mol CONFIDENTIAL 4 ACIJUN 2019/A1S615, SUGGESTED SOLUTIONS QUESTION 1 Question 1 (a) Define systems development and systems maintenance + Systems development refers to the process by which organizations acquire information systems v + Systems maintenance is responsible for making changes to existing systems to accommodate changes in user need ¥ Or any other relevant explanations (2¥ x1 mark = 2 marks) Question 1 (b) Three (3) fundamental tasks involved in database management tasks are(page 12). + Storage ¥ + Retrieval v © Deletionw (3 x 1 mark = 3 marks) Question 4 (c) ‘Two (2) sub-functions of materials management (page 13) i Purchasing v * Responsible for ordering inventory from vendors when inventory levels fall to their reorder pointsv + The nature of the business and the type of inventory determine the extent of the purchasing function ii, Receiving v ‘+ The task of accepting the inventory previously ordered by purchasing” +The activities include counting and checking the physical condition of these items” * The company able to detect incomplete deliveries and damaged merchandise before they move into the production process. ii, Stores ¥ ‘+ Takes physical custody of the inventory received” . Releases these resources into the production process into the production as neededy (dentification of any two (2) sub-function = 2 ¥ x % mark = 1 mark) + (Any 2 relevant points of explanation for each answers x 1 mark) = (5 marks) (Total: 10 marks) (© Hok Cipta Universiti Teknotog! MARA CONFIDENTIALCONFIDENTIAL, 2 ACIJUN 2019/A1S615 QUESTION 2 Question 2 (a) Two (2) primary types of journals General ledgers Summarize the activity for each of the organization's accounts” ‘The GL function updates these records from journal vouchers prepared from special journals and other sources located throughout the organization. It provides a single value for each control account, such as accounts payable, accounts receivable, and inventory.” Subsidiary ledgers b. ‘Are kept in various accounting departments of the firm including inventory, accounts payable, payroll and accounts receivable.” This separation provides better control and support of operations The total balance of account balances in a subsidiary ledger should equal the balance in the corresponding GL control account. r any other relevant explanations (Any 3 points of explanation for each answers x 1 mark = 6 marks) Four (4) rules and conventions which need to be observed: Data flow diagrams — uses symbols to represent identities, processes, data flows and data stores that pertain to a system Entity relationship diagrams — is documentation techniques to represent the relationship between business entities. System flowcharts — the graphical representation of the physical relationships among key elements of a system, Program flowcharts — shows the relationship between computer programs, the files they use and the outputs the produce, Record layout diagrams — used to reveal the intemal structure of digital records in a flat-file or database table (Any 2 points with relevant explanations x 2 marks = 4 marks) (Total : 10 marks) QUESTION 3 a Describe any three (3) principal types of coruption Bribery 7 = Involves giving, offering, soliciting, or receiving things of value to influence an official in the performance of his or her lawful duties. - Officials may be employed by government (or regulatory) agencies or by a private organization. (© Hak Cipta Universiti Teknologi MARA ‘CONFIDENTIAL,CONFIDENTIAL, 3 ACIJUN 2019/AIS615 - Bribery defrauds the entity (business organization or government agency) of the right to honest and loyal services from those employed by it. V - For example, the manager of a meat-packing company offers a U.S health inspector a cash payment, In retum, the inspector suppresses his report of heaith violation discovered during a routine inspection of the meat-packing facilities. ¥ Megal gratuities ¥ ~ Involves giving, receiving, offering, or soliciting something of value because of an official act that has been taken. 7 = Transaction ocours after the fact. 7 - For example, the plant manager in a large corporation uses his influence to ensure that a request is written in such a way that only one contractor will be able to submit a satisfactory bid. As a result, the favored contractor ‘s proposal is accepted at a non-competitive price. V - The victims, in this case are those who expect a competitive procurement process. ¥ - The loss is the excess cost the company incurs because of the non-competitive pricing of the construction, ¥ Conflicts of interest V = Occurs when an employee acts on behalf of a third party during the discharge of his or her duties V or has a self-interest in the activity being performed. ¥ - When the employee's conflict of interest is unknown to the employer and result in financial loss, then fraud has occurred. ¥ - This fraud can exist when an employee has an interest in the outcome of the economic event. ¥ - For example, a purchasing agent for a building contractor is also part owner in a plumbing supply company. ¥ The agent has sole discretion in selecting vendors for the plumbing supplies needed for building under contract. 