Assessment of Accounting Information System for Internal Control Management: A Case Study of Adam and Company Limited

This paper explores the assessment of Accounting information system about the management of internal control system. In this study, Adam and Company limited is taken as the case study. The paper explains the system of the flowchart especially the purchase system, payroll system and the cash disbursement system of the company. The study further assessed the risks and weaknesses faced by each system in the company and the way it can resolve them.

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Accounting Information Systems
Student’s name
Course
Instructor’s name
Institutional affiliation
City and state
Date

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Table of Contents
Abstract.......................................................................................................................................................2
Introduction.................................................................................................................................................3
The purchases system flowchart..................................................................................................................3
Figure 1: Purchase process......................................................................................................................4
Weaknesses and risks involved with the purchases flowchart.....................................................................5
Cash disbursement flowchart system...........................................................................................................6
Figure 2: Sample flowchart of cash disbursement system.......................................................................7
The Risks and Weaknesses Faced by the Company using System of Cash Disbursement...........................7
Flowchart about the Payroll System............................................................................................................9
Figure 3: The System of the Payroll..........................................................................................................10
Weaknesses of Adam & Company Limited Payroll system......................................................................10
Summary Conclusion................................................................................................................................11
References.................................................................................................................................................12

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Abstract
This paper explores the assessment of Accounting information system about the
management of internal control system. In this study, Adam and Company limited is taken as the
case study. The paper explains the system of the flowchart especially the purchase system,
payroll system and the cash disbursement system of the company. The study further assessed the
risks and weaknesses faced by each system in the company and the way it can resolve them. It is
evident that, most organizations have challenges that entail internal control systems arising from
poor management. This therefore leads to the failure of the company. In summary, several points
are concluded about the way how Adam & Company is to succeed in the current century in
which the applications about accounting information systems can be employed on a global basis.
This can be done to resolve different issues that may influence the business entity.

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Introduction
Recently in the globe, the demand rate is very efficient and effective each and every day
and this calls upon for better preparing, recording and analyzing the data concerning finance
(Darrough, et al, 2012). Because of this, Adam and company has come up with different steps
and measures all over the departments of the organization with an intention of meeting the needs
of its customers. Several organizations employ different control measures basing on the goals,
mission and targets for the company. Accounting Information systems thus play an important
role in this field by ensuring accuracy, efficiency and profitability within the organization
(Agbenyo et al, 2018). In this paper, an accounting information system is defined as a structure
or tool that is employed by any company, institute or organization applied to control the internal
performance so that every activity concerning finance is appropriately and accurately done to
minimize losses and errors (Nashwan, 2018). An internal control system has got a set of
principles and laws that an organization should follow to make sure there exists efficiency and
good performance of the business. These principles are used as guidelines to the operation of the
business so that the company can easily reach its set goals (Darrough, et al, 2012). The internal
control system is built up of five components and these are risk assessment, communication and
information systems, environmental controls and finally monitoring and control systems. The
accounting information system is also divided into three components and these include; the
purchases system, the system of payroll and the system of disbursement as they are discussed
below;

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The purchases system flowchart
The purchases system flowchart refers to a combination of steps that any company
follows in the process of making purchases and procuring materials, inventories, stock and the
assets too that the business needs to continue operating. Furthermore, the purchases flowchart
system is a set of sequential events that are run by different people at different stages
(Monisola&Rekiat, 2016). The purchases system is composed of about nine steps or stages. The
very first stage of the system is composed of ‘the needs recognition’ well as the last stage is all
about ‘satisfaction of needs’. At a moment where the whole organization or part of the
organization requires to extend some financial information, then there is need to develop a
document known as the ‘recognition note’ that should be authorized by managers of the
organization (Agbenyo et al, 2018). Later, quotations are got and through the quotation, a
potential supplier is selected by issuing him a purchase order. After all this, delivery is made and
at this period, the goods are inspected thoroughly to ensure efficiency and high quality. In case
the goods are found out to be at the required and all stages completed, payment is approved and
made to the supplier. The last step of the process is now recording all the purchases made in the
‘book of accounts’ (Nashwan, 2018).
The figure below shows the purchase flow chart system that includes all the steps
followed throughout the process.

