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General Accounting Business Case Discussion

General Accounting Business Case Discussion. June 16, 2000. Agenda . Introduction/Background Winky Whelan Enhanced Business Unit Restatement Stuart Branham Process/Ledger Synchronization Transform the Intercompany Process Teresa Pattison, Winky Whelan

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General Accounting Business Case Discussion

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  1. General AccountingBusiness Case Discussion June 16, 2000

  2. Agenda • Introduction/Background Winky Whelan • Enhanced Business Unit Restatement Stuart BranhamProcess/Ledger Synchronization • Transform the Intercompany Process Teresa Pattison, Winky Whelan • Optimize the Closing Process Mike Robertson, Dana Males • Other Key Opportunities: • Recover International Joint Venture Revenue Winky Whelan • Legal Entity Reductions Dana Males • Enhance Reconciliation Monitoring Tool Winky Whelan • Increase Functionality of Existing General Accounting Web Site Winky Whelan • Next Steps Winky Whelan

  3. Table of Contents • Objective • Background • Opportunities Impact • Business Cases • Next Steps

  4. Today’s Objective • Gain approval for implementation of selected opportunities • Gain agreement on the way forward for remaining opportunities

  5. General AccountingBackground

  6. General Accounting - Progress to Date • Reviewed and analyzed more than 32 “processes” • Held interview and/or review sessions with representatives from Tulsa, Houston, Chicago, Europe and Canada • Held best practice discussions internally and externally with other companies • PricewaterhouseCoopers • Energy Practice (Assurance and Business Advisory Services) • Technology SAP -FI/CO modules (Management Consulting Services) • Performance Improvements/Finance and Cost Management (Management Consulting Services) • Industries represented: Energy, Consumers Products, Telecommunications • Accounting personnel/Financial Analyst - Fortune 50 Oil and Gas Companies • Worked with Centre, BP Amoco and PwC Subject Matter Experts to identify improvement opportunities • PricewaterhouseCoopers -- Representatives from CLIME Reporting/Intercompany Tool • Met with Process Owners and Account Managers to review findings and discuss opportunities • Coordinated work with other projects including e-procurement, data warehouse and General Accounting’s first quarter close initiative • Identified more than 100 potential improvement opportunities • Developed detailed business cases for 16 opportunities • Reviewed business case details with Process Owners and NALT

  7. Our To Do List • Review business case with Governance Board • Obtain approval to implement quick hits • Obtain approval to review business cases with business units or other designated personnel • Present business case to stakeholders; obtain buy-in and support; make appropriate revisions • Document approved opportunities • Work with staffing coordinators to confirm staff availability • Identify team leads and project managers • Develop detailed implementation plans and committed resources • Transition to Implementation Phase

  8. Assumptions • Business Units will accept and implement opportunities • Savings are only Centre savings even though some recommendations are worldwide • Fully burdened Centre FTE costs used to calculate savings • Implementation costs are based on contract project rates • Net savings include annualized savings less any incremental costs • All dollars are $000 • Project team reviewed efficiency and effectiveness within the closing process, intercompany, other I/T and accounting processes • While some opportunities must be implemented globally to achieve full benefits, the process review targeted those activities performed by the Centre

  9. Current State of General Accounting • Total number of FTEs = 139- 102 Exempt- 26 Non-exempt- 11 Open positions • Current Monthly Budget/Plan = $900,000 • Annualized turnover is approximately 20% • Average overtime hours = 3,500 hrs. for 4Q 1999 close 3,000 hrs. for 1Q 2000 close • Overtime analysis: 25% of the staff performs 85% of the overtime • Organized by stream:Upstream (lower 48 & GoM), Chemicals (global), and Corporate • Major Responsibilities:- Financial Processing - Financial Reporting- Cash Management - Controlling - Tax Reporting • Major Activities: - Financial and Consolidation Reporting - Journal Entries- Account Reconciliation - System Maintenance & Support • Work Drivers: - Number of legal entities - Size of chart of accounts- Number of business units - Number of cost centers

