ACCOUNTING INFORMATION SYSTEMS BUSINESS INFORMATION SYSTEMS

FRONT PAGE
COURSE NO: BIS309 DURATION: 1 WEEK DUE DATE: 3rd July 2020, 15:00hrs

TITLE OF PAPER: ACCOUNTING INFORMATION SYSTEMS

SUBJECT: BUSINESS INFORMATION SYSTEMS
Marks: 60

MORNING/AFTERNOON

INSTRUCTIONS:
• ANSWER ALL QUESTIONS
• Type all your work
• Submit your Work on Moodle
• Due date time is Moodle time: 15:00hrs

TOTAL NO. OF PAGES (including cover page) 13
Section A (12 marks)

1. Explain how a company could be the victim of fraud, even if ideal segregation of duties is enforced. [3]

2. Which, if any of the following situations represent the improper segregation of functions? SUPPORT YOUR ANSWER. [3]
a) The billing department prepares the customers’ invoices, and the accounts receivable department posts to the customers’ accounts.
b) The sales department approves the credit memos as the result of product returns, and subsequent adjustments to the customer accounts are performed by the accounts receivable department.
c) The shipping department ships goods that have been retrieved from stock by warehouse personnel.
d) The general accounting department posts to the general ledger accounts after receiving journal vouchers that are prepared by the billing department.

3. Goods are shipped to a customer, but the shipping department does not notify billing and the customer never receives an invoice. Describe a specific internal control procedure that would detect this error. [3]

4. A clerk embezzles customer payments on account and covers up the theft by making an adjustment to the accounts receivable ledger. Describe a specific internal control procedure that would prevent this fraud. [3]


Section B [18 Marks]

Question 1
A teller at a savings and loan drive-through accepted a cash payment from customer #1 for an auto loan. The teller appeared to process the payment, but told the customer the printer was jammed and she can’t print a receipt. The customer accepted the excuse and drove away. The teller pocketed the cash and wrote down customer #1’s loan number and payment amount for future reconciling. A couple of days before customer #1’s monthly statement was printed, the teller recorded a cash payment from customer #2 as if it were made by customer #1. The teller pocketed the difference between the two payments. The teller continued to steal and misapply customer payments for the next two years without detection.

Identify the type of fraud scheme described. Describe 2 controls you would implement to address the fraud risk, and label each control as preventive or detective. [6]

Question 2
The Soap Manufacturing Company has three employees who work in the warehouse. All of the warehouse workers are authorized to order inventory when it falls below the reorder level. The workers complete a purchase order and mail it to the supplier of their choice. The inventory is delivered directly to the warehouse. The workers send a memo to accounts payable reporting the receipt of inventory. Accounts payable compares the warehouse memo to the supplier’s invoice. Accounts payable prepares a check which the treasurer signs.
Discuss potential internal control risks inherent in this system. [6]

Question 3
The Golf Club Company makes custom golf clubs. The manufacturing supervisor interviews people who have specialized manufacturing skills, and he informs payroll when an employee is hired. The employees use a time clock to record the hours they work. The employees are also required to keep a record of the time they spend working on each order. The supervisor approves all time cards.

The accountant analyzes the job tickets and prepares a labor distribution summary. Payroll prepares the payroll register and paychecks. The supervisor distributes the paychecks to the employees. Payroll informs cash disbursement of the funds required to cover the entire payroll amount. The cash disbursements clerk ensures that there are adequate funds in the company’s regular checking account to cover the payroll.

Describe at least three internal control weaknesses; for each weakness suggest an improvement to internal control. [6]


Section C [30 marks]

ORBITS – (Manual and Stand-Alone PC System Includes Purchases, Payroll, Fixed Assets, and Sales Order Processing)

In 1997, J.D Orbits opened a cell phone accessory manufacturing plant named Orbits. Although the company began its operations at the local level with only 40 employees, 3 vendors, and 5 main customers, it experienced rapid success. By 2001, gross sales tripled and the enterprise expanded its customer, vendor, and employee base, and it now serves all major cell phone manufacturers. Currently, Orbits employs more than 120 individuals, including executives, directors, sales representatives, office personnel, and production workers.
Customers: Orbits sells to the outlet stores of distributors such as Verizon, MCI, Cingular, and AT&T cellular phones in the tri-state area.
Materials and Suppliers: Manufacturing hands-free cell phone devices requires a number of different materials, none of which is made in-house. Most parts are purchased 25 vendors. The more complex components used in the manufacturing process are purchased through contracts with vendors. Raw materials are purchased from vendors according to price without a formal contract.

Accounting System
Orbits accounting system is comprised of manual procedures that are supported by stand-alone PC (not networked) in several departments. Key elements of the sales order processing, purchasing, fixed assets and payroll systems are described in the following paragraphs.

