA work being performed. Per discussion with the Project Specialist and the Operations Controller, this has resulted in lost revenue (as billable work is not invoiced because System Z will not generate an invoice without a PO). Also, there is a breakdown in the process from when a PO is obtained to when an FSR is completed and submitted back to headquarters. This breakdown in communication occurs because POs are not consistently routed to one centralized location (received by regional marketing, invoicing, order management, etc.) POs are sometimes left open for extended periods of time, even though the work has already been performed. This breakdown results in late or lost billings. Also, because FSRs are not used to drive the billing process, FSR documentation is often incomplete and may not support the invoice or purchase order.

A. Reengineer the process so FSRs drive the billing process rather than the PO. See Appendix D & E for proposed process maps. B. Use the FSR as the source document for evidence to invoice (i.e., have the customer sign a hard copy and attach it to the invoice for the customers AP department).

Person A Person B Person C Person E

QX'XX

QX'XX

QX'XX C. Work with customers to streamline the billings process for field services (i.e., send the invoice and copy of the FSR to the individual who signed the FSR).

Business Impact: FSR not billed because a PO was never obtained prior to service performed. Invoices are not generated in a timely manner as POs are not consistently routed to a central location at Company A for data entry. Incomplete supporting documentation for invoices (missing POs and FSRs).

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Action Matrix Detail

Observation Recommendations/ Action Steps Responsible Person Due Date

5. The current repair/RMA cycle time is not consistent with Company As terms and conditions. According to Article 13.b of the Limited Warranty Contract, Company A is required to use reasonable efforts to return the repaired or replaced Product within ten business days after receipt of the Product. During our review, we noted the current average cycle time in the repair process (from the date the product is received to the date the repaired product is shipped to the customer) is XX.X days. Per discussion with the Global Spares and Logistics Manager, the slow RMA cycle time is primarily attributed to lack of resources (manpower and facilities). According to the Global Spares and Logistics Manager, repair depots often have a replacement part/tool in stock which the customer will receive if the tool goes down. However, if multiple tools go down in a short period of time, the part/tool may not be available for quick replacement. It should be noted that ownership of this process was recently transferred to the Customer Satisfaction Dept. In an effort to reduce the repair/RMA cycle time, the Customer Satisfaction Dept. is currently implementing the Service Exchange Process (SEP). This process will ensure that customers get a quick turnaround (approximately 48 hours) on broken/defective tools. However, this process is still in the early stages and has not been formally introduced into the repair/RMA process. Business Impact: Slow repair/RMA cycle may not adequately support customer needs. The company may have some exposure for not meeting its warranty terms and conditions.

A. Consider expanding the RMA/repair workforce to expedite the repair process and reduce the RMA cycle time. B. Implement the Service Exchange Process. C. Evaluate selling spares kits or providing customers with a GPC (guaranteed parts contract). This will lessen the burden on the current repair/RMA process and provide better support to customers as replacement parts will available to customers on a more timely basis.

Person F Person G Person H

QX'XX

QX'XX

QX'XX

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Action Matrix Detail

Observation Recommendations/ Action Steps Responsible Person Due Date

6. Standard field service contracts and pricing model are not consistently used. A documented pricing model for field service contracts exists, but is not is not communicated to sales personnel. In addition, costs related to field services are not consistently captured and analyzed--thus undermining the existing pricing model. This was evident from our testing where we noted that field services provided outside of contract terms were not always billed (refer to Appendix F & G). Field service contracts are customizable to the customers desires. This customization of contracts creates increased complexity which makes it difficult for Company A to track various coverages that customers are entitled to. The company also provides non-recurring engineering (NRE) services in the field. These services typically relate to a customized installation of an Company A tool. Per discussion with the Systems Engineering Manager, customers are provided with quotes that detail the NRE work and estimated cost (along with the tool price). However, when the invoice is generated the customer is typically not charged for the NRE work performed. Additionally, the NRE amounts not charged are not being tracked. Because sales personnel are not using a standard pricing model and standard field service contracts, services may be provided for free or priced incorrectly. Business Impact: Services are provided at low or no cost to the customer when the initial sale is made. Warranty and field service coverages are not properly communicated to customers.

