System Documentation and Cycles in Accounting - A Case Study

Overview of the Customer Order Process

Question 1: Systems documentation

To help you understand a process of customer order, Sarah described:

“The client sends in a customer order which is received by a clerk - Katie Dodd. Katie enters thecustomernameintothecomputerandthecomputerretrievesthecustomeraddressfromthe customerdatafileandcheckstheaccountreceivabledatafiletoensuretheneworderdoesnot exceed the credit limit. This data is displayed on the computer screen. The item numbers for the products that the customer wishes to buy are keyed in, with the computer retrieving the product description from the equipment data file. The complete order details are displayed on the computer screen and Katie checks that the details match those on the customer order. If they agree then the ‘confirm order’ button is clicked and the data saved in the customer order data file. The paper customer order is filed by customername.

[Note: Katie is allowed to approve and set credit limit up to $10,000 per new customer. With existing customers, Katie is permitted to extend the credit limit up to $3,000].

When the computer gets the confirmation of the order from Katie, it emails a copy of the customer order to the warehouse supervisor – Tom Carter. Tom prints the order and gets the goods listed on the order and packs them securely for sending to the customer. Once packed, Tom goes to the computer and enters the customer order number. The computer retrieves the full details from the customer order and displays on Tom’s computer screen. Tom then enters his name and the date of packing. The computer then saves these full details in the invoices datafile and prints a copy of the invoice and the customer insurance policy. Tom then attaches theinvoiceandthecustomerinsurancepolicytothegoodsandtheyaresenttothecustomerat 4pm each day. At 6pm each day, once the trading hours for the business are complete, the computer then accesses the invoice data file and takes the data for all invoices created on that dayandupdatesthesalesdatafile,theaccountsreceivabledatafileandtheinventorydatafile. The paper copy of the customer order is signed by Tom who packed the goods and filed by date.”

Required:

Prepare a system flowchart of theaboveprocess. 

Note: Students are allowed to use any flowchart drawing tools (e.g., Visio, SmartDraw, flowchart stencils). A freehand drawing flowchart will not be marked.

Question 2: Cycles

a. Identify threemajor risks within the system Sarah described above; each potential consequence of each risk; and one control that could be implemented to combat each identifiedrisk

b. Which internal control procedures would be most cost-effective in dealing with the following expenditurecyclethreats?

i. A purchasing agent orders materials from a supplier that he partially owns. He also adds a new record to the supplier master file. The company does not exist. Subsequently, the purchasing agent submits invoices from the fake company for various cleaning services. The invoices arepaid.

ii. Receiving-dock personnel steal inventory and then claim the inventory was sent to thewarehouse.

iii. A fictitious invoice is received and a cheque is issued to pay for goods that were never ordered ordelivered.