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252 PART II Transaction Cycles and Business Processes
4. Walker Books, Inc. (Manual System with to provide legitimate documentation of transactions
Minimal PC Support) have become common.
One potential source of these problems rests with
(Prepared by Matt Wisser, Lehigh University)
Walker’s antiquated accounting system, which is a com-
Walker Books, Inc., is one of the fastest-growing book
bination of manual procedures supported by stand-alone
distributors in the United States. Established in 1981 in
PC workstations. These computers are not networked
Palo Alto, California, Walker Books was originally a
and cannot share data between departments. All interde-
side project of founder and current president Curtis
partmental communication takes place through hard-
Walker, who at the time was employed by a local law
copy documents.
firm. Because reading was much more than just a hobby
You have been hired as an independent expert to
of his, he decided to use some of his savings to buy an
express an opinion on the appropriateness of Walker
abandoned restaurant and convert it into a neighbor-
Books’ business processes and internal controls. The
hood bookstore, mainly selling used books that were
expenditure cycle is described next.
donated and obtained from flea markets. When the
doors first opened, Walker’s wife, Lauren, was the only
employee during the week and Curtis worked week- Expenditure Cycle
ends. At the end of the first fiscal year, Walker Books Purchases System
had grossed $20,000 in sales. The purchases process begins with the purchasing
As the years passed, Curtis Walker quit the law agent, who monitors the levels of books available via a
firm and began concentrating fully on his bookstore. computer terminal listing current inventory. Upon notic-
More employees were hired, more books were traded ing deficiencies in inventory levels, the agent manually
in, and more sales were attained each year that passed. generates four hard copies of a purchase order: one is
During the mid-1990s, however, Walker was faced sent to accounts payable, one is sent to the vendor, one
with two problems: many large, upscale bookstores is sent to the receiving department, and the last is filed
were being built in the area, and the use of the Internet within the department.
for finding and ordering books was becoming cheaper Vendors will generally ship the products within five
and more popular for current customers. In 1995, business days of the order. When goods arrive in the
Walker’s sales started to decline. Deciding to take a receiving department, the corresponding packing slip
risk because of the newfound competition, he closed always accompanies them. The receiving department
his doors to the neighborhood, invested more money clerk unloads the goods and then reconciles the packing
to expand the current property, and transformed his slip with the purchase order. After unloading the goods,
company from simply selling used books to being a the clerk manually prepares three hard copies of the
distributor of new books. His business model was to receiving report. One copy goes with the goods to the
obtain books from publishers at a discount, store them warehouse, another is sent to the purchasing depart-
in his warehouse, and resell them to large bookstore ment, and the final copy is filed in the receiving depart-
chains. ment. In the warehouse, the copy is simply filed once
Walker Books, Inc., has rapidly become one of the the goods are stored on the shelves. In the purchasing
largest book distributors in the country. Although they department, the clerk receives this copy of the receiving
are still at their original location in Palo Alto, California, report and files it with the purchase order.
they distribute books to all 50 states and because of that, When the accounts payable department receives the
the company now sees gross sales of about $105,000,000 purchase order, it is temporarily filed until the respec-
per year. When Mr. Walker is asked about his fondest tive invoice arrives from the vendor. Upon receipt of
memory, he always responds that he will never forget the invoice, the accounts payable clerk removes the pur-
how the little bookstore, with two employees, has chase order from the temporary file and reconciles the
expanded to now have more than 145 employees. two documents. The clerk then manually records the
Under his current business model, all of Walker’s liability in the hard copy accounts payable subsidiary
customers are large-chain bookstores who themselves ledger. Finally, the clerk files the purchase order and
see many millions of dollars in revenue per year. Some invoice in the open accounts payable file in the depart-
of these customers, however, are now experiencing ment. At the end of the day, the clerk prepares a hard-
problems with Walker Books that threaten their busi- copy journal voucher and sends it to the general ledger
ness relationship. Such problems as books being or- department.
dered but not sent, poor inventory management by Once the general ledger department receives the
Walker causing stock-outs, and the inability of Walker journal voucher, the clerk examines it for any obvious