Page 282 - Accounting Information Systems

C H A P TER 5 The Expenditure Cycle Part I: Purchases and Cash Disbursements Procedures 253

errors and then enters the relevant data into the depart- 5. A&V Safety, Inc. (Manual and Stand-
ment PC to update the appropriate digital general ledger Alone Computer Processing)
accounts.
(Prepared by Adam Johnson and Aneesh Varma,
Lehigh University)
Cash Disbursements System A&V Safety, Inc., is a growing company specializing in
The accounts payable clerk periodically reviews the the sales of safety equipment to commercial entities.
open accounts payable file for liabilities that are due. To It currently employs 200 full-time employees all of
maximize returns on invested cash yet still take advan- whom work out of their headquarters in San Diego,
tage of vendor discounts, the clerk will pull the invoice California. During the summer, the company expands
two days before its applicable due date. Upon finding to include about 10 summer interns who are delegated
an open accounts payable file in need of payment, the smaller jobs and other errands. A&V currently com-
clerk manually prepares a check for the amount due as petes with Office Safety, Inc., and X-Safe, who lead
per the invoice. The hard copy accounts payable ledger the industry. Suppliers for A&V include Halotron Extin-
is also updated by the accounts payable clerk. The guishers, Kadelite, and Exit Signs, Inc. A&V attempts to
check number, dollar amount, and other pertinent data maintain inventory levels sufficient to service two weeks
are manually recorded in the hard-copy check register. of sales. This level has shown to avoid stock-outs, and
The check is then sent to the cash disbursements depart- the excess inventory is held in a warehouse in a suburb
ment. Finally, the invoice is discarded as it no longer of San Diego.
has any relevant information that hasn’t already been A&V has a legacy accounting system that employs a
recorded elsewhere. combination of manual procedures supported by stand-
When the cash disbursements clerk receives the alone PC in the various departments. Recently they
unsigned check, she examines it to ensure that no one have experienced business inefficiencies that have been
has tampered with any of the information and that no linked to their antiquated accounting system. You have
errors have been made. Because she is familiar with all been retained by A&V management to review their pro-
of the vendors with whom Walker deals, she can iden- cedures for compliance with the Sarbanes-Oxley Act
tify any false vendors or any payment amounts that and to provide recommendations for improvement. The
seem excessive. Assuming everything appears in order, A&V expenditure cycle is presented in the following
she signs the check using a signature block that displays paragraphs.
the name of the assistant treasurer, Tyler Matthews.
Only Matthews’ signature can validate a vendor check. Expenditure Cycle
The cash disbursements clerk then photocopies the The company purchases safety devices such as fire
check for audit trail purposes. extinguishers, exit signs, and sensors from many differ-
Once the check is signed, it is sent directly to the sup- ent suppliers. When the quantity on hand of a particular
plier. The photocopy of the check is marked as paid and product falls to a low level, the warehouse clerk selects
then filed in the cash disbursements department. The a vendor and manually prepares three hard copies of a
clerk then creates a journal voucher, which is sent to the purchase order. The clerk sends one copy of the pur-
general ledger department. Once the general ledger chase order to the vendor, one copy to the general
department receives the journal voucher, the clerk exam- ledger department, and the third to the receiving depart-
ines it for any obvious errors and then enters the relevant ment to be used to verify the goods when they arrive.
data into the department PC to update the appropriate When the goods arrive from the vendor, they first go to
digital general ledger accounts. the receiving department. The receiving clerk matches
the packing slip in the shipment to the purchase order
Required that the warehouse clerk had previously sent. After
a. Create a data flow diagram of the current system. comparing the quantities and products on the packing
b. Create a system flowchart of the existing system. slip to those specified on the purchase order, the receiv-
c. Analyze the internal control weaknesses in the ing clerk signs the purchase order and sends it to the
system. Model your response according to the accounting department. The receiving clerk then man-
six categories of physical control activities specified ually prepares a hard-copy receiving report, which he
in SAS 78/COSO. sends with the goods to the warehouse. From his depart-
d. Prepare a system flowchart of a redesigned computer- ment PC, the warehouse clerk uses the receiving report
based system that resolves the control weaknesses to update the inventory subsidiary ledger to reflect the
you identified. Explain your solution. receipt of the goods.