  10. General AccountingOpportunitiesImpact

  11. Totals Potential Impact CENTRE $2,284 TBD * = Modifications to current intercompany system are to be determined based on future discussions with the HUB Administrators ** = Cost avoidance and reduction of overtime PRIORITY LEGEND: 1 = must be completed by year-end 2 = would like to have completed by year-end

  12. General AccountingBusiness Cases

  13. General AccountingEnhanced Business Unit Restatement Process/Ledger Synchronization

  14. Enhanced Business Unit Restatement Process/Ledger Synchronization • Description • Create a streamlined restatement process to efficiently and cost effectively implement changes to Business Area (BA) and Cost Center hierarchies resulting from organizational realignments • Current Situation • Restatements occur when there is an organizational change that results in cost center assignments being changed from one BA to another. These changes can be divided into three groups: • Small Restatements - These occur approximately once a month and take on average 10 hours to complete. Examples of these changes would be Plant to Plant or a change in BU (e.g., transfer of a development field to production field) of a small nature • Medium Restatements - These take place on an estimated bi-monthly basis and result in approximately 140 hours of work. These consist of minor organizational changes. The restatement for the Gulf of Mexico BU is an example of a restatement in this category. The Gulf of Mexico restatement was one of the larger restatements in this category • Large Restatements - These are the result of major organizational changes (such as the BP and Amoco merger) which create thousands of hours of work. These are estimated to occur every 18 months. The next large restatement may occur with the ARCO change • Multiple reporting ledgers currently exist as a result of the initial SAP implementations • Data warehouse initiatives will not solve the restatement process • Opportunity • Provide centralized coordination of the restatement process while streamlining the tasks within the process to achieve time reductions of 25% in Financial Processing (FI)/Controlling (CO), 80% in Project Systems (PS), and 80% in Asset Management (AM). This can be achieved by making configuration changes within SAP that will improve the way that BA is derived within the different modules, thus streamlining the necessary tasks required to restate.

  15. Enhanced Business Unit Restatement Process/Ledger Synchronization (cont’d) • Opportunity (cont’d) • Eliminate the J1 ledger to reduce the amount of line item records (duplicate records) on the database • Savings and Costs Yr. 0 Yr. 1 Yr. 2 Yr. 3 • Savings • Baseline $ 35 $ 100 $ 37 $ 100 • BPA $ 0 $ 0 $ 0 $ 0 • Cost $(107)$ 0$ 0$ 0 • Total Savings/(Spending) $ (72) $ 100 $ 37 $ 100 • Intangibles • Promotes consistent use of the J2 ledger for Business Unit (BU) reporting • Reduction in overtime hours worked on restatements during periods of significant organizational changes such as the Amoco and ARCO mergers • Opportunity to increase Centre knowledge of the BU reporting process • Reduction of the database would allow increased storage capacity and future growth • Implementation Strategy • Obtain buy-in/support from the Business Units and PwC Process Teams • Review “Microsoft approach” using Excel pivot tables as a potential alternative to BU restatements • Implement SAP configuration changes • Communicate and train BPA and PwC employees on new reporting procedures

  16. Enhanced Business Unit Restatement Process/Ledger Synchronization (cont’d) • Assumptions • BLR will continue to be used for Upstream BU reporting • The next SAP upgrade will not radically impact the changes proposed in this document • All J1 reporting will be delivered through the FI and J2 ledgers

  17. General Accounting Transform the Intercompany Process

  18. Work Drivers of the Intercompany Accounting Process • Number of legal entities ü • Number of transactions • Threshold level ü • Central Pay/Central Depository ü • Passthrough transactions ü • Disputed (bill back) items ü • Different financial systems used by BP Amoco globally • Intercompany Reconciliations ü ü= Recommendations will address these drivers