1 Economic extortion ¥ ~The use (or threat) of force (including economic sanctions) by an individual or organization to obtain something of value. V = The item of value could not be a financial or economic asset, information or cooperation to obtain a favorable decision on some matter under review. V - For example, a contract procurement agent for a state government threatens to blackist @ highway contractor if he does not make a financial payment to the agent. - Faced with a threat of economic loss, the contractor makes the payment. Or any other relevant explanations (B answers X 1 mark + any 2 explanations each x 1 mark = 9 marks) b. _ Distinguish between skimming and cash larceny. ‘Skimming - Involves stealing cash from an organization before it is recorded in the organization's book and record. ¥ - One example is an employee who accepts payment from a customer but does not record the sale. V (© Hak Cipta Universiti Teknolog! MARA. CONFIDENTIALCONFIDENTIAL, 4 ACIJUN 2019/AIS615 = Another example, mail room fraud in which an employee opening the mail steals a customer's check and destroy the associated remittance advice. = By destroying the remittance advice, no evidence of the cash receipts exists. ¥ - This fraud may continue for several weeks or months until detected. ¥ - Ultimately the fraud will be detected when the customer complains that his account not been credited. V + By that ime, the mail em employee wll ave left the organization and moved on. Cash larceny = Involves schemes in which cash receipts are stolen from an organization after they have been recorded in the organization’s book and record. ¥ - For example, cash receipts the clerk first steal and cashes a check from Customer A - To conceal the accounting imbalance caused by the loss of the asset, Customer A’s account is not credited. ¥ - Later (the next billing period), the employee uses a check received from Customer B and applies it to Customer A’s account, ¥ - Funds received in the next period from Customer C are then applied to the account of Customer B, and so on. ¥ - Employee involves in this sort of fraud often rationalize that they are simply borrowing the cash and plan to repay it at some future date. ¥ - This kind of accounting cover-up continues indefinitely or until the employee retums the funds. ¥ - Lapping is usually detected when the employee leaves the organization or becomes sick and must take time off from work. ¥ - Employers can deter lapping by periodically rotating employees into different jobs and forcing them to take scheduled vacations. (Students highlight “before & after recording’=2 marks) + (Any other 2 relevant points for each type x 1 mark = 4 marks) = (6 marks) ¢. Discuss any two (2) ethical issues which are addressed in the written code of ethics. Conflict of interest ¥ = Should outline a procedure for dealing with actual or apparent conflicts of interest between personal and professional relationships. ¥ - The issue is in dealing with and not prohibiting them. V - Managers and employees alike should be made aware of the firm's code of attics, be glven decision models, and participate in training programs that are exploring the conflict of interest issues. Full and fail disclosures V = The organization should provide full, fair, accurate, timely, and understandable disclosures in documents, reports, and financial statement that it submit to the SEC and to the public. ¥ - Overly complex and misleading accounting techniques were used to camouflage questionable activities that lie at the heart of many recent financial scandals. V = The objective is to ensure that future disclosures are candid, open, truthful, and void of such deceptions. © Hak Cipta Universiti Teknologi MARA CONFIDENTIAL,CONFIDENTIAL 8 ACIJUN 2019/AIS615 Legal compliance ¥ ‘Should require employees to follow applicable governmental laws, rules, and regulations. ¥ - Not confuse ethical issues with legal issues. ¥ - To accomplish this, organizations must provide employees with training and guidance. ¥ Internal reporting of code violations V - To encourage and protect whistle-blowers. ¥ - The employee must see an employee hotline as emerging mechanism for dealing with these related requirements. ¥ - Because SOX requires this function to be confidential, many companies are outsourcing their employee hotline service to be independent vendors. ¥ Accountability ¥ = Section 301 directs the organization's audit committee to establish the procedure for receiving, retaining and treating such complaints about accounting procedures and internal control violations. ¥ - The audit committee will also play an important role in the oversight of ethics enforcement activities. Or any other relevant explanations (2 answers X 1/2 mark + any 2 explanations each x 1 mark = 5 marks) (Total: 20 marks) QUESTION 4 a, Discuss four (4) preventive control activities that can reduce the frequency of occurrence of fraud and error. * Segregation of duties, ‘The responsibilities of authorizing transactions, recording transactions, reviewing transactions, and maintaining custody of the asset should all be performed by different individuals * Authorization Pre-approval of actions and transactions + Physical control over assets Physical control over assets (\.. locks) can prevent access to assets by unauthorized personnel * Computer passwords and access controls. A password can prevent unauthorized access and alteration of confidential data + Employee screening and training. Screening of employee during employment can reduce the employment of an unskilled and dishonest employee. Training can improve skill and reduce errors. © Hak Cipta Universiti Teknologi MARA CONFIDENTIALCONFIDENTIAL 6 Pre-numbered document ACIJUN 2019/A1S615 Can reduce reduces the likelihood of unauthorized transactions Well design source document! ‘Source documents contain the details that accountants need to post transactions correctiy and allow for senior accounting staff members to perform effective internal controls Or any other relevant answers (any 4 ¥ types x 1 mark + 4 explanations with example for each type x1 % marks: 10 marks) b. The difference between supervision and independent verification: No | Supervision. Independent verification 1_| Preventive controis¥ Detective controisv 2 | Takes place while the activity is being | Takes place after the activity has taken performed Ww placed 3_| As a compensating control where itis_| As an independent check that will being carried out when segregation of | reveal the performance of an duties cannot be done eg for small _| individual, the integrity of transaction companies WW processing system and correctness of accounting data.vV 4 _| Require supervisory skilisv Require auditing skillsv Or any other acceptable answers (Any 10 ¥ x 4/2mark = 5 marks) (Total: 15 marks) QUESTION 5 a. The five tasks in the sales return procedures