Accounting Information Systems 9th Edition by James Hall

Exercise 31

TIGHT LINES FISHING AND CAMPING SUPPLIES (NETWORKED COMPUTER SYSTEM AND MANUAL PROCEDURES) Tight Lines Fishing and Camping Supplies is a New York-based wholesaler of fishing and camping equipment that serves fishing and camping retailers throughout the north east. Tight Lines obtains its inventories of fly rods, reels, tents, and other products from manufactures in the United States and from abroad. Tight Lines uses a centralized accounting system with networked terminals in the departments. You have been hired by Tight Lines to evaluate their processes, risks, and internal controls. The following paragraphs describe Tight Lines expenditure cycle procedures.
Expenditure Cycle
Purchases System
The process begins when the purchasing clerk checks the inventory subsidiary ledger on his computer terminal each morning. When an item is deemed to be too low, the clerk selects a vendor from the valid vendor file and prepares a digital purchase order. The clerk prints two hard copies: one copy is sent to the vendor, and the other is filed in the department. Digital purchase order record is added to the PO File.
When the goods arrive in the receiving department, the receiving clerk inspects them and reconciles the items against the information in the digital PO and the packing slip. The clerk then manually prepares two hard copies of the receiving report. One of these accompanies the goods to the inventory warehouse, where the clerk shelves the goods and updates the inventory subsidiary ledger from his terminal. The clerk then files the receiving report in the department. The other copy of the receiving report is sent to the accounts payable department, where the AP clerk files it until the supplier's invoice arrives. When the AP clerk receives the invoice he pulls the receiving report from the temporary file, prints a hard copy of the digital PO, and reconciles the three documents. At this time, the clerk updates the digital accounts payable subsidiary ledger, the AP control account and the inventory control account in the GL from his terminal. The clerk then sends the invoice, receiving report, and the purchase order copy to the cash disbursements department. Cash Disbursements System Upon receipt of the documents from the accounts payable department, the cash disbursements clerk files the documents until their payment due date. On the due date, the clerk prepares a check for the invoiced amount, which is sent to the treasurer who signs it and mails the check to the vendor. The cash disbursement clerk then updates the check register, accounts payable subsidiary ledger, and the AP control account from his terminal. Finally, the clerk files the invoice, purchase order copy, receiving report, and check copy in the department.
Required
a. Create a data flow diagram of the current system.
b. Create a system flowchart of the existing system.
c. Describe internal control weaknesses in the system and discuss the risks associated with these weaknesses.
d. (Optional) Prepare a system flowchart of a redesigned computer-based system that resolves the control weaknesses that you identified. Explain your solution.