HA2042
Accounting Information Systems
Case Study – Adam & Co
Executive summary
Accounting has been an important factor in the current scenario of business operations. A series of systems such as purchase, cash disbursement system and payroll systems play a major role in managing these accounting operations. These systems are integrated with some prominent internal control weaknesses which initiate a lacking perspective for the related organization. A series of risks are also related to these internal control weaknesses which can hamper the overall wholesale operations at Adams & Co. The report provides a detailed analysis of all these factors to assess the defined possibilities all along with the industry and organization. Different aspects which are crucial to the systems have been examined all along with the report for achieving a better understanding of the available aspects. The high-results which are intended to produce significant results are identical in many cases and thus the assessment process becomes more objectified. The risks identified are crucial for managing and maintain the required format of internal control weaknesses depicted across the organization.
Table of contents
Processes, risks, and expenditure cycle evaluation 4
Introduction
In an organization, the number of operations being conducted on a regular scale is huge. This leads to the development of the large volume of data and information based on different domains such as purchase, Cash disbursements system and Payroll system. To manage these sections and the large scale data requirements, a series of accounting principles are put in to place (Masum et al. 2018). These accounting principles are integrated under a centralized system to enhance the ease of operation. There are a different set of frameworks which represent operational usage based on differences across the provided set of services. This report explains the various systems such as purchase, cash disbursement, and payroll which constitute the centralized accounting operations in an organization named Adam and Co. This company deals with industrial supplies which are sourced from international manufacturers based in China, Vietnam, and Thailand. The report evaluates processes, risks and internal control factors for each of the departments and their expenditure cycles.
Processes, risks and expenditure cycle evaluation
Purchases system
System flowchart
The purchase system flowchart depicts an actual demand-based strategy for making purchases under the defied sections. The process starts with the acknowledgment of a deficiency in terms of products through inventory subsidiary ledger check by the purchasing clerk. Soon after the identification of a product shortage is made, a digital purchase order is prepared through analysing the available set of vendors. This process is ideal for any major purchase system as it helps in taking exact decisions based on the requirements. Soon after the ordered goods are received, a reconciliation is carried out by the receiving clerk to authenticate. Two hard copies for the receiving reports are made at this point. One of these copies remain at the receiving end and the other one is sent to the warehouse along with the received product (Olagunju et al. 2018). Each of the adjacent processes is accompanied by the available inventory to the storage positions. Invoices related to the available orders are assessed under the next stage with the help of digital purchase order. During this time, all of the three components which are the digital accounts payable subsidiary ledger, inventory control account and the accounts payable control account are updated. The final step involves sending of the receiving report, invoice and the purchase order copies to the cash disbursement department (Yun et al. 2018).
Internal control weakness
Less controlled transactional authorization
The whole purchase system is disintegrated into several sections. These sections are authorized by an individual clerk at each level of operation. This can be considered as insufficiency in terms of authorities. There must be a central authority which can monitor each of the departmental operations related to a successful transaction. The availability of a less controlled transactional authorization process weakens the internal processing competencies linked to the system (Taha and AbdulRazzaq, 2019). It initiates a significantly ineffective mode of operation and maintenance across the various transactions which are being made.
Lack of logical and physical security
The availability of automation across the provided sector is considered to be highly evident in terms of managing the available security concerns. The system lacks physical and logical approaches for retaining a secure operational environment (Hu et al. 2016). This internal factor can provide a significant contribution in defining the lack of control across the transactions. Physical security enables a satisfaction factor for its operations which in general is highly efficient all along the process. It is an internal factor which can limit the progress across the organizations.
Risks associated
Risks associated with the internal control weaknesses relate with the availability of significant chances of misinterpreted information propagation and data breaching. In addition to this, malware in its automated accounting system can limit the chances of protection and facilitate a less secure operational environment (Valacich et al. 2017). There are threats related to this internal issue of the system which is likely to develop a more integrated form of operation. The overall efficiency of the accounting system is affected negatively across the provided section.
Cash disbursements system
System flowchart
The cash disbursement system flowchart is responsible for analysing the payments to vendors based on their respective suppliers. Initially, the flowchart describes the reception of documents from the accounts payable department and filing them until their payment due date. Each of the invoiced accounts is liable to be presented with a cheque which is prepared by the cash disbursement clerk. The check is sent to the treasurer who is held accountable for approving it and sending it to the respective vendor. Following this, the cash disbursement clerk is accountable for updating the accounts payable subsidiary ledger, cheque register and the accounts payable control account. The final section involves the filing of purchase order copy, cheque copy, invoice and receiving reports to the department (Setiawan et al. 2018). Managing this department effectively requires a certain set of ideologies along with assumptions based on previous operations. The accountabilities are also integrated with the supposed possibilities and interaction abilities for the system to provide a better approach for managing funds and resources. As this system is responsible for conducting transactions based on vendor payments availability of an efficient management factor is highly required. A better cash disbursement system is likely to increase the efficiency perspectives based on the system. It is liable to establish a better relationship between the organization and its vendors that are highly productive in terms of future business transactions.
