Accounting Information Systems 9th Edition by James Hall

Exercise 22

PERFORMANCE WATER PUMPS (CENTRALIZED SYSTEM WITH DISTRIBUTED TERMINALS) Performance Water Pumps (PWP) is a leading manufacturer of water pumps with high capacity capability. These pumps are used in both civil and private disaster situations. PWP's primary market is disaster recovery companies that assist home owners following basement flooding. They also sell to building contractors, municipalities, and rental companies. The company publishes an industry catalog of pumps and other auxiliary equipment, which is distributes to customers and prospective customers. PWP's headquarters and manufacturing facilities are in Leesville, Louisiana where they employ 125 manufacturing and clerical staff.
PWP employs a centralized computer system with distributed terminals in the departments. Recently they have been having operational problems with it. PWP has hired your auditing firm to assess its operations and internal control procedures.
Sales Order Procedures
The revenue process begins in the sales department of the firm where customers submit orders by fax, e-mail, or phone. A clerk in the sales department creates a sales order that details the items needed. Next, the sales clerk performs a credit check on the customer. If it is a returning customer, then the sales clerk checks the customer's payment history from the centralized credit records. For new customers a full credit check is performed via an online credit bureau. Once the sales clerk approves the creditworthiness of the customer, he prints a sales order, a packing slip, and a stock release document from his terminal. The clerk adds a record to the digital open sales order file and sends the hard copy sales order, packing slip, and stock release documents to the billing department, shipping department, and warehouse, respectively.
When the warehouse receives the stock release, a warehouse clerk arranges for the merchandise to be sent to the shipping department, along with the stock release document. Finally, the warehouse clerk updates the inventory subsidiary ledger from the terminal in the warehouse.
When the shipping department receives clerk the stock release, he compares it to the packing slip previously received from the sales department. The clerk then prepares a bill of lading, which accompanies the goods to the carrier. Finally, the shipping clerk records the shipment in the digital shipping log.
Upon receipt of the sales order, the billing department clerk adds prices and freight charges to create a sales invoice, which is sent to the customer. From the department terminal, the clerk then updates the digital account receivable subsidiary ledger and records the sales details in the sales journal. At the end of the day the billing department clerk prints a hard-copy account receivable summary and sales journal voucher, which she sends to the general ledger department.
Upon receipt of the account receivable summary and the sales journal voucher, the general ledger department clerk updates the general ledger and posts the voucher details to the journal voucher file from the department terminal.
Cash Receipts Procedures
Mail room clerks open customer cash receipts, reviews the check and remittance advices for completeness, and prepares two copies of a remittance list. One copy is sent with the checks to the cash receipts department. The second copy the remittance advices are sent to the billing department.
When the cash receipts clerk receives the checks and remittance list, he verifies the checks received against those on the remittance list and signs the checks "For Deposit Only." Once the checks are endorsed, he records the receipts in the cash receipts journal from his terminal. The clerk then fills out a deposit slip and deposits the checks in the bank. At the end of the day, the clerk prints a hard-copy cash receipts journal voucher and sends it to the general ledger department.
Upon receipt of the remittances, the billing department clerk records the amounts in the account receivable subsidiary ledger from the department terminal. At day's end the clerk also prints a hard-copy AR summary and sends it to the general ledger department.
The general ledger department verifies the AR summary with the journal vouchers and then updates the journal voucher file and the general ledger with the verified transaction amounts.
Required
a. Create a data flow diagram of the current system.
b. Create a system flowchart of the existing system.
c. Analyze the physical internal control weaknesses in the system.
d. Describe the IT controls that should be in place in this system.
e. (Optional) Prepare a system flowchart of a redesigned computer-based system that resolves the control weaknesses that you identified. Explain your solution.