Baston, Alyssa March 7, 2020

Gianan, Shaina BSA 2-2

Roldan, Theresa Marie

6. OUTDOOR ADVENTURE: WHITE WATER AND CAMPING SUPPLIES

a. Data Flow Diagram

b. System Flow Diagram
c. Internal Control Weaknesses and Risks

1) Purchasing clerk should not be authorized in checking the inventory levels using the
inventory subsidiary ledger. This is an inventory control function.

Risk. Purchasing clerk could purchase items not needed that could lead to inefficient
inventory management. Another threat is that it could be fraudulent because there can
be an instance where there is a kick-back from vendors who are unloading items.

2) The receiving department clerk should receive a ‘blind copy’ of the purchase order from
the purchasing department and should not have access to the packing slip.

Risk: This situation would authorize the receiving clerk to complete a receiving report
without actually counting and inspecting the items.

3) Warehouse clerk should not have updated the inventory subsidiary ledger. It is the
inventory clerk’s job.

Risk: This is a segregation of duties issue – asset custody and recordkeeping should be
separated. Clerk could steal inventory and adjust inventory records to conceal the theft.

4) The AP Clerk should not update the general ledger AP Control account. The only
authorized function in updating it is the general ledger function.

Risk: With access to both the subsidiary ledger and control account, discrepancies
caused by errors and fraud cannot be traced.

5) Cash Disbursement clerk should not update the AP subsidiary ledger or the AP Control
account in the General Ledger.

Risk: Clerk prepares check and updates the AP subsidiary and GL accounts. The clerk
could set up a fraudulent AP and pay it (vendor fraud). The clerk may also record an
accounts payable as paid but not actually disbursing money to the vendor.
PROBLEM 6 (PURCHASES SYSTEM — RISKS AND CONTROLS)

SYSTEM FLOWCHART
RISKS AND PHYSICAL CONTROLS

1.) RISK: There is no segregation between the inventory control department and the purchasing
department. There is a risk of purchasing items that are not needed. There can also be an inventory
stock out, and the entity might purchase from unapproved vendors.

CONTROL: Transaction Authorization

When inventory levels drop to their predetermined reorder points, inventory control should authorize
replenishment with a purchase requisition to trigger purchasing function. Furthermore, there should
be a valid vendor file to ensure the legitimacy of purchase transactions.

2.) RISK: Receive items that are not included in the order or there can be incorrect quantities of items
received.

CONTROL: Independent Verification

The receiving clerk should use a blind copy of the purchase order to reconcile, count, and inspect the
goods instead of using the packing slip.

3.) RISK: Paying for items or goods not received.

CONTROL: Independent Verification

The accounts payable clerk should peeform a three-way match (purchase order, receiving report, and
invoice). It is to verify that what was ordered was received, and fairly priced. In the problem, the entity
only reconciles the invoice with the purchase order without the receiving report. There is no evidence
that the items were actually received.

4.) RISK: Inventory Misappropriation

CONTROL: Segregation of Duties

The inventory warehouse clerk should not also have the responsibility of updating the inventory
subsidiary ledger.
PROBLEM 10 – Internal Controls

a. Flowchart

b. Internal Control weaknesses

- The accounts payable clerk approves the AP but also writes the check, the inventory clerk

approves Purchase orders and makes the purchases and no blind copy of purchase order is received

for the receiving department.

c. IT Controls

 INPUT DATA EDITS – Input Controls are edits that focus on the integrity of transaction

data being entered into the application.

 MULTILEVEL SECURITY – No other individual should be able to have access to files

that would allow the creation of different transactions like purchase orders, invoices,

and receiving reports. This would constitute to inconsistency to which department

clerks are assigned.

 PASSWORD CONTROL – this would give way to authorized access to only allowed

personnel.

 AUTOMATED THREE-WAY MATCH – replicates its manual counterpart. This act

prompts the system to automatically create a virtual AP packet by linking the vendor

invoice to associated purchase order and receiving report records.