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Figure 1: Purchase process
Source: FMD Prostarter, 2017
Weaknesses and risks involved with the purchases flowchart
In an organization, if an internal control system faces a weakness or challenge, then that
risk is known as a limitation or hindrance that is likely to influence the performance of an
organization by making it hard to achieve its targeted goals (Lai et al, 2017). On the other side, a
risk is a factor that the probability of its occurrence on an entity or organization having a threat
towards its performance is high. This risk may have an effect on either the profits, assets, capital
or structures (Hosban, &Thaibat, 2018). Different companies experience different risks which
include market risks, financial, operations risks among others (Hosban, &Thaibat, 2018). Due to
this, companies apply different strategies to address the issue of internal control systems to
reduce on the chances of experiencing risks. Some of the risks and weaknesses faced by Adam
and Co in line with the purchase control system are discussed below;

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According to the performance of the organization, the weakness of limited separation of
duties is observed. Many duties under the department of purchases are allocated to the purchases
clerk. This makes the clerk very tiresome and overworked. At the end of it, mistakes may appear.
Also, the clerk may purchase unwanted goods that make the calculations in the purchases
accounts imperfect and wrong. This affects the purchasing system and it leads to losses of the
company. Basing on the internal control systems within an environment, effectiveness and
efficiency in the activities on the organization are observed when there is specialization in the
company (Mahadeen, et al, 2017). This means that should have several workers who perform
tasks they are perfect within their area of specialization. However, Adam and Co do not follow
this statement since the purchases clerk performs a set of activities even where he lacks
experience. He is responsible for determining the number the amount of stock to be purchased
(Akwa-Sekyi& Gene, 2016). Nevertheless, all the duties that a clerk performs in this company
are meant to be entitled to professional personnel say the procurement officer who is meant to
purchase and procure whatever is required by the company (Prasetyaningsih et al, 2014). Only
this weakness exposes the company to threats and risks of making loses due to poor production,
purchase of unnecessary assets, spending more on buying few commodities and many more risks
related to purchasing systems (Mahadeen, et al, 2017).
Cash disbursement flowchart system
The cash disbursement flowchart system is defined as a step by step process that is used
to determine both the internal inflows and outflows during a particular period of time. Normally,
the timeframe may be a year, a week or even a day (Levy, 2017). The main reason for
developing a cash disbursement is to clear off debts and liabilities of a company and also to meet
the costs for buying goods and assets that enable proper functioning of the company. In this

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system, the payments are made by use of cheques in the bank or directly in cash
(Monisola&Rekiat, 2016).
The figure below represents the flowchart of cash disbursement system
Figure 2: Sample flowchart of cash disbursement system
Source: vishekbatra, 2019
The Risks and Weaknesses Faced by the Company using System of Cash
Disbursement
There are several risks and weaknesses faced by the company using cash disbursement
system. It is evident that organizations that have got revenue and cash maned by the individuals,
they are attributed to facing chances obtaining financial losses. With such a situation, there
should be the class of people who are to be entrusted with the organization’s finances (Bowers,
2017). In most case, practices that are unethical for example theft, funds misplacement, and
fraudulent are serious and common among amidst finance officers. This therefore leads to less

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trust of the company’s finances that is to say Adam & Company is not encourage to build
confidence in the single individual. This is because such incident may become the greatest risk to
the company (Levy, 2017). Furthermore, the internal control system at Adam & Company is not
good enough since the treasurers and clerks are mostly entitled the accounts of the company
which includes the ‘cash and purchase disbursement system’ (Salin, et al, 2018). In addition,
such situation is not supposed to e done in that way since other employees are likely to become
disgraced with the pressures arising from other employees (Akwa-Sekyi& Gene, 2016). Most
significant is that, the company’s income should be easily accessed by any member of the
company since there exists many chances of losing money through theft or embezzlement. The
system of the company does not give any provision of specific time to reconcile about several
accounts (International Accounting, Auditing and Ethics, 2015). Therefore, cash statements that
are manually designed continue putting the company’s control system into negative direction.
It is evident that, the cash disbursement system at Adam and Company is basically
manually done. Most important with this system is that, there are some benefits as well as
various risks or uncertainties that are embedded with cash disbursement system (Salin, et al,
2018). In this case, several financial statements and receipts are processed manually and stored
within the premises of the company. This therefore exposes the organization to the risks of
juxtaposing the information through ‘fore outbreaks’, manipulation of information and several
threats that are similar to the mentioned (Mitrefinch, 2019). In case when such information is
lost, threats of going into financial crisis are likely to be very high and thuis there causes some
staunch customers to lose confidence in the company (Crouthamel, 2013). Therefore, losing its
reputation in public especially the customers it serves