Purchases System
The process begins in the purchasing and inventory control department. Using the department PC, a clerk monitors the inventory levels in the digital inventory ledger. When the inventory on hand falls below the reorder point, the clerk prints two copies of the purchase requisition. The clerk send one copy to the accounts payable department, where accounts payable clerk files it in the accounts payable pending file. The clerk hands the second copy of the requisition to his coworker (the purchasing clerk) in the department, who manually prepares a four-part purchase order. The purchasing clerk sends one copy of the purchase order to the accounts payable department (where it is filed in the accounts payable pending file) and two copies to the vendor. The clerk sends the final purchase order copy, along with the original purchase requisition, to another coworker in the department (the inventory control clerk) who, using the department PC, updates the inventory ledger to record the inventory increase. The inventory control clerk then files the requisition and the purchase order in the department.
When the products arrive, the receiving department clerk inspects, counts, and reconciles them to the packing slip. One copy of the receiving report is sent with the inventory to the storeroom. Another copy is sent to the accounts payable department, where it is filed in the accounts payable pending file. The final copy is filed in the receiving department.
Once the accounts payable clerk receives the purchase requisition, purchase order, and receiving report, she accesses the department PC, records the liability in the purchases journal, and posts it to the supplier’s account in the accounts payable subsidiary ledger. The clerk the transfers the hard-copy purchase requisition, purchase order, and receiving report to the open accounts payable file. The accounts payable clerk then prints a journal voucher from the PC summarizing the transactions in the purchase journal for the period and sends it to general ledger department. The general ledger clerk receives the hard-copy journal voucher and the invoice from the vendor. The clerk then uses the department Pc to post to the inventory and accounts payable control accounts.

Cash Disbursements Process

Periodically the accounts payable clerk reviews the hard-copy documents in the open accounts payable file and identifies items to be paid. The clerk accesses the department PC, prints a hard-copy cash disbursement voucher, and send 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 documents in the closed accounts payable file.

Upon receipt of the cash disbursements voucher, the cash disbursements clerk access 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. The general ledger clerk receives the cash disbursement voucher and posts to the general ledger cash and accounts payable accounts, using the department PC. Finally, the general ledger clerk files the voucher in the department.

Payroll System

Production
Each week the production department supervisor submits each employee time cards to the payroll department for processing. The supervisor also sends the job tickets to the costing accounting department, which uses then to allocate labor and manufacturing overhead costs to the work-in-process account.

Payroll
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.

Accounts Payable
The accounts payable department uses the payroll register to manually prepare two copies of a cash disbursements 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.

Cash Disbursements
The cash disbursements department uses the payroll register and the cash disbursements 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.

General Ledger
The general ledger uses the cash disbursements voucher to update digital general ledger payroll account from the department PC. The voucher is then filed in the department.

Fixed Asset System

Purchasing
At Orbits, the purchasing department is responsible for ordering fixed assets for user departments based on a user-generated purchase requisition. When the purchasing department clerk receives the purchase requisition from the user department, she creates a purchase order and sends it to the vendor. The purchase requisition is filed in the purchasing department.
When the asset 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.

Accounts Payable
Upon receipt of the invoice from the vendor, the accounts payable clerk accesses the department PC, determines a due date for payment, records the liability in the accounts payable subsidiary ledger, and files the invoice in the open accounts payable file.
Periodically, the clerk reviews the open accounts payable file for items to be paid. When the accounts payable is due, the clerk accesses the department PC, prints a hard-copy cash disbursements 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.

Cash Disbursement
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.

Fixed Asset 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.

General Ledger Department
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.
Sales Order System

The sales department receives customer orders via fax, mail and e-mail. A sales clerk using the sales department PC records the orders in the sales order file and prints a stock release, invoice, ledger copy, and packing slip. These documents are distributed as follows:
• The invoice and ledger copy are sent to billing, where the clerk records the sale in the digital sales journal from the department computer. The clerk then sends the invoice to the customer and the ledger copy to the accounts receivable department.
• The stock release is sent to the warehouse, where the goods are picked and the warehouse clerk updates the stock records from the department PC. The clerk then sends the stock release and the goods to the shipping department.
• The packing slip is sent to the shipping department where it is reconciled to the stock release. The shipping clerk then manually prepares a bill of lading and records the shipment in the shipping log. The clerk sends the bill of lading, the product, and packing slip to the carrier. The stock release is sent to the purchasing and inventory control department, where it is used to update the inventory subsidiary ledger. The inventory control clerk then files the stock release and prepares an account summary, which is sent to the general ledger department.

The accounts receivable clerk receives a ledger copy document. The clerk then accesses the department PC to update the accounts receivable subsidiary ledger. The clerk then files the ledger copy and prepares an account summary, which she sends to the general ledger department.

Cash Receipts System

The mail room receives envelopes containing customer checks and remittance advices. The checks are sent to the cash receipts department, and the remittance advices are sent to the accounts receivable department. The cash receipts department records the cash receipts in the cash receipts journal. The clerk then prepares a bank deposit slip and sends the checks and two copies of the deposit slip to the bank. Periodically, the bank returns a deposit slip to the cash receipts department where it is reconciled with the cash account. The accounts receivable department reviews the remittance advices and updates the accounts receivable subsidiary ledger. The clerk files the remittance advice and prepares an account summary, which she sends to the general ledger.

General Ledger Department

The general ledger clerk receives account summaries from the accounts receivable and the purchasing and inventory control departments. The general ledger clerk accesses the department PC and posts to the inventory control, AR control, and cash accounts. Finally, the general ledger clerk files the account summaries in the department.

Required
Analyze three (3) internal control weaknesses of each major subsystem (Purchases System, Payroll System, Fixed Assets System, Sales Order Processing, and Cash Receipts System) (30 marks).

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