A. Distribute and implement a standard pricing model for service/warranty contracts to sales personnel. B. Establish review process of warranties extended to ensure that warranty offers are in compliance with approved offers (for both pricing and coverage). C. Evaluate the current pricing model for accuracy and relevancy using information from the new FSR database.

Person A Person G Person B Person I

QX'XX

QX'XX

Quarterly

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Action Matrix Detail

Observation Recommendations/ Action Steps Responsible Person Due Date

7. Tool failures and other repair item data are often not well defined, captured, and reported. The Customer Support Analyst reviews all FSRs to ascertain the nature of service performed in the field. This review entails determining if the work performed was related to a tool failure. From this review a trend analysis is generated which provides the company with meaningful information relating to tool-reliability, which in turn influences pricing of the tool and any accompanying warranties. According to the Customer Support Analyst and the Director of Global Customer Satisfaction, what constitutes a tool failure is not welldefined. Field engineers completing the FSRs do not consistently report valid tool failures and other repair information such as serial numbers, hours worked, part numbers, tool failure codes, etc. Therefore, any analysis relating to information that is currently being captured is not reliable. During our testing, we noted the following information that was not captured on FSRs: xx% of FSRs lacked tool serial numbers. xx% of FSRs did not have any travel time recorded. xx% of FSRs did not have any invoice amount. It should be noted that this problem is currently being addressed via the new X FSR Database (still in beta testing). Business Impact: The current tool failure trend analysis may be unreliable as failures are not well defined. Inaccurate information from the tool failure trend analysis could lead to inaccurate pricing of service/warranties.

A. Define and document the possible kinds of problems with tools that constitute failures. B. Implement new FSR database and ensure that correct information is captured to evaluate tool failures. C. Ensure that Field Service Engineers (FSEs) receive adequate training on the FSR database and with respect to the types of tool failures they may encounter in the field.

Person A Person D

QX'XX

QX'XX

QX'XX

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Action Matrix Detail

Observation Recommendations/ Action Steps Responsible Person Due Date

8. A formal authorization matrix for field service contract negotiations does not exist. A documented authorization matrix for field service contracts negotiations does not exist. Sales personnel go to different levels of management to obtain approval for contracts. In addition, there is no formal authorization matrix for discounting non-recurring engineering services (NRE). As there is no standard process in place to authorize discounts (or a database to capture the various types of service contracts offered), the company has limited visibility as to what services, including NRE, are being given away and who is making those decisions. It should be noted that the Customer Satisfaction department is currently updating policies and procedures which specifically address contract negotiation authorization. Once these procedures are completed, they will be distributed to the sales personnel. Business Impact: Company has limited visibility as to the amount of services that are being provided at low or no cost. The authorization limits for providing discounted services are unclear.

A. Create a formal, documented authorization matrix for field service contract negotiations (similar to the sales discounts authorization table) and distribute it to the appropriate personnel. B. Establish review process of warranties extended to ensure that warranty offers are in compliance with approved offers (for both pricing and coverage).

Person A Person B Person E

QX'XX

QX'XX

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Action Matrix Detail

Observation Recommendations/ Action Steps Responsible Person Due Date

9. The billing process for services is inefficient. Services go through the same billing process as regular shipments--regional marketing creates a shipper and the paperwork is sent to the shipping floor where the shipping coordinator and traffic coordinator play the paperwork. This entails allocating line items on orders to trigger billing. This is done because all invoices are generated in that manner, and invoicing for services on the System Z system was never customized. Internal audit conducted a review of the shipping/invoicing process in X/XXXX. During that review, it was noted that the invoicing process is inefficient and time consuming. The current process of generating service billings creates an unnecessary burden on the shipping department and is inefficient. Business Impact: The shipping department is burdened with extra paperwork that is not directly related to shipping product. Inefficient process leads to slower billing cycle.

