NAME: Sheen Lynwell P.

Ampo SECTION: MA - 22 DATE: 2-21-20

ACCOUNTING INFORMATION SYSTEM

MINI CASE STUDY: EXPENDITURE CYCLE

INTERNAL CONTROL
The following is a description of manufacturing company’s purchasing procedures. All
computers in the company are networked to a centralized accounting system so that each
terminal has full access to a common database. The inventory control clerk periodically checks
inventory levels from a computer terminal to identify items that need to be ordered. Once the
clerk feels inventory is too low, he chooses a supplier and creates a purchase order from the
terminal by adding a record to the purchase order file. The clerk prints a hard copy of the
purchase order and mails it to the vendor. An electronic notification is also sent to accounts
payable and receiving, giving the clerks of each department access to the purchase order from
their respective terminals. When the raw materials arrive at the unloading dock, a receiving
clerk prints a copy of the purchase order from his terminal and reconciles it to the packing slip.
The clerk then creates a receiving report on a computer system. An electronic notification is
sent to accounts payable and inventory control, giving the respective clerks access to the
receiving report. The inventory control clerk then updates the inventory records.
When the accounts payable clerk receives a hardcopy invoice from the vendor, she reconciles
the invoice with the digital purchase order and receiving report and prepares a paper cash
disbursements voucher. The cash disbursements voucher and invoice are placed in the open
accounts payable file in a filing cabinet until the due date. The clerk also updates the accounts
payable subsidiary ledger and records the liability amount in the purchase journal from the
department computer terminal.
The accounts payable clerk periodically reviews the cash disbursement file for items due and,
when they
are identified, prepares a check for the amount due.
Finally, using the department terminal, the clerk removes the liability from the accounts
payable subsidiary file and posts the disbursement to the cash account.

Required:
Analyze the internal control weaknesses in the system. List at least 5 internal control weakness.
Model your response according to the table below:

INTERNAL CONTROL WEAKNESS RECOMMENDATION

(What went wrong?)

1. Inventory control clerk both manually There should be a Purchasing Department

checks the inventory and at the same time which will take care of all purchase orders of
 creates a purchasing order. the entity thus separation of duties.
2. Accounts Payable Clerk has access to all The entity must continually manually and
files digitally check files that are sent from other
departments and reconcile them. Accounts
Payable clerk must only have access to files
to update the Ledger file.
3. All department does not update their files Every department must update their files
regularly. regularly to avoid confusion and
complication of the inventory.
4. The hard copy invoice is directly sent to the No other copies/no additional copies of
AP clerk who also reconciles the invoice documents were made to be sent out to the
with the digital PO and who will also vendor, warehouse department/inventory
prepare a cash disbursement voucher. clerk, receiving clerk or was filed.
5. AP clerk prepares the check The entity must have a cashier department
in which they will handle the cash and
checks.