Outdoor Adventure is a Montana-based wholesaler of rafting and camping equipment that serves outdoor sports camping retailers throughout the northwest. You have been hired by Outdoor Adventure to evaluate its processes, risks and internal controls. The following paragraphs describe Outdoor Adventure’s fixed asset system.

Fixed asset acquisition begins with the departmental manager recognizing the need to obtain a new asset or replace an existing one. The manager prepares two copies of a purchase requisition; one is files within the department, and the other is sent to the purchasing department. The purchasing department clerk manually prepares three copies of a purchase order from the purchase requisition. One copy of the purchase order is sent to the supplier, another copy is sent to the AP department, and third copy is filed within the purchasing department.

The AP clerk receives a packing slip and invoice from the vendor and visually reconciles them with the purchase order received from the purchasing department. The clerk enters the information into the department computer terminal and sets up an AP liability. Using a computer terminal, the AP clerk then updates the purchases journal, prints a hard-copy journal voucher, and sends it to the general ledger department, and sends a cash disbursement voucher to the cash disbursement department with the supplier invoice. The clerk files the packing slip and purchase order in the AP department.

Using information from the supplier’s invoice and the cash disbursement voucher, the cash disbursements clerk prints a check from her terminal and records it in the digital check register. She sends the check to the vendor and the cash disbursement voucher to the general ledger department.

The user department manager handles both asset maintenance and asset disposal. The manager adjusts the fixed asset subsidiary account balances to match asset depreciation schedules over time. When an asset reaches the end of its useful life, the manager issues a disposal report. The manager sends a fixed asset summary to the general ledger department.

The general ledger department clerk reconciles the cash disbursement voucher, journal voucher and the fixed asset summary; posts to the GL accounts from the department terminal and files the remaining documents.

REQUIRED:

1. Prepare a flowchart for the Fixed Assets System.

2. What control weaknesses can be noted in the system?

3. Propose a physical and IT controls needed to reduce the risks identified in no. 2.

Answer rating: 100% (QA)

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