A. Review the overall billing process and evaluate if certain areas can be streamlined. See Appendix D & E for proposed process maps. B. Consider creating a separate billing/invoicing process for services so the paperwork is not routed through the shipping department.

Person A Person C Person E

QX'XX

QX'XX

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Appendix A: Internal Control Assessment

The matrix on the following pages lists process controls which should be present within the warranty/field services environment. We evaluated the adequacy of each control in Company As warranty/field services process. Controls were evaluated as follows:

Strong Controls - Controls are present to mitigate process/business risk and are operating effectively and efficiently. Moderate Controls - Controls are present to mitigate most process/business risk, but management should evaluate opportunities to enhance existing controls. Limited Controls - Existing controls may not mitigate process/business risk, and management should consider implementing a stronger control structure.

Where possible improvement can be made in the control structure, a reference has been made to the Action Matrix, where managements change implementation plan is described along with the responsible party and estimated implementation timing.

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Internal Control Assessment

Key Internal Control Objective Page Priority

1. Field Service Reports (FSRs) should be submitted for each repair call and should accurately represent the work performed. 2. The customers signature, authorizing repair work performed and the invoice amount, should be included on the FSR. 3. Serial numbers should be documented on the FSR. 4. The cause of failure should be recorded on the FSR. 5. Parts usage should be documented on the FSR for billing and inventory purposes. 6. All costs related to the services provided (i.e., travel time, mileage, and other expenses) should be captured and reported.

20 20 21 21 22

  

 


22

Strong Controls

 Moderate Controls

 Limited Controls

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Internal Control Assessment

Key Internal Control Objective Company A Practice Rating Action Matrix Reference

1. Field Service Reports (FSRs) should be submitted for each repair call and should accurately represent the work performed. Business Impact: FSR documentation does not accurately represent hours worked, thus undermining the billing process. Tool repair history is not captured, which prevents the company from generating meaningful trend analyses.

Field service engineers are required to complete an FSR when any field services are provided to customers. The FSR shows Description of Problem and Corrective Action Taken to allow work performed to be tracked. Additionally, hours worked including travel time and overtime should be recorded. Currently, most FSRs filed by field engineers are incomplete as multiple data fields are not filled out.

2, 7

2. The customers signature, authorizing repair work performed and the invoice amount, should be included on the FSR. Business Impact: Lack of supporting documentation (i.e., customer acknowledgement). Lack of customer signature (i.e., authorization) makes reconciling discrepancies between FSR and PO amounts difficult.

FSRs currently have a field designated for a customer signature (for acceptance of work performed). However, these forms are electronically generated by engineers in the field, and a hard copy with the customers signature is not obtained.

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Internal Control Assessment

Key Internal Control Objective Company A Practice Rating Action Matrix Reference

3. Serial numbers should be documented on the FSR. Business Impact: Basic warranty information (built into the serial number) is not available for billing purposes. Tool repair history is not captured, which prevents the company from generating tool failure rates and other types of trend analyses.

Serial numbers should be included on all FSRs. Based on our review of FSR samples, approximately XX% did not have serial numbers. Because the serial number information is not captured, it is difficult for the company to track work performed on specific tools. Additionally, it is difficult for the company to ascertain if the work is billable or still under warranty.

2, 7

4. The cause of failure should be recorded on the FSR. Business Impact: Information on common types of failures and other vital statistics are not available. Inability to properly ascertain and monitor the cost involved for different types of failures. Tool repair history is not captured, which prevents the company from generating meaningful trend analyses.

The cause of the tool failure should be documented on the FSR. Tool failure histories provide the company with valuable information which helps the company to: analyze root causes of failures (i.e., design issues, engineering problems, customer problems, etc.) develop more accurate pricing models (for both initial sales and service warranties).

