a. Create a data flow diagram of the current system.

b. Create a system flowchart of the existing system.

c. Analyze the internal control weaknesses in the system. Model your response according
to the six categories of physical control activities specified in SAS 78/COSO.
d. Prepare a system flowchart of a redesigned computer- based system that resolves the
control weaknesses you identified. Explain your solution.

Spice Is Right was established in 1990 in Boston where they began importing exotic
spices and cooking sauces from India and China They distribute these specialty foods to
ethnic food shops, cafes, and restaurants across the country. In addition to their Boston
headquarters and warehouse, the company has a distribution center in Elizabeth, New

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Jersey. Spice Is Right currently employs over 100 people, has dozens of suppliers, and

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trades in hundreds of ethnic and exotic foods from all over the world.

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SOLUTION rs e
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a), b) See the following pages.
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c) Internal Control Weaknesses

1) Purchasing approves and executes purchases. The company needs an inventory

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control function.
2) Purchasing updates inventory records for transactions that it previously
approved and executed.
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3) Receiving clerk prepares receiving report from the packing slip. Should have a
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Blind Copy of the PO.

4) Accounts Payable approves vendor payments based only on a PO and Invoice.
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They have no evidence of inventory receipts and inspection. They need a

receiving report as well.
5) AP approves liability and writes the check.
6) AP clerk has access to the AP control account in the general ledger and the AP
subsidiary (Cash Disbursement voucher file).

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d) Flowchart of revised system

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The following issues, however, need to be addressed.

• Upgrade stand-alone computers to a networked environment
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• The internal control problems already covered need to be corrected in the new
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system.
• A system configuration similar to figure would be appropriate.
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