  19. Intercompany Best Practice Attributes • Fortune 300 Hi-Tech Consumer Products Company • Threshold is $1 million (except inventory); currently considering $10 million • Global 10 Oil and Gas Company • Threshold is $1 million (with a high volume of exceptions: third-party items and tax-related items) • Fortune 20 Hi-Tech Consumer Products Company • Thresholds is $5 thousand (except products) • Telecommunications Company • Utilize web-enabled system to facilitate invoicing and posting of summary level transactions between business units • General Best Practices • Materiality levels are introduced across the group in order to reduce the number of transactions • Clear policies exist for intercompany billing • Intercompany transfers are reduced and eliminated, if possible • Intercompany balances are reconciled on a global basis via an automated process • Netting systems facilitate the settling of intercompany transactions • Heritage Amoco has $1,000 threshold policy ($250 if joint venture partner involved), but it is not consistently applied

  20. Current Intercompany Situation • Intercompany Accounting Process is not Optimal • As acquisitions occur globally, the intercompany accounting situation will become more complex, time consuming and overwhelming • Large volume of intercompany transactions flow through the Centre • The Central Pay/Central Depository function creates 4.75 million SAP records per year (94% of all intercompany records, including downstream) • Central Pay: Amoco Company pays all third-party invoices from one bank account thereby causing intercompany transactions. This process is fully automated • Central Depository: Amoco Company receives all cash into one bank account thereby causing intercompany transactions. This process is fully automated • Passthrough invoicing (approximately 4,500 transactions per year) occurs because service agreements are written as if a U.S. company is providing services to foreign locations as opposed to the actual provider location. This is done to accommodate local deductibility requirements • Reconciliation work is necessary due to: • Intercompany transactions are recorded in numerous financial systems, either manually or via feeder systems/interfaces • Invoice preparation is not consistent • Invoices and documentation are not received or are delayed due to mailing time lags • Data entry errors occur causing different amounts to be recorded for the same transaction on the trading partners’ financial systems • Personnel have different definitions of fully reconciled • The format and process used for intercompany reconciliations are not consistent • Time-consuming confirmation process is necessary (over 400 hours during one week each quarter) • No central repository of intercompany contact names is available • Backlogs of reconciliations exist

  21. Current Intercompany Situation (cont’d) • BP Amoco is encouraging use of the HUB • The HUB was developed by BP Amoco as an internal trading tool. The HUB is available but is currently not utilized within the Centre except by Gulf of Mexico. Approximately 300 companies are currently utilizing the HUB • Plans are being developed by BP Amoco to roll out the HUB to Heritage Amoco companies • Current features of the HUB include: • Web-based technology • Provides a common system for BP Amoco globally • Has “rules of engagement” (e.g., pre-approval of charges required) • Transactions “received” by a trading partner can be downloaded for entry into the financial system • Settlement every 30 days through BP Finance • Dispute mechanism • Feedback received regarding the HUB: • Reputation is not good • Inconsistent use of system capabilities • Companies are not adhering to the “rules” • Current capacity of HUB is not sufficient for the number of Centre intercompany transactions • Interfaces between HUB and financial systems are not easy to implement • Large numbers of transactions are being disputed (which means that rule of “upfront approval” is not being followed) • Does not provide documentation requirements (e.g., backup still needs to be sent manually)

  22. Transform the Intercompany Process • Description • Enhance existing internal trading tool (HUB) to provide additional functionality for the global BP Amoco community • Rename modified HUB to IC.e (IC.e means Intercompany Exchange) • Opportunity • Keys to improving the intercompany accounting process: • Establish and enforce standard policies throughout BP Amoco • Create accountability via key performance measures • Mandate the use of a common clearing system • Develop a global solution by enhancing HUB and rename the system -- IC.e • lC.e functionality should include the ability to: • Scan and store receipts/backup documentation for access by other internal trading partner • Validation of general ledger accounts and cost centers • Provide e-mail capability/notification • Share relevant information about transactions (via a comment field) • Generate intercompany invoices for statutory audit purposes • Check for duplicate invoice numbers and valid threshold amounts • Increase storage capacity to adequately support acquisitions (e.g., ARCO) • Create a list of intercompany contacts that is accessible and continually updated for all BP Amoco companies • Create a monitoring and enforcement tool

