MIDTERM - 2AIS1

Group 3: ABE Plumbing, Inc. (Centralized Small Business Accounting System)

ABE Plumbing, Inc., opened its doors in 1979 as a wholesale supplier of plumbing equipment, tools,
and parts to hardware stores, home-improvement centers, and professional plumbers in the
Allentown-BethlehemEaston metropolitan area. Over the years they have expanded their operations
to serve customers across the nation and now employ over 200 people as technical representatives,
buyers, warehouse workers, and sales and office staff. Most recently ABE has experienced fierce
competition from large online discount stores such as Harbor Freight and Northern Supply. In
addition, the company is suffering from operational inefficiencies related to its archaic information
system. ABE’s expenditure cycle procedures are described in the following paragraphs.
Expenditure Cycle
ABE uses a centralized accounting system for managing inventory purchases and recording
transactions. The system is almost entirely paperless. Each department has a computer terminal that
is networked to the ‘‘Purchases/Accounts Payable System’’ which is run by a small data processing
department. All accounting records are maintained on centralized computer files that are stored on a
file server in the data processing department.
Purchasing
The process begins in the purchasing department. Each morning the purchasing agent reviews the
inventory levels from his department terminal and searches for items that have fallen to their reorder
points and need to be replenished. The purchasing agent then selects the vendors and creates digital
purchase orders in the purchase order file. He then prints two hard copies of each purchase order and
sends them to the respective vendors.
Receiving
When the items are received, the receiving department clerk reconciles the goods with the attached
packing slip and the digital purchase order, which he accesses from his computer terminal. The clerk
then creates a digital receiving report, stating the condition of the materials received. The system
automatically closes the purchase order previously created by the purchasing agent. In addition, the
receiving clerk prints a hard copy of the receiving report, which he sends with the inventory to the
warehouse where the items are stored.
Accounts Payable
Once the accounts payable clerk receives the vendor’s invoice, she reconciles it with the purchase
order and receives a report from her terminal. The clerk then creates a digital cash disbursement
voucher record and sets a due date for payment. The system automatically updates the AP control
account in the general ledger. Daily, the accounts payable clerk reviews the open cash disbursement
voucher records from her terminal looking for items that need to be paid. The clerk then creates a
record of the payment in the digital check register and closes the open cash disbursement voucher.
Finally, the clerk prints a hard copy of the check and sends it to the vendor. The system automatically
updates the accounts payable and cash general ledger accounts.
Required:
1. Analyze the internal control weaknesses in the system.
2. Follow the format below.
Introduction
 Context (Background)
 Purpose - what is the case study trying to achieve?
Discussion/Analysis
 Identification of issues and problems
 Explanation of causes or implications of the issues identified
Conclusion
These depend on what you were asked to do but could include:
 Main lessons learned
 Best solutions and reasons why
Recommendations
 Action plan
 Possible solutions/actions taken
INTRODUCTION
Context (Background)

Successful and huge companies are facing thousands of hardships and conquering them is
what they do. It could lead the company to its demise or downfall if they aren't able to apply
proper solution to its problems. As per ABE Plumbing, Inc. They are having a hard time facing
the challenge of expenditure cycle due to fierce competition from online discount stores and
operational inefficiencies caused by an outdated system

PURPOSE OF THE STUDY

 what is the case study trying to achieve?
This case study aiming to analyze the problems and issues that happening in the internal
control and how it can affect the expenditure cycle.

DISCUSSION/ ANALYSIS
 Identification of issues and problems
Explanation of causes or implications of the issues identified

1.
2.
3.
4.

5. LIMITED AUTOMATION - While the system is described as "almost entirely paperless,"

several steps still involve printing hard copies of documents such as purchase orders,
receiving reports, and checks.

