School of Accounting and Commercial Law
ACCY 225 ACCOUNTING INFORMATION SYSTEMS
Trimester One 2017
Tutorial 3: Business Processes
Objective of Tutorial:
At the end of this tutorial, students will
Demonstrate understanding of the revenue and expenditure processes and the key
controls associated with these processes
We expect that with respect to the tutorial:
Students will have prepared answers to the questions before the tutorial and will be
able to discuss them
Tutors will provide guidance, but no model answers will be handed out.
Question 1: Revenue process
The following are the system failures that have control implications.
1. Acme Inc’s field sales person record customer orders on prenumbered order forms and
then forward the forms to central headquarters for processing. Frank Rosen, one of
Acme’s top salespeople, mailed 40 customer orders to headquarters on one Friday
afternoon. Unfortunately, they were misplaced in the mail and did not reach
headquarters until two weeks later.
Electronic system
Entering data directly/do it himself
2. At Medfords Co, clerks key order data into the order entry system at one of several PCs.
In the first week of operations of this system, every sales order produced by the
computer was missing the data for the “ship to” address.
Backing up data over cloud or on a hard-drive
Preformatted screens – data elements included that ensure data, must be entered
(VLOOKUP)
3. At Richmond Inc, the finished goods warehouse delivers goods to the shipping
department, accompanied by the picking ticket. Then the shipping department prepares
the packing slip. A recent audit discovered that a dishonest warehouse employee had
been forging picking ticket documents, allowing him to have goods shipped to an
accomplice.
Pre-numbered documents
Authorisation to ship should NOT come from warehouse personal
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4. The job of Gladys, a programmer at Tolland Inc, included doing maintenance
programming for the order entry application. Gladys altered the programs so that the
credit checking routine was bypassed for one of the customers, a company owned by
her uncle.
Checking credit
Program change controls authorised and tested PRIOR to implementation
Required:
For each system failure, identify one or two controls that can prevent the system failure AND
briefly explain how the identified controls can prevent such failure.
Question 2: Expenditure process
Alden Ltd has hired you to review its system for the purchase, receipt, storage, and issuance
of raw materials. You observed the following:
• Raw materials, which consist mainly of high-cost electronic components, are kept in a
locked storeroom. Storeroom personnel include a supervisor and four clerks. Raw materials
are removed from the storeroom only upon written or oral authorisation by a production
supervisor.
• No perpetual inventory records are kept; hence, the storeroom clerks do not keep records
for goods received or issued. To compensate, the storeroom clerks perform a physical
inventory count each month.
• After the physical count, the storeroom supervisor matches quantities on hand against a
predetermined reorder level. If the count is below the reorder level, the supervisor enters
the part number on a materials requisition list that is sent to the accounts payable clerk. The
accounts payable clerk prepares a purchase order for each item on the list and mails it to the
supplier from whom the part was last purchased.
• The storeroom clerks receive the ordered materials upon their arrival. The clerks count all
items and verify that the counts agree with the quantities on the bill of lading. The bill of
lading is then initialled, dated, and filed in the storeroom to serve as a receiving report.
Required:
Suggest three changes to the current system and procedures above.
Tuts Notes
Business Processes
1) Capturing and storing data
2) Storing and organising data for decisions
3) Providing controls to safeguard resources/data
Threats
1) Customer/entity enter inaccurate or incomplete data
(Field validity checks), (VLOOKUP/preformatted – prefilling screens), (Authorized
customer master table)
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2) Sale to Customer with poor credit
(Credit polices with credit manager), (Authorization/approval before inventory
shipped), (No additional sales to customers with poor credit)
3) Orders are not legitimate
(Customer master table (approved)), (Check duplicates), (offering credit – careful
approval process)
4) Inventory
(Stockouts), (Carrying costs), (Mark claims), (Just-in-time production inventory),
(Careful planning of purchasing), (Safety stock)
Purchasing
Stock out/excess Inventory
High Purchasing costs
Purchasing items not needed
Purchasing at inflated prices
Purchasing goods of inferior quality
1) Perpetual Inventory System – Bar-coding inventory
2) Blanket Purchase Order
3) Integrate databases between divisions
4) Bids, Catalogue
Receive Items
1) Documentaton – secure storage location
2) Only accept with approved P.O
3) Bar-coding
Pay Bills
Paying for items not received
Failure to take advantage of discounts for prompt payment
Duplicate payments
Theft of cash
Travel expenses and petty cash
1) Three way match (P.O, RR, Invoice)
2) File & track invoices by due date
3) Cancel invoices once paid
4) Restrict access to cash, S.O.D
5) Surprise audit, Invoices to XERO