  23. Transform the Intercompany Process (cont’d) • Opportunity (cont’d) • Reduce intercompany transactions to ease transition to IC.e: • Eliminate the Central Pay/Central Depository function by adding stream-level bank accounts • Approximately 89% of the Central Pay/Central Depository records can be eliminated • Reduce passthroughs and billbacks by modifying agreements to allow direct intercompany invoicing • Reduces 3,100 transactions per year or 70% of the passthrough transaction volumes (per BP Amoco Tax Department) • Implement a higher threshold • Recommendation is to implement a $10,000 global threshold • Loss of cost recovery will be experienced due to the increased threshold • Exceptions to the billing threshold would be necessary for countries such as Egypt because of the cost recovery that would be lost • The below table illustrates the number of transactions that can be eliminated with the corresponding potential loss for various threshold levels excluding certain foreign locations such as Egypt

  24. IC.eSystem Evolve HUB into the IC.e System • Performance metrics • Ensure “rules” are adhered to by all parties Monitoring Tool Phase I Receiver Sender Co. B Co. A • Send invoice summary via e-mail to Co. B • Threshold report to Co A • Check for duplicate invoice numbers • Invoice generator • Contact list for e-mail • Comments field (with date stamp) • Sender balance “rules” • 30-day settlement • Co B must record all transactions sent by Co A • Code each line for input into financial system • Retrieve invoice copies and scanned back-up for coding purposes and audits • Dispute, as appropriate • Input transactions into financial system • Extract all intercompany data for Co B and send to IC.e • Scan receipts/back-up info Phase II Italics = new functionality • Validate ALL fields (e.g., accounts, cost centers)

  25. Transform the Intercompany Process (cont’d) • Savings and Costs Yr. 0 Yr. 1 Yr. 2 Yr. 3 • Savings • Baseline $ 0 $ 758 $ 1,011 $ 1,011 • BPA $ (80) $ (289) $ (359) $ (359) • Global $ 0 $ TBD $ TBD $ TBD • Cost $ TBD $ TBD $ 0 $ 0 • Total Savings/(Spending) $ TBD $ TBD $ 652 $ 652 • Intangibles • Fewer transactions will be recorded, which will reduce data storage requirements • Quicker follow-up on outstanding items will be achieved • Companies will have a clear understanding of intercompany rules • Contact list will have global benefits • Next Step • Governance Board assistance needed to obtain approval for a global assessment • Implementation Strategy • Standardize and enforce policies: • Create a task force including BP Amoco and Centre participation to create harmonized policies • Determine how to monitor adherence using key performance measures

  26. Transform the Intercompany Process (cont’d) • Implementation Strategy (cont’d) • HUB Modifications: • Obtain buy-in/support from BP Amoco London • Perform detailed assessment to determine if modifications can be made to HUB (if not, create new system) • Enhance HUB to provide additional functionality: • Phase I: E-mail notification, scanning of documentation, interfaces built • Phase II: Validation of general ledger accounts and cost centers within IC.e System • Conduct pilot • Roll out to all companies after Phase I modifications and pilot are completed • Provide appropriate training • Standard threshold: • Create a task force including BP Amoco and Centre participation to create a harmonized threshold • Eliminate Central Pay/Central Depository to reduce volume of transactions: • Obtain buy-in from BP Amoco Treasury Department • Establish new bank accounts • Change SAP configuration for elimination of Central Pay/Central Depository function • Passthroughs can be reduced: • Work with the BP Amoco Tax Department to determine which passthroughs can be eliminated

  27. Transform the Intercompany Process (cont’d) • Assumptions • Standardize and enforce policies: • BP Amoco London (Group Accounts - GRA) needs to mandate that all policies are followed • BP Amoco takes part in the enforcement by encouraging locations to improve their key performance measures • HUB Modifications: • All BP Amoco companies must utilize the common system for worldwide benefits to be realized • All transactions can be integrated into the IC.e System • Current HUB management will be involved in solution • U.S. settlement process can be accommodated • Standard threshold: • One standard policy is possible in terms of legal and tax requirements • Systems can be changed to help enforce policy • Impacts to individual business units can be forecasted in GFO • Eliminate Central Pay/Central Depository to reduce volume of transactions: • SAP can be re-configured to accommodate changes • Passthroughs can be reduced: • Tax Department resources are available • Foreign locations will not lose tax benefits as a result of eliminating passthroughs • Joint Venture operating agreements will be rewritten, as needed

