Accounting Information Systems 8th Edition by James Hall

Exercise 9

STEELES CRYOGENICS (CENTRALIZED SYSTEM WITH DISTRIBUTED TERMINALS) (Prepared by Sean Quach, Kyle Forrest, and Fan Yang, Lehigh University)
Steeles Cryogenics is a leading developer, designer, and manufacturer of tanks, moveable containers, and trailers for the most efficient storage and distribution of liquid helium and hydrogen. Steeles Cryogenics started as a private company when founded in 1960 by industrialist William Steeles, but
it became a key acquisition of Scientific Global from 1970 onwards, providing a world of cryogenic products and services.
Today, Steeles Cryogenics employs about 130 employees in Bethlehem, PA; Whitehall, PA; Tulsa, OK; and Lourdes, France, to fulfill the global demand for liquid helium and hydrogen storage and transportation, with the highest performance ratings in the industry. Steeles's tanks and containers are known to have the lowest heat leak and longest hold times available, allowing as little helium as possible to be lost in transport across land or sea. Steeles Cryogenics generates an estimated $10-$30 million in revenue yearly through the sale of their hydrogen containers. Their suppliers include numerous distributors and contractors, such as multiple steel plate fabricators and valve, pipe, and tube distributors.
Steeles Cryogenics employs a distributed computerized accounting system, which it is considering upgrading because of operational and internal control problems. Steeles has hired your auditing firm to assess its operations and recommend improvements to its internal control procedures.
Sales Order Procedures
The revenue process begins in the sales department of the firm. Customers either send in a hard-copy customer order or call in an order to the sales department. A clerk in the sales department creates a sales
order form that details the products 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 from his terminal a sales order, a packing slip, and a stock release document. The clerk adds a record to the digital open sales order file and sends the 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 products to be sent to the shipping department, along with the verified stock release document. Finally, the warehouse clerk updates the inventory subsidiary ledger from the terminal in the warehouse.
When the shipping department receives the verified stock release, it compares that document with the packing slip previously received from the sales department to make sure that the correct items and quantity are being shipped. Next, the clerk prepares a bill of lading detailing the shipping terms and arranges transportation of the products with a freight company. Finally, the shipping clerk adds a record of 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 hardcopy account receivable summary and sales journal voucher, which he or she sends to the general ledger department.
Upon receipt of the account receivable summary and the sales journal voucher, the general ledger department clerk reviews them and updates the general ledger and posts the voucher details to the journal voucher file from the department terminal.
Cash Receipts Procedures
Customers make payment by check, which are delivered to the mail room where a clerk opens the envelopes containing the payment and remittance advices. The clerk reviews the check and remittance advices for completeness, and prepares two copies of a remittance list. One copy and the checks are sent to the cash receipts department. The second copy of the remittance list and 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. The clerk also prints a hard-copy AR summary and sends it to the general ledger department periodically.
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. Model your response according to the six categories of physical control activities specified in the COSO internal control model.
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.