Warranty - Field Services Review Report

1
Warranty/Field Services Review Report
Insert Date
2
Table of Contents

• Executive Summary
• Executive Summary 3
• Objectives, Scope Procedures Performed 4
• Background
• Background Statistics 5 - 6
• Action Matrix
• Action Matrix Summary 8
• Action Matrix Detail 9
• Appendices
• A Internal Control Assessment 18
• B Best Practice Scorecard 23
• C Warranty/Field Services Process Map 29
• D Proposed Warranty/Field Services Process
  Map 30
• E Proposed Billable Services Process Map 31
• F FSR Testing Process 32
• G Testing Matrix 33
• H Acknowledgments 34

3
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.

4
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.
• Benchmarking Company As warranty/service
  practices with Best Practices information.
• Identify opportunities for internal control and
  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.

• 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.

5
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 Service Type of
  Invoices Value
• 56 Billable Repair XXX XXX,XXX
• 46 Field Service XXX X,XXX,XXX
• 5 Installation XX XX,XXX
• 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)
Service Revenue by Month
Note Above statistics are Company B numbers only
and cover the period from X/X/XXXX TO X/XXXX
6
Background Statistics

• Key Service/Billable Repair Revenue/Cost
  Statistics
• Service revenue as a percentage of total revenue
  is as follows
• X.X in FY XXXX.
• X.X in FY 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/XX- XX/XX.

• 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) of RMAs of Total Avg.
  DIR
• x-xx xxx xx x.x
• xx-xx xxx xx xx.x
• xx-xx xxx xx xx.x
• xx-xx xx x xx.x
• gtxx xx x xxx.x
• Note Above statistics taken from data during
  x/xx/xxxx x/xx/xxxx.

7
Action Matrix
The following pages detail observations and
recommendations for internal controls and process
improvements at Company A.
8
Action Matrix Summary
Observation
Priority
Page
1. Field services performed outside the warranty
contract terms are not consistently billed.
9
2. A database to track field service reports
(FSRs) does not exist.
10
3. The current process of handling customer
inquiries is not streamlined.
11
4. Field service reports (FSRs) are not used to
drive the billing process.
12
5. The current repair/RMA cycle time is not
consistent with Company As terms and conditions.
13
6. Standard field service contracts and pricing
model are not consistently used.
14
7. Tool failures and other repair item data are
often not well defined, captured, and reported.
15
8. A formal authorization matrix for field
service contract negotiations does not exist.
16
9. The billing process for services is
inefficient.
17
Priority Rating
High
Medium
Low
9
Action Matrix Detail

• 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. Establi
sh procedures to periodically report on warranty
and non-warranty costs.
Person A Person B Person C
QX'XX QX'XX QX'XX QX'XX
10
Action Matrix Detail

• 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 FYXXXX. In addition,
  management is evaluating implementing an
  enterprise wide software package--either System X
  or System Y. 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. 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). D. Review FSR database design
periodically to ensure the it meets the needs of
Field Services.
Person A Person B
QX'XX QX'XX QX'XX Quarterly
11
Action Matrix Detail

• 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 Y) 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 Y 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
12
Action Matrix Detail

• 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.
• 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).

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). 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).
Person A Person B Person C Person E
QX'XX QX'XX QX'XX
13
Action Matrix Detail

• 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
14
Action Matrix Detail

• 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
15
Action Matrix Detail

• 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 well-defined.
  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.
QX'XX QX'XX QX'XX
Person A Person D
16
Action Matrix Detail

• 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
17
Action Matrix Detail

• 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
18
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.

19
Internal Control Assessment
Key Internal Control Objective
Priority
Page
1. Field Service Reports (FSRs) should be
submitted for each repair call and should
accurately represent the work performed.
20
2. The customers signature, authorizing repair
work performed and the invoice amount, should be
included on the FSR.
20
3. Serial numbers should be documented on the FSR.
21
4. The cause of failure should be recorded on the
FSR.
21
5. Parts usage should be documented on the FSR
for billing and inventory purposes.
22
6. All costs related to the services provided
(i.e., travel time, mileage, and other expenses)
should be captured and reported.
22
20
Internal Control Assessment
Key Internal Control Objective
Company A Practice
Action Matrix Reference
Rating

• 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.
4
21
Internal Control Assessment

• 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).

7
22
Internal Control Assessment

• 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
23
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/effectiv
eness.
?
6
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.
24
Internal Control Assessment
Key Internal Control Objective
Priority
Page
1. Manage the warranty/field services process in
a way that enhances the company's mission.
25
2. Use the warranty/field services management
process to enhance customer satisfaction.
25
3. Employ key performance indicators to
continuously improve warranty/field services
handling.
26
4. Provide customers with a single contact
empowered to resolve the claim.
26
5. Make available the necessary information to
resolve customer calls immediately.
27
6. Provide formal, ongoing training to call
center agents and field service engineers.
27
7. Automate the billing system and integrate it
with information systems throughout the company.
28
8. Ensure that service requirements are confirmed
by an authorized contract.
28
25
Best Practices

• 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
26
Best Practices

• 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.
3
27
Best Practices

• 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.

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.
3

• 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 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.
3
28
Best Practices

• 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 Y) 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
29
Appendix C Warranty/Service Process Map
The customer contacts Product Support and field
service is dispatched.
Field Service performed and documented.
RMA process.
Billable service is identified and invoiced.
Product is sold and the warranty contract is
determined.

• 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.

• 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.

• 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.

• 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.

• 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.

• Company A Control Points In Place
• Internal control point (manual)
• Internal control point (system based)
• Company A Control Weaknesses
• Internal control weakness
• Process inefficiency

30
Appendix D Proposed Warranty/Service Process Map
The Company A Call Center updates the customers
information in the system
Standard warranty and service contracts are
established and enforced.
A. Defective products are returned to the
nearest Company A repair depot.
Customers call the Company A Call Center when
services are needed.
B. A field engineer is dispatched to the
customer site.
Invoices are generated for billable services.

• The ACC updates information in the system (RMA
  info, call history, tool repair history, etc.).

• 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.

• 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.

• 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.

• 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

31
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

32
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.

• Service Contract FSRs
• Unable to locate signed service contracts.

• Part Numbers
• 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.

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

• 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.

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

• 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.

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

33
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.
34
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 Position 1 Person F
Position 2 Person E Position 3 Person K Position
4 Person A Position 5 Person C Position 6 Person
L Position 7 Person M Position 8 Person
N Position 9 Person O Position 10 Person
P Position 11