  28. General AccountingOptimize the Closing Process

  29. Closing Best Practice Review • Best Practice Studies • Fortune 200 Consumer Products Company • Hi-Tech Consumer Products Company - “Moving to a Soft Close” • Fortune 50 Oil and Gas Company- Finance and Accounting Beyond 2000 • General Best Practices • Analyzed 76 different best practice attributes for possible inclusion. Examples include: • Perform a full close quarterly and monitor key performance indicators during interim months • Move activities from the critical path • Implement variance analysis on a weekly basis and introduce mid-month trial balances • Perform account analysis throughout the month • Allow no re-runs of the general ledger during the close • Determine the critical path of all closing tasks and reassign month-end tasks so that the entire accounting staff is dedicated to closing • Use quarterly or annual true-ups to adjust as necessary • Provide cross-training for employees of the key accounting functions • “Do what you can when you can versus when you must” • Develop proactive accounting departments • Assemble as much accurate financial data as possible during the last week of the current month

  30. Work Drivers of the Closing Process • Merger/Reorganization - Background • Restated financials to BU structure • Implemented new accounting methodologies (UK GAAP) • Implemented new reporting methodologies (Cash Flow) • Implemented new reporting systems (Hyperion) • Accelerated delivery of financial results Which has created increased workload, overtime and stress on organization resulting in: • Increased turnover - loss of experience • Difficulty attracting high caliber staff • Remaining staff - tired • Work Drivers • Demands of full financials for 4 times the heritage Amoco customer base (BU structure) • Business Units pressed to deliver on forecasts • Business Units have relatively little time to analyze full results • Tolerances are lower for adjusting financial results • Business Units and Centre still working towards gaining greater confidence in outputs • Creates increased analysis work and increased late entries resulting in: • increased workload, overtime and stress on organization • Demands for accelerated Group Reporting to London

  31. Current Closing Process • Upstream Calendar Day 18 • WD 1 WD2 WD3 WD4 WD5 WD6 WD7 WD8 (Approx. WD13) • Close BooksRe-Open Re-Open Hyperion Feed • to London • All accounts closed morning of workday 6 • BUs review and submit adjustments workday 6 through 8 • Hyperion feed takes place workday 9 through Calendar day 18 • Chemicals/Corporate Calendar Day 18 • WD1 WD2 WD3 WD4 WD5 WD6 WD7 WD8 (Approx. WD13) • Close Allocate Re-Open Re-Open Hyperion Feed • Books to London • All accounts closed morning of workday 4 • P&L generated beginning of workday 5 • Balance Sheet generated beginning of workday 6 • BUs review and submit adjustments workdays 6 through 8 • Hyperion feed takes place workday 9 through Calendar day 18 • Note: Activities to deliver Group Accounting Results to London were not in scope • Schedule current as of May 2000 close

  32. Proposed Closing Process • Upstream Calendar Day 14 • WD 1 WD2 WD3 WD4 WD5 WD6 WD7 (Approx. WD10) • Close Book Threshold Hyperion Feed • (P&L,BS,CF) Adjustments to London • All accounts closed end of day workday 4 • BU review and submit adjustments, Centre completes adjustments by workday 6 • Hyperion feed to London by end of Calendar day 14 • Chemicals/Corporate Calendar Day 14 • WD1 WD2 WD3 WD4 WD5 WD6 WD7 (Approx. WD10) • Close Book Allocate P&L Threshold BS Threshold Hyperion Feed P&L Adjustments Adjustment to London • Allocate BS • All accounts closed end of workday 4 • Allocate P&L workday 4 • Business Units review and submit adjustments for P&L, Centre completes adjustments by end of workday 6 • Allocate Balance Sheet workday 5 • BU review and submit adjustments for BS, Centre completes adjustments by end of workday 6 • Hyperion feed to London by end of Calendar day 14 • Assumptions - E&Y can fulfill tax reporting obligations in this period (all streams)

