Accounting Information Systems 8th Edition by James Hall

Exercise 41

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' 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.
Fixed Asset System
Asset acquisition begins with the departmental manager recognizing the need to obtain a new asset or replace an existing one. The manager prepares two copies of a purchase requisition; one is filed within the department, and the other is sent to the purchasing department. The purchasing department prepares three copies of a purchase order from the purchase requisition. One copy of the purchase order is sent to the supplier, another copy is sent to the AP department, and the third copy is filed within the purchasing department. The AP Department receives the goods with an invoice and packing slip from the vendor. The AP clerk reconciles the purchase order received from the purchasing department with the packing slip and invoice. The clerk inputs the information into the computer terminal and posts a liability. Using a computer terminal, the AP clerk updates the purchases journal, sends a hard copy of the journal voucher to the general ledger department, and sends a cash disbursement voucher to the cash disbursements department with the supplier invoice. The packing slip and purchase order are filed within the AP department. The cash disbursements clerk prepares and posts a check to the check register, using information from the supplier's invoice and the cash disbursement voucher, and prints a hard-copy check to be sent to the vendor. A cash disbursement voucher is sent to the general ledger department.
The general ledger department clerk reconciles the cash disbursement voucher, journal voucher, and fixed asset summary, posts to the general ledger accounts from the department terminal, and files the remaining documents.
The user department manager handles both asset maintenance and asset disposal. The manager adjusts the fixed asset subsidiary account balances to match asset depreciation schedules over time. When an asset has reached the end of its useful life, the manager issues a disposal report. A summary is sent to the general ledger to be posted.
Payroll System
Each day, production workers in Steeles Cryogenics record the number of hours worked on a time card, and the supervisor is responsible for ensuring each time card is valid. The supervisor sends the payroll time data to the payroll department. Using a terminal, the payroll department clerk inputs the timecards, prepares hard copies of the paychecks, and posts to employee records. The time cards are filed in employee records in payroll, and the employee checks are given to the supervisor to review and distribute. One copy of the completed payroll register is sent to the AP department, and the original payroll register and time cards are filed in the payroll department.
The AP department prepares a voucher packet with the payroll register and sends it to the general ledger to be posted. The AP clerk then writes a check for the entire payroll and deposits it in the imprest account at the bank. A copy of the check is filed in the AP department. Once the general ledger clerk receives the voucher packet and payroll register, the clerk posts to the general ledger and files the voucher packets in the department.
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.