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Internal Control Assessment

Key Internal Control Objective Company A Practice Rating Action Matrix Reference

5. Parts usage should be documented on the FSR for billing and inventory purposes. Business Impact: Parts used for repairs that are not detailed in the FSR may not be billed or relieved from inventory.

When a part is needed for field service, a Material Movement Requisition form (MMR) is utilized. Currently, a copy of this form is not attached to FSR. Additionally, parts used in the field were not consistently reported on the FSRs.

2, 4

6. All costs related to the services provided (i.e., travel time, mileage, and other expenses) should be captured and reported. Business Impact: The internal burden rate for the field engineers should include all expenses related to work performed (not just salary). An accurate internal burden rate will help the company create a more accurate pricing model.

According to the X Field Service Manager, expense information such as travel time, transportation, meals, and hotels, are only required to be captured for billable field services. However, most field services are currently treated as warranty work (even if no field service contract is in place) and therefore, expenses are not captured and charged. For example, the company recently sent an engineer to an OEM location in Country A and incurred all airfare, hotel, and per diem charges without charging the OEM (the OEM only had an RMA warranty in place).

2, 4

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Appendix B: Best Practices Scorecard

The matrix The Best Practices Summary on the following pages is based on X Best Practices. As part of this review, Company As practices were benchmarked against the Best Practices. An evaluation of Company As processes is noted in each instance. Best Practices were evaluated as follows:

Good/World Class - Best Practice currently in use. Moderate Use - Improvement possible in order to achieve Best Practice status. Limited/Some Use - Improvement recommended to improve process efficiency/effectiveness.

Where possible improvement can be made in the companys best practice structure, a reference has been made to the Action Matrix, where managements change implementation is described along with the responsible party and estimated implementation timing.

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Internal Control Assessment

Key Internal Control Objective Page Priority

1. Manage the warranty/field services process in a way that enhances the company's mission. 2. Use the warranty/field services management process to enhance customer satisfaction. 3. Employ key performance indicators to continuously improve warranty/field services handling. 4. Provide customers with a single contact empowered to resolve the claim. 5. Make available the necessary information to resolve customer calls immediately. 6. Provide formal, ongoing training to call center agents and field service engineers. 7. Automate the billing system and integrate it with information systems throughout the company. 8. Ensure that service requirements are confirmed by an authorized contract.

25 25 26 26 27 27 28 28

  
 

 


Strong Controls

 Moderate Controls

 Limited Controls

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Best Practices
Key Internal Control Objective Company A Practice Rating Action Matrix Reference

1. Manage the warranty/field services process in a way that enhances the company's mission. Successful companies communicate a warranty/field services management strategic plan to all employees. They gauge employee performance in terms of the strategic plan, which is reviewed and updated periodically. Benefits: Effective warranty/field services management results in customer satisfaction.

Company A has started to collect information relating to the warranty/field services process. Currently, the process is in a preliminary stage and specific objectives have not yet been derived.

2, 3

2. Use the warranty/field services management process to enhance customer satisfaction. A proactive warranty/field services management program anticipates customer needs by soliciting their opinions whenever possible. Management then decides what changes are required in the company's policies, procedures, and systems in order to respond to those customer needs. Successful companies recognize that warranty/field services management goes beyond reacting to customer inquiries. They devise controls aimed at zero-defect quality with the intent of preventing warranty/field service work from ever occurring. Benefits: Company can use the warranty/field services management process to build and strengthen customer relationships; satisfied customers are much less likely to seek ultimate redress by defecting to the competition.

The Installation Discrepancy Report (IDR) database captures problems associated with product installations. The FSR database (once implemented) will capture other warranty/field services information. Since both programs are fairly new, Company A is concentrating on collection of data. In the future the information will be utilized to improve customer satisfaction.

