Page 271 - Accounting Information Systems

242 PART II Transaction Cycles and Business Processes

report. By eliminating this source of potential discrepancy, Ford was able to eliminate the task of recon-
ciling vendor invoices with the supporting documents for the majority of purchase transactions. As a
result of its reengineering effort, Ford was able to reduce its AP staff from 500 to 125.

CONTROL IMPLICATIONS
The general control issues raised in Chapter 4 pertain also to the expenditure cycle and are not revisited
here. A full treatment of this material is provided in Chapters 15 through 17. In the following section we
examine only the issues specific to the expenditure cycle by focusing on the differences between an auto-
mated and a reengineered system.

The Automated System
IMPROVED INVENTORY CONTROL. The greatest advantage of the automated system over its
manual counterpart is improved ability to manage inventory needs. Inventory requirements are detected
as they arise and are processed automatically. As a result, the risks of accumulating excessive inventory
or of running out of stock are reduced. With this advantage, however, comes a control concern. Authori-
zation rules governing purchase transactions are embedded within a computer program. Program errors
or flawed inventory models can cause firms to find themselves suddenly inundated with inventories or
desperately short of stock. Therefore, monitoring automated decisions is extremely important. A well-
controlled system should provide management with adequate summary reports about inventory pur-
chases, inventory turnover, spoilage, and slow-moving items.

BETTER CASH MANAGEMENT. The automated system promotes effective cash management by
scanning the voucher file daily for items due, thus avoiding early payments and missed due dates. In addi-
tion, by writing checks automatically, the firm reduces labor cost, saves processing time, and promotes
accuracy.
To control against unauthorized payments, all additions to the voucher file should be validated by
comparing the vendor number on the voucher against the valid vendor file. If the vendor number is not
on file, the record should be diverted to an error file for management review.
In this system, a manager in the cash disbursements department physically signs the checks, thus pro-
viding control over the disbursement of cash. Many computer systems, however, automate check signing,
which is more efficient when check volume is high. This, naturally, injects risk into the process. To offset
this exposure, firms set a materiality threshold for check writing. Checks in amounts below the threshold
are signed automatically, while those above the threshold are signed by an authorized manager or the
treasurer.

TIME LAG. A lag exists between the arrival of goods in the receiving department and recording inven-
tory receipts in the inventory file. Depending on the type of sales order system in place, this lag may neg-
atively affect the sales process. When sales clerks do not know the current status of inventory, sales may
be lost.
PURCHASING BOTTLENECK. In this automated system, the purchasing department is directly
involved in all purchase decisions. For many firms this creates additional work, which extends the time lag
in the ordering process. A vast number of routine purchases could be automated, thus freeing purchasing
agents from routine work such as preparing POs and mailing them to the vendors. Attention can then be
focused on problem areas (such as special items or those in short supply), and the purchasing staff can be
reduced.

EXCESSIVE PAPER DOCUMENTS. The automated system is laden with paper documents. All opera-
tions departments create documents, which are sent to data processing, and which data processing must then
convert to magnetic media. Paper documents add costs because they must be purchased, stored, prepared,
handled by internal mail carriers, and converted by data processing personnel. Organizations with high vol-
umes of transactions benefit considerably from reducing or eliminating paper documents in their systems.