  33. Optimize the Closing Process • Description • To improve the efficiency and effectiveness of Financial Reporting in order to support the business and operational decision making • Provide an environment within the General Accounting Department that fosters growth, challenge, creativity and improved worklife balance • Opportunities Efficiency/Effectiveness • Provide data to Business Units earlier in the process • Run critical jobs more frequently throughout the monthly period to generate more timely information for Business Unit review (e.g., sub-ledger loads, JV Cutback, allocations) • Remove various closing activities from the closing cycle critical path • Manual Labor Distribution adjustments • Depreciation, depletion & amortization activities and calculations • Rework closing cycle jobs and review the priorities to accelerate run time • Utilize an earlier gas netback price for establishing the monthly product accruals for PREMAS • Enforce the timeline for Chemicals non-US trial balances • Adjustments after the end of the 6th workday will be according to threshold limits and schedules only • Ensure a quality review and understanding of the results • Review and document closing responsibilities of Business Units, other process owners and General Accounting; provide additional education on analysis techniques • Conduct early and timely reviews of financial data by Business Units

  34. Optimize the Closing Process (cont’d) • Opportunities (cont’d) • Ensure same reports from different applications yield same results • Reduce reports to agreed upon Centre deliverables (P&L, Balance Sheet, Cash Flow); ensure all reports are fully reconciled • Post all adjusting entries to SAP source ledger in current month • Establish closing cycle key performance measures and tracking tools People • Ensure skill sets are in place to meet demands • Conduct a skill set assessment leveraging the current Capabilities Framework to help identify and close any skill gaps • Ensure daily deliverables are defined and understood • Attract and retain high caliber staff by developing career paths into and out of the department • Distribute workload across Department(s) to alleviate significant overtime for specific teams • Create backup for critical closing jobs • Savings and Costs Yr 0 Yr 1 Yr 2 Yr 3 • Savings • Baseline $ 0 $ 0 $ 0 $ 0 • BPA $ 0 $ 0 $ 0 $ 0 • Reduced Overtime $ 50 $ 400 $ 400 $ 400 • Cost Avoidance $ 20 $ 170 $ 170 $ 170 • Cost $ (650) $ 0 $ 0 $ 0 • Total Savings/(Spending) $ (580) $ 570 $ 570 $ 570

  35. Optimize the Closing Process (cont’d) • Intangible Benefits Efficiency/Effectiveness • Provide numbers to Business Units on a more real-time basis • Reduce overtime within the Business Units • Reduce overall closing cycle time (approx. 36 hours, Upstream) • Increase time to analyze external financial reports • Enhances position to improve the corporate reporting requirements • Improve Business Unit confidence in the numbers • Increase Business Unit satisfaction of General Accounting delivery • Develop a stronger Centre/Business Unit relationship People • Improve morale • Increase knowledge of overall General Accounting functions • Improve efficiency of the closing process • Implementation Strategy • Identify project team for four month implementation including both BPO, APO and BPA resources • Design a Change Management Program to help ensure buy-in • Assumptions • Estimated gas prices are available when needed and the Business Units agree to the price • Appropriate materiality levels for late entries will be established by Business Units • Business Units will accept the small risk of booking late entries and/or errors in subsequent months • Chemicals non-US trial balances are received on time and with few errors • Business Units and process owners participate and agree to roles/responsibilities • Data Warehouse projects deliver fully reconciled reports

  36. General Accounting Other Key Opportunities

  37. Recover International Joint Venture Revenue • Description • Establish a new position within General Accounting to follow-up, monitor, and resolve open intercompany transactions for foreign cost recovery locations (Joint Venture) • Current Situation • Open/unresolved items result in foreign locations not billing transactions to partners • Lost cash flow/cost recovery • Reconciliation assistance is not performed because some locations do not send in reconciliations • Opportunity • Full-time dedicated resource to assist location in obtaining documentation for further partner billing • More accurate financial statements • Timely cash collections • Based on Centre experience in 1998, International Intercompany 1994-1998 backlog was cleared which resulted in $31 million of cost recovery from joint venture partners • Savings and Costs Yr. 0 Yr. 1 Yr. 2 Yr. 3 • Savings • Baseline $ ( 22) $ ( 91) $ (91) $ (91) • BPA $ 2,000 $ TBD $ TBD $ TBD • Cost $ 0 $ 0 $ 0 $ 0 • Total Savings/(Spending) $ 1,978 $( 91) $( 91) $ ( 91)