2, 3

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Best Practices
Key Internal Control Objective Company A Practice Rating Action Matrix Reference

3. Employ key performance indicators to continuously improve warranty/field services handling. Developing the appropriate measurement, tracking, and reporting systems enables a company to monitor and improve warranty/field services management and resolution. Typical performance indicators include: Source and type of service call Underlying cause of service call Timeliness of resolution Method of resolution Benefits: A company can evaluate and rate the effectiveness of various functional departments. Periodically raising performance targets spurs continuous improvement.

The IDR and FSR databases can capture the underlying cause of problems and the method of resolution. Company A has started to generate a report which sorts incidents by cause, customer, product type, etc. Timeliness of resolution is not currently being measured. The company currently lacks the data to perform various performance metrics. Once the databases have been in place for a longer period (especially the FSR database), the company can perform a greater number of meaningful performance measurements.

2, 3, 7

4. Provide customers with a single contact empowered to resolve the claim. Best practices companies centralize call center services management within a predetermined functional area of the organization. Benefits: Companies can eliminate the redundancies that stem from storing information in multiple locations, time lags associated with transferring information between departments, and multiple approvals required by each department involved in a customer call.

Company A has no centralized Call Center to handle customer warranty/field services or questions. Some calls regarding ordering parts may be initially received by the Field Service department, or other technological questions may be first received by customer services. As a result, response time and customer experience are inconsistent, which can result in customer dissatisfaction.

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Best Practices
Key Internal Control Objective Company A Practice Rating Action Matrix Reference

5. Make available the necessary information to resolve customer calls immediately. Companies usually begin with a cost-benefit analysis when faced with the choice of an automated call response management system or a manual filing system. While the benefits of an automated system are obvious-speed, accuracy, and trend analysis--some companies need to weigh the accompanying costs before they automate. Companies that maintain manual files are well advised to locate those files within close proximity to customer response agents, who typically need a variety of current and historical customer information to resolve customer inquiries. Benefits: Without real-time access to the relevant information, agents are powerless to make timely decisions when a customer inquires about a claim. 6. Provide formal, ongoing training to call center agents and field service engineers. Best practices companies usually appoint an individual or team to identify both internal and external training programs in which employees can participate; all training is geared toward providing employees with practical tools they can use on the job. Companies usually cross-train their employees in a variety of topics and areas-including billing, pricing strategies, and customer satisfaction--to improve their ability to handle customer inquiries and ensure the integrity of the billing process. Benefits: Formal training ensures that call center agents are properly equipped to handle the company's most valuable source of income: customers.

Company A does not have a database to maintain customers warranty information. Hard copies of warranty contracts are supposed to be filed, but we could only locate one contract during our testing. Since there is no existing database which contains all relevant customer information, field service engineers often rely on verbal information obtained from sales representatives, customers, or other employees at Company A.

Company A does not provide standardized training for all individuals that handle customer inquiries. This is mainly due to the fact that customer calls are handled by various of departments (no central call center). In addition, there are communication barriers between departments such as sales, marketing and field service as there is no central call center to maintain all relevant customers information. Additionally, field engineers need to understand the importance of filing completed FSRs as the FSR information provides the necessary support to bill customers for work performed.

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Best Practices
Key Internal Control Objective Company A Practice Rating Action Matrix Reference

7. Automate the billing system and integrate it with information systems throughout the company. Companies that are able to effectively automate the billing system with the existing information systems typically realize several benefits including decreased processing costs, less data entry error, increased billing accuracy, and shorter billing cycles. Additionally, the company has better visibility of the kind of information that is captured which allows management to make informed decisions regarding the process. Benefits: Decreased processing costs, less data entry error, increased billing accuracy, and shorter billing cycles.