Possible issues are the time of process of receiving the items. How long it takes since
accounting system is kind of outdated and they still normalize using hard copies of receipt
and purchase orders. For example, processing of purchase and printed purchase receipt
might be delayed as well as the orders. It can be not well integrated or data processing
malfunctions such as submitting data but not yet recorded in the system. Since they are still
using manual process, there are tendency of slow production and delays of delivering orders
as well as giving the information of purchasing to other department.

POTENTIAL DATA SECURITY RISK - Although they mention a centralized computer file
server, it does not provide details or added information about data security measures.
From the word itself, the information system is centralized, or all of the records are kept in
one place, which is run by a small data processing department. All accounting records are
maintained centrally and stored on a file server in the data processing department.

How can you be so sure that the data records are secured enough and compatible enough
not to get hacked? It is obvious that its foundation is not that strong because it runs a small
department. Paperless is not applicable to all because there's a possibility that it will get
hacked and lose all the records. It should be automated and have a backup file or plan so
that we can secure the safety of all the data records.

CONCLUSION
Main Lesson Learned

System Upgrade: The case study emphasizes how crucial it is to upgrade the current
information system with a more up-to-date and integrated. This would eliminate paper-
based procedures, reduce errors, and enhance overall operational efficiency.

Digital Document Management: Establishing a centralized accounting information system

would simplify things and reduce the need to print paper copies. It would be more efficient
and less expensive to have electronic access to purchase orders, receiving reports, invoices,
and payment records.

Automation and Integration: It can increase accuracy and efficiency by automating

procedures and integrating the systems of multiple departments. Time might be saved and
manual errors would be decreased by automating the closing of purchase orders, updating
ledger accounts, and creating payment records.

 Best solutions and reasons why

Implement a Standard Operating Procedure (SOP) for receiving products:
Establish a clear set of standards and processes for receiving items. This should contain
instructions on how to examine the quality and quantity of the items received, how to
record the receipt of goods, and how to manage any discrepancies or difficulties that may
emerge.

Upgrading Internal control using digital document management system:

The clerk can compare the packing slip and the purchase order using a digital document
management system. The two documents can be scanned, uploaded, and compared side by
side once in the system. The technology can also highlight any inconsistencies or mistakes,
making it simpler for the clerk to find and fix problems. The system can also save the
reconciled papers for future auditing and reference needs.

Use data analytics:

Implement data analytics tools to identify patterns and anomalies in financial data. This will
help to identify potential misrepresentations and errors. To find any inaccuracies or
misrepresentations, conduct routine audits of financial statements. For objectivity's sake,
the audit should be carried out by a neutral third party.

RECOMMENDATIONS
Action Plans/ Possible Solution

1. Ensuring accurate invoice.

- Vendor's invoice should manually and systematically check and validate to prevent
redundancy and free from errors and to ensure the accuracy of the vendor's invoice.

2. Implementing Data Analytics

- The role of data analytics is to extract and catalogue data, so that organisation can easily
pinpoint, evaluate relationships ,patterns,draw conclusions based on the data and can be
used to make decisions. It can also help to create new opportunities that can help the
company's growth.

3. Implementing a Standard Operating Procedure.

- It includes properly inspecting the quality and quantity of the items. One of its advantage is
it can help you to easily determine any discrepancies of the items.
GROUP PARTICIPATION

Group Task Deligation Remarks Reported Parts

members
Dimaliuat, Thea Conclusion R Main lesson
Marie A. learned
Indulos, Kate Recommendations R Action Plans/
Princess Possible solutions
Making
Powerpoint
presentation
Manglo, Hanna Discussion and R Explanation of
Justine, S. Analysis, Written causes or
implications of
report
the issues
identified

Murillo, Discussion and R Identification

Gennica Analysis, Written of issues and
problems
Report
Percal, Introduction R  Context
Romalyn Joyce, (Backgroun
d)
D.
Purpose - what is
the case study
trying to achieve?
Sosa, Lyracyl, B. Conclusion R  Best
solutions
and
reasons
why

GROUP PARTICIPATION - ALL MEMBERS( R)