NAME: MISHIEL L.

REYES SECTION: A22 DATE: February 26,2020

ACCOUNTING INFORMATION SYSTEM

MINI CASE STUDY: EXPENDITURE CYCLE

INTERNAL CONTROL
The following is a description of manufacturing company’s purchasing procedures. All computers
in the company are networked to a centralized accounting system so that each terminal has full
access to a common database. The inventory control clerk periodically checks inventory levels
from a computer terminal to identify items that need to be ordered. Once the clerk feels
inventory is too low, he chooses a supplier and creates a purchase order from the terminal by
adding a record to the purchase order file. The clerk prints a hard copy of the purchase order and
mails it to the vendor. An electronic notification is also sent to accounts payable and receiving,
giving the clerks of each department access to the purchase order from their respective
terminals. When the raw materials arrive at the unloading dock, a receiving clerk prints a copy of
the purchase order from his terminal and reconciles it to the packing slip.
The clerk then creates a receiving report on a computer system. An electronic notification is sent
to accounts payable and inventory control, giving the respective clerks access to the receiving
report. The inventory control clerk then updates the inventory records.
When the accounts payable clerk receives a hardcopy invoice from the vendor, she reconciles
the invoice with the digital purchase order and receiving report and prepares a paper cash
disbursements voucher. The cash disbursements voucher and invoice are placed in the open
accounts payable file in a filing cabinet until the due date. The clerk also updates the accounts
payable subsidiary ledger and records the liability amount in the purchase journal from the
department computer terminal.
The accounts payable clerk periodically reviews the cash disbursement file for items due and,
when they
are identified, prepares a check for the amount due.
Finally, using the department terminal, the clerk removes the liability from the accounts payable
subsidiary file and posts the disbursement to the cash account.
Required:
Analyze the internal control weaknesses in the system. List at least 5 internal control weakness.
Model your response according to the table below:

INTERNAL CONTROL WEAKNESS RECOMMENDATION

(What went wrong?)

Segregation of duty: The inventory clerk is the one To separate inventory control department
who made and prints the purchase order. from purchasing department. It was
supposed to be the purchasing department
making the purchase order.

Access: The receiving department received a copy To limit the access only to a blind copy of the
of the purchase order and print it out. purchase order. It was supposed to be a blind
copy which is send to the receiving
department.

Accounting Records: The receiving department did The receiving department should file to the
not sent a copy to be filed in the open/closed PO open/closed PO file in order for the
file. purchasing department update the status by
closing out the PO.

Independent Verification: The AP department clerk The general ledger must do its function and
did not sent any journal voucher to the general this function verifies that the total
ledger department. obligations recorded equal the total
inventories received and that the total
reductions in AP equal the total
disbursements of cash.