  38. Recover International Joint Venture Revenue (cont’d) • Implementation Strategy • Identify approach • Prioritize opportunities • Assumptions • All foreign reconciliations will be obtained • Cost recovery may be higher than shown due to information that was not available

  39. Legal Entity Reductions • Description • Reduce the number of legal entities within BP Amoco • Current Situation • There are approximately 1,000 legal entities within BP Amoco (Tulsa has 70; Houston has 100) • The BP Amoco Tax Department is currently determining the criteria for reducing legal entities • The Tax Department’s objective is to reduce the Centre’s number of legal entities by approximately 50% • There are potentially 4 groups of activities associated with each legal entity: - Reporting - Treasury - Tax - Monthly Transactions • Opportunity • A shell/non-active legal entity will eliminate the tax and reporting activities • A medium-size legal entity will reduce all 4 activities • Savings and Costs Yr 0 Yr 1 Yr 2 Yr 3 • Savings • Baseline $ 0 $ 91-182 $ 91-182 $ 91-182 • BPA $ 0 $ 120 $ 120 $ 120 • Cost $ ( 25) $ 0 $ 0 $ 0 • Total Savings/(Spending) $ ( 25) $ 211-302 $ 211-302 $ 211-302

  40. Legal Entity Reductions (cont’d) • Implementation Strategy • The Tax Department will identify the legal entities to be eliminated • Measurements will be established to track the costs associated with the reductions • Communications will be sent out to notify all parties of the changes • Assumptions • Savings will change when the actual legal entities are identified • 100% of the reductions will be shell/non-active type legal entities • There will be no reductions in the large/umbrella type legal entities (i.e., Company 600 Heritage Amoco Production Company) • Some reductions will cause an initial increase in transactions • Does not include Arco legal entities • E & Y savings rates are the same as PwC • Tax Department can reduce 50% of the Centre’s legal entities

  41. Enhance Reconciliation Monitoring Tool • Description • Enhance the existing balance sheet accounts’ reconciliation system to become a more effective and efficient monitoring tool • Current Situation • Current tool is PC Recon • Centre personnel spend approximately 4,000 hours a year summarizing and downloading information from PC Recon to create reports necessary for monitoring reconciliation status • Reporting is not adequate to support the monitoring of accounts • PC Recon balances and accounts do not agree to the general ledger • Opportunity • Reduce unreconciled accounts by listing the unassigned accounts • Ensure all SAP balance sheet accounts are monitored in PC Recon • Include volume data in addition to dollars • Generate reports by individual business units/clients • Increase the management reporting capabilities by providing drop down menu options, etc. • Savings and Costs Yr. 0 Yr. 1 Yr. 2 Yr. 3 • Savings • Baseline $ 43 $ 182 $ 182 $ 182 • BPA $ 0 $ 0 $ 0 $ 0 • Cost $(84) $ 0 $ 0 $ 0 • Total Savings/(Spending) $(41) $ 182 $ 182 $ 182

  42. Enhance Reconciliation Monitoring Tool(cont’d) • Implementation Strategy • Confirm data requirements and programming resources • Enhance application and develop new reports • Provide training to users • Assumptions • Reports can be developed to meet the user’s needs

