Accounting Information Systems 8th Edition by James Hall

Exercise 19

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, movable 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 Lordes, France, to fulfill the global demand for liquid helium and hydrogen storage and transportation, with the highest performance ratings in the industry. Steeles' 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.
Purchasing System
A purchase transaction by Steeles Cryogenics is triggered by the purchase requisition produced by an inventory control systemconnected to the digital inventory subsidiary files in the data processing department. Once an inventory item falls to the reorder point, a purchase requisition is automatically created and printed through the terminal in the purchase department. The clerk in purchase department selects suppliers and prepares the purchase order. A copy of the PO is sent to the vendor, and a copy is sent to the receiving department. Then, the clerk adds a record to the open/ closed purchase order file through an update program in the data processing department.
When the receiving clerk receives the inventories, he reconciles the goods with the packing slip and the purchase order. After the reconciliation, the receiving clerk prepares a hard-copy receiving report recording the quantity and quality of the goods received. A copy of the receiving report accompanies the goods to the warehouse, and a copy is filed in the receiving department. Using the department terminal, the receiving clerk adds a record to the digital receiving report file. The system then automatically closes the purchase order. Upon receiving the inventories, the warehouse clerk updates the inventory subsidiary ledger through the terminal in the warehouse.
When the supplier's invoice arrives, the accounts payable clerk adds a record to the supplier invoice file, and the system automatically sets up a liability in the AP subsidiary ledgers based on the financial information contained in the invoice. The system then automatically updates all affected general ledger accounts.
Cash Disbursements System
Each day the system scans the AP ledger for items due to be paid and prints the checks. The check is sent to the vendor, and a copy is sent to cash disbursements, where it is filed. Next, the system adds a record to the check register file and removes the liability in the AP subsidiary ledger. Finally, the system automatically updates the general ledger accounts.
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.