ACC 220 Lecture 22: 22 ACC 220 CH 4 (5)

The following is a list of 12 control plans from this chapter:

Control Plans

A. Batch sequence check

B. Confirm input acceptance

C. Programmed edit checks

D. Manual agreement of batch totals

E. Online prompting

F. Cumulative sequence check

G. Electronic approvals

H. Document design

I. Procedures for rejected inputs

J. Compare input data with master data

K. Turnaround documents

L. Digital signatures

The following is a list of 10 system failures that have control implications:

System Failures

1. At Holeriver Company, customer orders are received in the mail in the sales department, where clerks enter individual orders online and then file the completed orders. For each order, the customer should receive an acknowledgement. When the customer fails to receive an acknowledgement, the customer calls to inquire. Inevitably, the sales clerk will find the customer’s order filed with other customer orders that had been entered into the computer.

2. At Prairie Inc., data entry clerks receive a variety of documents from many departments throughout the company. In some cases, unauthorized inputs are keyed and entered into the computer.

3. The tellers at Dixie Bank have been having difficulty reconciling their cash drawers. All customer transactions such as deposits and withdrawals are entered online at each teller station. At the end of the shift, the computer prints a list of the transactions that have occurred during the shift. The tellers must then review the list to determine that their drawers contain checks, cash, and other documents to support each entry on the list.

4. Data entry clerks at Courage Company use networked PCs to enter batches of documents into the computer. Recently, a number of errors have been found in key numeric fields. The supervisor would like to implement a control to reduce the transcription errors being made by the clerks.

5. At Dulce Inc., clerks in the accounting offices of Dulce’s three divisions prepare prenumbered general ledger voucher documents. Once prepared, the vouchers are given to each office’s data entry clerk, who keys them into an online terminal. The computer records whatever general ledger adjustment was indicated by the voucher. The controller has found that several vouchers were never recorded, and some vouchers were recorded twice.

6. Purchase orders at Etronics Corp. are prepared online by purchasing clerks. Recently, the purchasing manager discovered that many purchase orders are being sent for quantities far greater (i.e., incorrect quantities) than would normally be requested.

7. At David Brothers, Inc., a clerk on the trading floor mistakenly entered the dollar amount of a trade into the box on the computer screen reserved for the number of shares to be sold and then trans-mitted the incorrect trade to the stock exchange’s computer.

8. At Jefferson Company, clerks in the cash applications area of the accounts receivable office open mail containing checks from customers. They prepare a remittance advice (RA) containing the customer number, invoice numbers, amount owed, amount paid, and check number. Once prepared, the RAs are sent to a clerk who keys them into the computer. The accounts receivable manager has been complaining that the RA entry process is slow and error-prone.

9. Rudolf Company enters shipping notices in batches. Upon entry, the computer performs certain edits to eliminate those notices that have errors. As a result, many actual shipments never get recorded.

10. Jamie the hacker gained access to the computer system of National Bank and entered the data to transfer funds to his bank account inthe Turks and Caicos Islands.

Match the 10 system failures with a control plan that would best prevent the system failure from occurring. Because there are 12 control plans, you should have two letters left over.

1.    The production manager, Nick Wang, is responsible for initiating orders for inventory. The system sends Nick an email alerting him of the stock falling below 65% of the previous month's usage. He then generates a pre-numbered purchase order (PO). He can also adjust the quantities on the purchase order when he anticipates increases or decreases in sales. The purchase order is then sent to the purchase clerk Ray Kim via email.

2.    For inventory orders, Ray normally sends the purchase orders directly to their approved suppliers. The suppliers will then send Ray a confirmation of items and quantities and an estimated date for the parts to be delivered. When the confirmation is received, Ray will log on his computer, finds the relevant PO initiated by Nick and select the supplier's name on the PO and then click on the box "sent to suppliers".

3.    If a PO cannot be filled by any of the approved suppliers, Ray may look for a new supplier. When he obtains a quote from a new supplier, he passes the quote and the new supplier's information to his manager, Barry Sadler for approval. Once approved, Barry will add the new supplier into the approved supplier list.

4.    Jasmine Lee Ltd requires their suppliers to attach a Delivery Note (DN) with inventory they ordered. DN should have a reference to the relevant PO number and shows the quantities and items being delivered. When a delivery arrives at the warehouse, the warehouse assistant Gordon Scully will reject the delivery if there is no PO on it or the PO number is invalid. Gordon reconciles the DN to the relevant PO on the computer to match items and quantities. Once it is confirmed, Gordon initials and dates one copy of the DN and then passes it to Gary Chen the warehouse manager.

5.    When Gary receives the DN, he logs on to a computer and updates the PO to be "received" and the computer is requested to print a pre-numbered Goods Receiving Report (GRR). The computer retrieves a list of the items ordered from Purchase Order Master file and supplier details in the Supplier Master file to check for accuracy and then prints the GRR. Gary then counts the actual items against the GRR. Once all items are counted and checked, Gary updates the inventory record to reflect the actual items and quantities that have been received. When updating inventory, the computer asks for the relevant PO, if the computer accepts the PO number, it automatically displays the ordered items and quantities and ask Gary to confirm. After Gary updates inventory, the system will generate a journal (Note: the journal posted by the system is to Dr Raw materials inventory; Cr Creditor.). Gary then writes the journal number on the GRR and signs it. The signed GRR together with a copy of DN are left in a tray on the desk of Ray.

6.    If discrepancies are found between the DN and the results from the actual counting, a copy of the GRR and DN will be passed to Ray to contact the suppliers. Inventory will not be updated until the discrepancies are sort out.

7.    Ray receives all supplier invoices. Suppliers include the relevant PO number on their invoices. On receipt of an invoice, Ray agrees the details on supplier's invoice against the relevant PO. If they agree, he sequentially numbers the invoice based on its due date to ensure that it will be paid within discount period. If there are no discrepancies, he prepares a payment requisition for the invoiced amount and forwards the payment requisition, with the invoice attached, to Barry Sadler for authorisation.

8.      Barry signs the payment requisitions to confirm authorisation and forwards the documentation to the banking clerk, Toni Burton who keys the payments into the payment journal (the journal posted by the system is Dr Creditor; Cr Bank). The system generates a journal number which Toni writes on the payment requisition to make sure the account payable balance is updated. Toni files the payment requisitions with the supporting documents.

9.      Toni then loads the payments on the online banking facility with reference to the payment requisition number. Barry must approve and release the payments. The banking system automatically sends electronic transfer records to Barry who subsequently forwards them to Ray. Ray checks it against supplier invoices and then sends a remittance advice to individual suppliers.

Required:

a)      Identity SIX control strengths of the purchases and payments system.

b)     For each control strength, explain what the purpose of the control (i.e what does the control prevent or detect).

You may use the following format to present your answer.                                   

Internal control strengths

Identify a control strength (a)

The purpose of the control (b)

c)      Identity FIVE control weaknesses of the purchases and payments system.

d)     For each control weakness, explain its potential consequence/implication and provide a suggestion for improvement.

You may use the following format to present your answer.                   

Internal control weaknesses

Identify a control weakness (c)

Consequence/Implication and suggestion for improvement (d)