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Furthermore, the risks that arise from obvious errors especially in times of entering
financial data are also confined at Adam & Company. This is because the company uses manual
methods of records, and this therefore leads to high chances of obtaining errors inform of
recording unnecessary figures due to the failure of catching up with the ethics of ‘double entry’
which are high (Bowers, 2017). In the daily life, it is evident that there is no one who is perfect
which means that errors and mistakes are commonly done. However, when using electronic
means of entering data, such mistakes or errors can be identified and corrected by using the term
that is commonly used and this term is “Garbage in Garbage Out” (International Accounting,
Auditing and Ethics, 2015).
Also, the Adam & Co lacks employs who are professionally fit to be working in
Auditing, finance and accounting firms instead it employs the clerks to be responsible for all
transactions and statements in the company. This situation indicates big challenge in the system
of internal control (Crouthamel, 2013). It is clear that, the experienced personnel should be
recruited in order to resolve such risks that the company face through restructuring all on-going
activities in the company. It is evident that, Adam & Co does not have a qualified personnel who
is to help in raising the activities such as analyzing, evaluation, interpretation and presentation of
the information for further policy making as well as the person who is to authorize all
transactions of the company (Mitrefinch, 2019). This therefore aids to the weakness of the
organization where it makes wrong transactions, the charges that are not correct especially of
purchases and wrong calculations drastically affect the survival of the company in operation in
long run.

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Flowchart about the Payroll System
The system of payroll can be defined as the method which is used in determining and
estimating the money that the company is supposed to pay the workers in accordance to the
‘terms of trade contract’ (Indico, 2015). In this case, the terms of trade contract involve the
totality of the time that is worked for especially the time rate systems. More so, payments that
are based on ‘time rate system’ can be doubled by the wage rates attached (Levy, 2017). Besides,
the system operates in several steps that are involved in monitoring of the total time that is
worked for. Due to this system in this case, a flowchart depicts the system of payroll that is used
to determine the wages of workers in Adam and Company (Beasley, 2019).
Figure 3: The System of the Payroll
Source: Guilbault, 2019

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Weaknesses of Adam & Company Limited Payroll system
It is clear that the procedures that are tradition in analyzing and evaluating the total time
worked by the employees can be the influence factor of increasing rate of inefficiency about the
past periods. This is due to the limitations that involve tradition systems more so the time cards
that have brought about the equipments that are sophisticated to get proper records (Nashwan,
2018). Furthermore, the payroll system at Adam & Company Limited is entailed with some risks
that are more significant. Moreover, time cards are traditionally operated with manual standards
which are attributed to manipulations (Beasley, 2019). In addition, there is emergence of huge
and basic potential of exposing several qualified personnel who can easily make financial reports
regularly in time (Indico, 2015).
Summary Conclusion
In summary, the system that is effective and efficient about the internal control is a basic
tool that various active companies should acquire. Most important is that, the level of profits
attained by the companies is taken as dependent factor on their effectiveness resulting from
utilization of resources. In the daily business situation, the trends of the market that have been
originated through the advancement of technology and ‘internal control system’ that are effective
and reliable in providing immediate changes of the state. In conclusion, Adam & Company
limited is advised to adopt the system of internal controls which may bring about positive trend
of the company. In addition to the internal control systems in the company, the manual methods
of ‘purchase charts’, ‘time cards’ that are applied in time recording should be acted upon in the
organization.

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