The current billing system resides in System Z. However, the current billing process is not designed in a way that provides true systems integration. Additionally, the current billing system does not consistently capture the necessary data to ensure that all billable services are properly billed. It should be noted that the company is currently evaluating an enterprise wide software (i.e., System X or System ) which will provide true system integration

2, 3, 4

8. Ensure that service requirements are confirmed by an authorized contract. Service requirements should be confirmed in a written contract and statement of work. All contracts should go through a standard authorization process to ensure that services provided to the customer are appropriate to the contract price. Benefits: The company maintains control over contract pricing and services offered.

A documented authorization matrix for field service contracts negotiations does not exist. Sales personnel go to different levels of management to obtain approval for contracts. In addition, there is no formal authorization matrix for discounting non-recurring engineering services (NRE). Currently, the company has limited visibility as to what services, including NRE, are being given away and who is making those decisions.

6, 8

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Appendix C: Warranty/Service Process Map

Product is sold and the warranty contract is determined.

The customer contacts Product Support and field service is dispatched. Customer service calls are routed to Product Support (PS). PS attempts to resolve issues via phone. Calls are not consistently routed to PS. A centralized call center does not exist. PS advises OEM customers to follow the RMA process. However, the warranty contract dictates that all service needs are to be routed through the RMA process. Customers requiring field service are routed to the Regional Field Manager (RFM). The RFM identifies customer needs and a Field Service Engineer (FSE) is dispatched. Product warranty status is not consistently determined prior to dispatching the FSE. Per Company A personnel, a majority of service calls are treated as warranty service without proper determination or authorization. POs for billable services are not consistently obtained prior to issuing field service resulting in potential unbilled revenue.

RMA process.

Field Service performed and documented.

Billable service is identified and invoiced.

Company As standard warranty of 2 years for parts and 1 year for labor is built into every Company A product. Contract services outside of the standard warranty are available for purchase. Standard contracts and a documented pricing for contract services are not being used on a consistent basis. Although contract services are sold at discount, a formal, documented approval matrix for contract discounts does not exist.

The customer is routed to the RMA analyst to receive an RMA. The RMA is issued and the customer is advised to ship the product to Company A, City A. Company A, City A receives RMA product from all customers, domestic and international. Product is shipped to Company A and received at the Repair Depot. Repair Depot performs the necessary work and documents the labor and parts used. Refurbished or new product is returned to the customer.

The FSE performs the necessary service and documents work performed on a Field Service Report (FSR). The FSE e-mails the FSR to the Customer Support Analyst (CSA). The CSA prints the FSR and forwards an electronic copy to a designated folder on the server. FSRs are not used to drive billing. An FSR database is not maintained, preventing meaningful data analysis. Lost revenue from billable service (missing PO). Tool repair and breakdown frequency history is not being captured effectively.

Company A Control Points In Place:

Internal control point (manual) Internal control point (system based)

Company A Control Weaknesses:

Internal control weakness Process inefficiency

Regional Marketing (RM) identifies open POs on System Z. However, POs are not consistently applied to a shipper in a timely manner. RM creates a Shipping Request Form (shipper) based on the PO. PO information takes precedence over actual labor and parts used during field service. Actual costs are not consistently billed potentially resulting in forgone revenue. FSRs are not consistently attached to the PO in the billing process. RM forwards the PO and shipper to the Finished Goods Coordinator (FGC). The FGC allocates labor and parts to the appropriate cost centers and forwards the packet to the Traffic Coordinator (TC). Costs are not consistently allocated to the appropriate cost center due to lack of documentation. The TC releases the PO for invoicing and forwards the packet to Invoicing. Invoicing reviews the packet and generates an invoice. The invoice is sent to the customer.

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Appendix D: Proposed Warranty/Service Process Map

Standard warranty and service contracts are established and enforced. A predetermined, standard warranty and service offers list exists(i.e., M-F 8-5, M-S 6-6, S-S 24-7, etc.). Sales reps use the standard warranty and service offers list when negotiating warranties and service contracts with customers. Field service engineers receive periodic training regarding warranty types and service contracts available. Standard pricing models for warranties and service contracts are developed, documented, and enforced.

