Discount tools is a rapidly growing online and catalogue-based retailer of low cost tools and equipment directed to the do-it-yourself consumers and to small service companies in the automotive repair and home improvement industries. Discount Tools offices and warehouse are located in Atlanta, Georgia. The firm purchases from a large number of manufacturers in China and India, and to a lesser extent from U.S.-based suppliers.
The company employs a networked accounting system with distributed terminals in several departments, but some tasks are performed manually.
Until recently the system had functioned satisfactorily, but Discount Tools is now experiencing operational inefficiencies and accounting errors. Your firm has been hired to evaluate Discount
Tools' business processes and internal controls. The expenditure cycle is described in the following paragraphs.
Purchase System Procedures
Discount Tools' purchase transactions are initiated when the purchasing department clerk reviews the inventory file for items that need to be replenished. The clerk selects a vendor, adds a record to the digital PO File, and prints four hard copies of the purchase order. One copy is filed in the department; the second copy is sent to the receiving department; the third copy is sent to the accounts payable department; and the final copy is sent to the vendor.
When the goods and the packing slip arrive at the receiving department, the receiving clerk examines the items for condition and verifies the quantities received against the packing slip. Upon completion of the inspection, the clerk manually creates two hard copies of a receiving report. One copy is filed in the department and the second accompanies the goods to the warehouse.
In the warehouse. the clerk receives and shelves the goods. In addition, the clerk updates the inventory file by posting the amounts received to the various inventory records affected. When the accounts payable department clerk receives the invoice from the supplier, he visually matches it to the hard copy purchase order on file. The clerk then adds a record to the vendor invoice file. which serves as the AP subsidiary ledger and sets a due date for payment. Finally. at the end of each day, the warehouse clerk and the AP clerk create digital journal vouchers to reflect the day's transactions. The system automatically posts the journal vouchers to the relevant GL control accounts.
Required
a. Create a data flow diagram of the current system.
b. Create a system flowchart of the existing system.
c. Analyze the physical internal control weaknesses in the system.
d. Describe the IT controls that should be in place in this system.
e. (Optional) Prepare a system flowchart of a redesigned computer-based system that resolves the control weaknesses that you identified. Explain your solution.