Internal control weakness
Continuous adaptation issues
The security factors related to this system are based on its operational limitations and barriers. The changes in regulations and business operational models are not at all simple to adapt. These require a string of operations and the system at this organization cannot make them functional with the available set of equipment and technologies (Salas-Molina et al. 2019). Thus, this can arise as an internal control factor for the system. The changing demands in terms of products and services demand a wider area of operation across the provided set of systems. This is also liable to provide a more depended form of system which is supported by available developments.
Central control over the system
The system is controlled and operated by the defined set of clerks who perform their operations independently. To avail a controlling factor internally, availability of a centralised system for monitoring these processes is required (Sagala and Purba, 2016). It can help in keeping a track of the transactions as a whole and can provide a better approach for information assessment. The absence of a centralised control can improve the overall efficiency factor for each of the system and stages included under this system.
Risks associated
The risk of lacking behind from the ideal mode of operation and achieving the desired form of structural positioning and availability of misconducts at clerical level operations are crucial to this system. These internal control aspects can also generate issues in terms of achieving a better and adaptive system based on the surrounding developments. In addition to this, if there is any misconduct taking place under the system, it can be managed at clerical level thus the chances in terms of controlled operations increases by many folds (Brandon, 2016). There can be a more impactful and authorized form of operational risks associated with this unavailability of a centralised control system.
Payroll system
System flowchart
This is the last system in this string for the selected organization. The basic operations included in this section related with the availability of a reward-based system which is responsible for providing adequate support to the organizational employees. Initialization of this system is based on the process related to the identification of exact working hours based on the time cards provided to the individuals. This forms the basic ideology upon which this whole system is based. In the subsequent sections, a digitalized system is used for entering these time cards and generating paycheque for each of the employees by the payroll clerk (Mukherjee, 2017). Following this, the process related to rechecking of the paycheques along with the time cards is carried out by the supervisor. This is to ensure a corrective allocation of funds to the required set of operational employees. This process acts as a monitoring process which is ideal for facilitating operational excellence across the defined sections. This is followed by the development of a payroll cheque register which is used to generate a final paycheque for each of the employees. The last section of this flowchart relates to the
availability of an update for the payroll by the general ledger clerk.
Internal control weakness
Lack of proper initiatives for actual working hour calculation
The availability of time card is in many scenarios less effective as it is controlled and coordinated by the employees themselves. The overall usability factor which is associated with the efficiency of this system is related to the faithfulness of its employees. In the case of an inefficient workforce, the chances of issue identification are very low (Haruna et al. 2015). The employees which practice flexible working hours, there is constant availability of mismanagement as the data collection process is largely based on time card which is controlled and operated by the employees themselves (Herrera-Cáceres and Ibeas, 2016).
Lack of automated systems
The operations under this particular system are carried out manually with the help of available documents and the clerks. There are chances of failure as manual processing of information is less significant in terms of accuracy and efficiency. The overall operability index related to these systems is based on differences like information management for each of the defined sections (Trout, 2019). The manual inputting of time card data provides the operations with an ability to get corrupted and managed based on their requirements.
Risks associated
The risks related to both of these internal control weaknesses provide a constant risk of negative payroll cheque development. The chances of manipulation based on employee data is likely to affect the entire process of managing the payroll system. In addition to this, the unavailability of an automated system is liable to produce a significant amount of errors all along this process of the payroll management system (Azizah et al. 2017). There is a constant risk of misinterpretation of data due to manual processing. The clerks, as well as the employees, are liable to make changes based on their requirements and this can be used to facilitate issues across the organization.
Conclusion
To conclude, it can be said that this report explains the basic structure of an accounting system framework in an organization named Adam & Co. The three most crucial systems related to this organization are discussed based on their operational standards, internal control weaknesses, and the associated risks. The three systems which are namely the purchases system, cash disbursement system and payroll system are analysed with the help of flowcharts. Each of the individual sections for the projects is assessed and analysed across the defined segments and a more ideal method to operate the organizational processes within these systems are put into practice. The usability and issues related to an effective accounting system are explained all across the provided system. It can be assessed by the intuition of the organization through various sections of operations and management including all along the process. The risk factors are described by their respective internal control weaknesses which provide them a relativeness with the mainframe issues which are being held under the provided sections. In addition to this, each of the internal control weaknesses is examined for all of the three systems which have provided this report with adequate information and supportive ideologies.
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