Customers call the Company A Call Center when services are needed. Customers contact the Company A Call Center (ACC). The ACC combines tech and product support, RMA services, and field services in one central location. Additionally, the ACC captures and maintains all warranty and service/repair information and history. The ACC assesses the customers problem and determines which service is most appropriate (i.e., tech support may be sufficient). Additionally, the ACC reviews the warranty and service contract information via the system to determine what benefits/coverage (if any) are available to the customer. If the problems cannot be solved by the ACC, then the customer is advised on one of the following actions (based on the warranty/service coverage in place): RMA return (see A). Dispatch a field engineer (see B). If the ACC determines the service is billable then a PO# is obtained before work is performed.

A. Defective products are returned to the nearest Company A repair depot. The ACC coordinates with the customer and the respective repair depots to expedite repair efforts (i.e., repair and return or replace and repair at later time), reduce cycle time, and ensure that the customer receives the appropriate service and is correctly billed (if applicable). The customer sends the defective product back to the nearest Company A repair depot (i.e., Company B City A for customers in the bay area, Company A Country B for customers in Country B, etc.). The applicable repair depot repairs the defective product and ships it back to the customer.

B. A field engineer is dispatched to the customer site.

The Company A Call Center updates the customers information in the system The ACC updates information in the system (RMA info, call history, tool repair history, etc.).

Invoices are generated for billable services.

The ACC dispatches a field engineer to the customers site. The field engineer performs the necessary work, informs the ACC when the work is completed, sends the necessary paperwork to order management, and updates the FSR database. The field engineer obtains customer acknowledgement of the FSR prior to sending the paperwork to order management.

Order management reviews the supporting documents (FSR, PO and/or quote), compares the information to what has been entered into X, and reconciles any discrepancies. Invoices generated and mailed to customer with accompanying support (copy of signed FSR).

Company A Control Points In Place:

Internal control point (manual) Internal control point (system based)

Company A Control Weaknesses:

Internal control weakness Process inefficiency

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Appendix E: Proposed Billable Services Process Map

Customer Calls Company A Call Center

Field Engineer Dispatched

Field Engineer performs work

Field Engineer completes FSR

Invoice generated

When a tool goes down or some other form of work needs to be performed, the customer contacts the Company A Call Center (ACC) or a Field Engineer (FE). If the Field Engineer is contacted directly, he/she will then contact the ACC. Once the ACC has been contacted the call is opened, and the call history within the X database is updated. Some of the key fields include: Customer name Call receive time Warranty/Service Information The ACC provides quote/estimates to the customer and gets the purchase order(PO) number from the customer and gives it to the FE (to be entered onto the FSR).

The field engineer contacts the ACC and informs the ACC that he/she is on the way to the customer site. The ACC then updates the dispatch time in the call history within X.

Once the field engineer arrives he/she assesses the situation and performs the necessary work. For repairs requiring parts there are three possible options--the customer has the part in their inventory, the field engineer has the part in his/her trunk inventory, or the FE has to order the part.

When the work is completed, the field engineer contacts the ACC to inform them that the work is done, and the ACC closes the call. The field engineer completes the FSR, gets the customers signature on the FSR, sends the hard copy FSR to order management, and enters the electronic copy into X.

Order management reviews the supporting documents (FSR, PO and/or quote), compares the information to what has been entered into X, and reconciles any discrepancies. Invoices generated and mailed to customer with accompanying support (copy of signed FSR).

Company A Control Points In Place:

Internal control point (manual) Internal control point (system based)

Company A Control Weaknesses:

Internal control weakness Process inefficiency

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Appendix F: FSR Testing Process

The following process map documents the Field Service Report (FSR) test. The FST test demonstrates possible loss of revenue from Field Service. Due to lack of a unique identifier, such as a Purchase Order number on the FSR, we were unable to verify that any of the FSRs in our sample were properly invoiced. However, we were able to verify that XX of XX FSRs (XX%) were not invoiced.
FSRs XX Unique Field Service Reports System Z Shipment History Invoicing history

Service Contract FSRs Unable to locate signed service contracts.

