Accounting Information Systems 9th Edition by James Hall

Exercise 43

TURNER PATIO FURNITURE (MANUAL AND STAND-ALONE PC SYSTEM) In 2002, Thomas Turner opened the doors of Turner Patio Furniture (TPF) in Maryville, PA. The company, which began with only 3 employees (Thomas and his two sons), has grown over a decade from a small business serving the local community into a privately held corporation that supports 156 manufacturing, sales, and administrative employees.
TPF now supplies garden centers and home improvement companies throughout the northeast United States with high quality patio furniture.
TPF's success has, however, caused the company to outgrow its information system, which consists of manual procedures supported by independent (nonnetworked) PCs in each department. You have been hired to assess TPF's procedures and internal controls related to its payroll and fixed asset systems, which are described below.
Payroll System
Production
Each week the production department supervisor submits employee time cards to the payroll department for processing. The supervisor also sends the job tickets to the cost accounting department, which uses them to allocate labor and manufacturing overhead costs to the work-in-process account.
The payroll department clerk receives the time cards and uses the department PC to update the employee payroll records. The clerk also prints the employee paychecks and a payroll register. A copy of the payroll register is sent to the accounts payable department, and the paychecks are signed and sent to the supervisors for distribution to the employees. A copy of the payroll register and the time cards are filed in the department.
The accounts payable department uses the payroll register to manually prepare two copies of a cash disbursement voucher. One copy of the voucher and the payroll register are sent to the cash disbursements department. The second copy of the voucher is sent to the general ledger department.
The cash disbursements department uses the payroll register and the cash disbursement voucher to manually prepare a check for the total payroll. The payroll check is signed and sent to the bank for deposit into the payroll imprest account. The voucher, the payroll check copy, and payroll register are filed in the department.
The general ledger uses the cash disbursement voucher to update the digital general ledger payroll account from the department PC. The voucher is then filed in the department.
Fixed Asset System
Purchasing
Managers in the user areas submit requisitions for fixed assets to the purchasing department. When the purchasing department clerk receives the purchase requisition, she manually creates a purchase order and sends it to the vendor. The purchase requisition is filed in the purchasing department.
When the asset is shipped, the vendor sends the invoice to the accounts payable department and delivers the asset directly to the user department, where it is reconciled to the packing slip and placed into service. The user then sends the packing slip to the fixed asset department. Upon receipt of the invoice from the vendor, the accounts payable clerk calculates a due date for payment and, using the department PC, records the liability in the accounts payable subsidiary ledger. The clerk then files the invoice in the open accounts payable file. Periodically, the clerk reviews the open accounts payable file for items to be paid. When an accounts payable is due, the clerk accesses the department PC, prints a hard-copy cash disbursement voucher, and sends it to the cash disbursements department. The clerk then removes the liability from the digital accounts payable subsidiary ledger. Finally, the clerk files the hard-copy invoice in the closed accounts payable file.
Upon receipt of the cash disbursement voucher, the cash disbursements clerk accesses the department PC, prints a vendor check, and records the check in the digital check register. Next, the clerk sends the check to the vendor and sends the hard-copy cash disbursement voucher to the general ledger department.
When the fixed asset department clerk receives the packing slip from the user department, he accesses the department computer and records the asset in the fixed asset subsidiary ledger. Periodically, the clerk prepares an account summary that he sends to the general ledger. NOTE: The fixed asset department has additional procedures to manage the maintenance and disposal of fixed assets. These procedures are not part of this assignment.
The general ledger clerk receives the cash disbursement voucher from the cash disbursements department and the account summary from the fixed assets department. The general ledger clerk then accesses the department PC and posts to the cash, accounts payable control, and fixed asset control accounts. Finally, the general ledger clerk files the voucher and account summary in the department.
Required
a. Prepare a data flow diagram of the current payroll and fixed asset systems.
b. Prepare system flowcharts for the payroll and fixed asset systems.
c. Describe the uncontrolled risks associated with these systems as they are currently designed.
d. Describe the physical and IT controls needed to reduce the risks identified in "C" above.