are: ‘© Prepare return sti counts, © Prepai to rec — when items returned, the receiving department staff inspects and prepares a retum slip describing the items. Credit Memo ~ this document is the authorization for the customer /e credit for the items returned. ‘+ Approve Credit Memo — credit manager evaluates the circumstances of the return and make the judgement to accept or reject the credit. The manager then returns the approved credit memo to the sales department. ‘© Update Sales Journal — upon receipt of the approved credit memo, the transaction is recorded in the sales journal as a contra entry. * Update Inventory & AR Records ~ the inventory control function adjust the inventory records and forward the credit memo to account receivable where ‘customer's account is also adjusted. © Update general Ledger — upon receipt of journal voucher and account summary, the general ledger function reconciles the figures and post to the control accounts. (Any 5 answers x 1 mark) + (Explanations x 1 marks) = 10 marks (© Hok Cipta Universiti Teknologi MARA. CONFIDENTIAL,CONFIDENTIAL i ACIJUN 2019/A1S615 b. Flowchart. CUSTOMER L ORDERS) Sa (Any 10 vx % marks = § marks) (Total = 15 marks (© Hak Cipta Universiti Teknotogl MARA CONFIDENTIALCONFIDENTIAL Part B QUESTION 1 8 ACIJUN 2019/AIS615 a. Five (5) intemal control weaknesses and five (5) improvements in the payroll procedures of Global Success Sdn Bhd. Weaknesses Improvements ‘Only the factory manager involves in the job interviews and he decides the candidates for the job. The personnel manager task is only to approve the chosen candidates. This will lead to hire wrong or imcompetent candidates. The personnel manager should also involve in the interview process and decides which candidates to be hired as hiring is under his jurisdiction, not the factory manager. The personnel manager should get input about the potential candidates from the factory manager to be considered in hiring decision and not just validates the candidates already chosen by him. The employees in the production department record the number of hours worked on a time card without supervision. This gives the opportunity to the employee to clock in/out for other employee. The proses of timekeeping should be supervised to avoid employees clocking in and out for other employees. ‘The production supervisor sends the hard-copy time cards to the payroll department for processing _ without reviewing them for accuracy. The time cards might be inaccurate and subject to manipulation. The supervisor should review the tine cards for accuracy and signs them before sending the time cards to the payroll department. The payroll department clerk receives the time cards and updates the employee payroll records without validating the information. This will cause wrong person to receive the paycheck wrong amount to be received, The payroll clerk should validate the time cards with the personnel action form received from the personnel department to ensure that the persons who will be receiving paychecks and the pay rates are valid. The clerk prints the employee paychecks and he also signs the paychecks.This subjects to manipulation by cleark as he ‘can steal the checks. There should be segregation of duties to avoid fraud. Since the clerk prepares the paycheck, there should be someone else who signs the checks. The clerk sents the paychecks to the production supervisors for distribution to the employees. This procedure may cause payroll frauds such as theft of paychecks by the ~—_production supervisors. The paychecks should be sent to the distribute paycheck function for distribution to the employee. The company could also use a paymaster to distribute the paychecks. (© Hak Cipta Universi Teknologi MARA ‘CONFIDENTIAL,CONFIDENTIAL 9 ACIJUN 2019/AIS615 Upon receipt of the payroll register, the | The AP clerk should reviews the payroll accounts payable clerk manually | register for correctness before preparing prepares two copies of a cash | copies of a cash disbursement voucher. disbursement voucher without reviewing the correctness of payroll register. This | The clerk should record the voucher in the might cause incorrectfinaccurate cash | voucher register. disbursement voucher. Or any other relevant explanations (any 5 Weaknesses with explanations x 2 marks = 10 marks) (any 5 related recommendations x 1 mark = 5 marks) Job ticket - mechanisms to capture the time that individual workers spend on each production job. \Cost accounting uses this document to allocate direct labour charges to work-in-process (WIP) accounts. ¥ Personnel action forms - this document identify employees authorized to receive a paycheck ¥ and it is used to reflect changes in hourly pay rates, payroll deductions, and job classification. ‘Time cards - tools to capture the time the employee is at work, YThis document is sent to the prepare payroll function for calculating the amount of the employee's paycheck. 7 Payroll register ~ a document showing gross pay, deductions, overtime pay, and net pay. ¥ The accounts payable (AP) clerk reviews the payroll register for correctness and prepares copies of disbursement voucher for the amount of payroll ¥ Labour distribution summary - summarization of labor costs in work-in-process accounts. V it is forwarded to general ledger function to be reconciled with disbursement voucher and journal voucher ¥ Or any other relevant explanations (Any Vx 1 marks) =10 marks imit hours allowed to be clocked in = to detect excessive hours reported per period 2. Automated devices such as biometric scanners, swipe card. 7 = To ensure only valid employee clocking into the system. 3. Automatic validation of employee's time cardy = Test to validate employee time cards against a valid and up-to-date employee file Paycheck direct deposit option V = To avoid check theft. x Or any other relevant explanations (any 2 points with explanations x 2.5 marks = 5 marks) (Total: 30 marks) END OF SUGGESTED SOLUTIONS (© Hak Cipta Universit Teknologl MARA, CONFIDENTIAL