Non-Billable (Service Contract): XX (XX%)

Generic Part numbers

Part Numbers
Non-generic Part numbers

Billable FSRs XX Lack invoice amounts XX Lack POs X Lack customer name XX Lack labor hours

Billable FSRs: XX (XX%)

Sample Customer Invoice History XXX

Non-sample Customers Invoice History

Part Numbers

Invoice history for customers not included in the FSR sample were excluded from the test. (i.e., invoices generated prior to) XX/XXXX.

Per the Manager of Order Management, Service part numbers are never specific numbers. Service part numbers are designated by a generic name, such as Field Service.

Manual Match
Manually match FSRs with Invoices.

FSRs were checked against Invoice History for possible invoice matches based on invoice amounts and service dates.

Non-invoiced Able to exclude FSR from Possibly invoiced due to service dates, invoice amounts, and/ or absence of service history in System Z.

Non-invoiced: XX (XX%)

Possibly invoiced: XX (XX%)

Possibly Invoiced Unable to verify an FSR to invoice match due to lack of FSR accuracy and completeness. However, invoice amounts and service dates are similar.

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Appendix G: Testing Matrix

The following matrix documents the audit tests performed, relating to the Services/ warranty review, and the results of these tests. Overall, opportunities exist to improve the process. These improvements will ensure that internal controls are operating effectively and efficiently in order to mitigate risks associated with the process. NonTest Attribute
Applicable compliance
XX XX

%
XX%

Comments/ Detail
In XX of XX instances, FSRs did not reference a PO. Only X billable FSRs referenced a PO. In XX of XX instances, FSRs did not reference a SO. X billable FSRs referenced a PO. XX% of FSRs tested lacked a unique form number, making it difficult to track FSR data. For half of the FSRs, tool serial numbers were not referenced. Of the X FSRs that included service for parts two years or older, none included invoice amounts. Of the XX FSRs that included service for labor one year or older, XX included invoice amounts. Of the XX FSRs, XX FSR captured travel hours. XX of XX billable FSRs lacked invoice amounts. Of the XX customers in the sample, FSRs indicated that X had service contracts. X signed service contracts were located. Of the XX billable FSRs tested, XX were not invoiced. Invoice status of the remaining XX invoices was not conclusive (see FSR Testing Process, p.32)

FSR to PO

Verify that each FSR is referenced to a Purchase Order.

FSR to SO

Verify that each FSR is referenced to a Sales Order

XX

XX

XX%

FSR Form Number

Verify that that each FSR has a properly assigned Form number. Verify that tool serial numbers are referenced on each FSR. Ensure that non-warranty parts (two years or older, without an extended contract) are properly invoiced. Ensure that non-warranty labor (for tools one year or older, without an extended contract) is properly invoiced. Ensure that travel hours are recorded on the FSR. Verify that billable invoice amount is included on the FSR. Verify that service contracts are signed and terms are adhered to .

XX

XX

XX%

Serial Number

XX

XX

XX%

Non-warranty Parts

XXX%

Non-warranty Labor

XX

XX

XX%

Travel Hours

XX

XX

XX%

Invoice Amount

XX

XX

XX%

Service Contracts

XXX%

FSR Revenue

Ensure that billable field service is properly recorded and invoiced.

XX

XX%

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Appendix H: Acknowledgements

We would like to thank all Company A employees who assisted us in our work during this project. We received input and assistance from the following persons:

Person J Person F Person E Person K Person A Person C Person L Person M Person N Person O Person P

Position 1 Position 2 Position 3 Position 4 Position 5 Position 6 Position 7 Position 8 Position 9 Position 10 Position 11

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