  43. Increase Functionality of Existing General Accounting Web Site • Description • Increase functionality of existing General Accounting web site to include request forms and General Accounting policies • Current Situation • General Accounting has an existing web site • Financial (FI) has a separate web site with account request forms and definitions • Controlling (CO) began development of a web site for creation of cost centers, but it was never completed • Other master data requests, closing schedules and policies, and financial adjustments are sent and received via email. Lag time in fulfilling requests exists, due to follow-up questions, missing information, etc. • Inconsistent miscellaneous sales/invoicing process exist resulting in lost revenue or unapplied cash. • Standard forms not always completed or used. • Currently faxed upon completion to General Accounting • Opportunity • Finish developing web site for creation of cost centers • Combine existing FI web site with existing General Accounting web site • Expand General Accounting site to include additional data and policies maintained by General Accounting, including but not limited to: • Master data request forms • Financial adjustment request forms • Closing schedules, thresholds, and policies • Intercompany policies • Miscellaneous sales/invoicing policies and forms • Chemical Foreign Trial Balances • Utilize site as a historical database, tracking all requests generated on the web

  44. Increase Functionality of Existing General Accounting Web Site (cont’d) • Savings and Costs Yr. 0 Yr. 1 Yr. 2 Yr. 3 • Savings • Baseline $ 3 $ 12 $ 12 $ 12 • BPA $ 0 $ 0 $ 0 $ 0 • Cost $(24) $ 0 $ 0 $ 0 • Total Savings/(Spending) $ (21) $ 12 $ 12 $ 12 • Intangibles • Central request point for BP Amoco • Identification of information required for master data requests (BPA) • Reduce hours spent providing data for requests (BPA) • Provide audit trail and historical database information (Centre and BPA) • Cost avoidance due to time lag between email systems (Centre and BPA) • Reduce unapplied cash related to miscellaneous sales • Implementation Strategy • Determine which requests are to be processed via the web site • Finalize development of existing CO web site to include other General Accounting requests • Send communication to users and post instructions on request/approval process • Establish maintenance/archiving of web site • Assumptions • Web site is the “official” or only way for receiving data requests as determined by implementation strategy

  45. State Income/Franchise Tax Accrual/Payment Process • Description • Streamline and standardize the monthly, quarterly and/or annual state tax processes • Current Situation • Receipt of accrual information from Tax Department is often received late and in various formats • No formal/common process for Tax Statement Manuals Process • Tax payment allocations for unitary states sometimes go back several years creating substantial backlog • SAP reports are inadequate to assist in the reconciliation process to quickly identify what has been paid and accrued by tax year • Final tax liability is often not received or is received late from the Tax Department • SAP journal entry process, due to new tax transaction code requirements resulting from new cash flow needs, can be very manually intensive • Opportunity • Across all stream legal entities, implement a flat percentage rate for state tax accruals instead of calculating them by legal entity, by state annually. This speeds up provision of this data and dramatically reduces the need for extremely detailed reconciliations (Implemented in April, 2000) • Develop automated interface functionality to eliminate manual check requests being faxed from Tax in Chicago to Procurement • Create required input fields in SAP for applicable state tax accounts • Implement a common format for Tax Statement Manuals Process and establish a link to the General Accounting website for housing the data • Establish thresholds for all monthly/quarterly tax adjustments

  46. State Income/Franchise Tax Accrual/Payment Process (cont’d) • Savings and Costs Yr 0 Yr 1 Yr 2 Yr 3 • Savings • Baseline(Cost Avoidance) $ 65 $ 65 $ 65 $65 BPA $ 00 $ 00 $ 00 $00 • Cost $( 12) $ 00 $ 00 $00 • Total Savings/(Spending) $ 53 $ 65 $ 65 $65 • Implementation Strategy • The flat tax rate has already been approved and implemented except for unitary states • All other recommendations can be implemented immediately with SAP support/assistance • Assumptions • Appropriate SAP resources are available to work on recommendations

  47. Next Steps

  48. Next Steps • Begin implementation phase for approved business cases • Evaluate Phase II opportunities: • Standardize chart of accounts globally • Standardize chart of accounts to match Hyperion • Identify SAP batch transactions to the specific feeder system • Align Business Units in the proper SAP client (COSA and NGL) • PR1/PR2 data integrity affects intercompany status report • Conduct a further detailed analysis with the Chemical’s Business Unit’s around transfer pricing and inventory movement • Plant maintenance support for all systems including Maximo

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