Accounting Information Systems: Internal Control Systems Assessment of Adam & Co

This paper assesses the Accounting Information System in managing internal control systems, taking Adam & Co as a case study. It explains the flowchart systems of purchases, cash disbursement, and payroll, and addresses the risks and weaknesses faced by each system. The conclusion offers recommendations for Adam & Co to succeed in the 21st century.

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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
Executive Summary.....................................................................................................................................3
Introduction.................................................................................................................................................4
The flowchart of purchases system..............................................................................................................4
Figure 1: Purchase flowchart process......................................................................................................5
Weaknesses of the purchase flowchart........................................................................................................6
Flowchart of cash disbursement system......................................................................................................7
Figure 2: Sample flowchart of cash disbursement system.......................................................................8
The likely risks experienced by the company in the cash disbursement system..........................................8
The flowchart of the pay roll system.........................................................................................................10
Figure 3: Payroll System.......................................................................................................................11
The weaknesses of the Adam and company payroll system......................................................................11
Conclusion.................................................................................................................................................12
References.................................................................................................................................................13

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Executive Summary
In this paper, an assessment of Accounting Information System in managing internal
control systems is performed mainly taking Adam & Co as the case study. It explains how the
flow chart systems such as the flowchart of purchases system , the flowchart of the pay roll
system and the system of cash disbursement. The risks and weaknesses faced by every system
and how it can be overcome are also addressed in this short report. Many organizations face
challenges concerning the internal control systems mainly due to poor management and this
contributes to the failure of a business. Finally, conclusions are made on how Adam & Company
can succeed in this 21st century where the application of Accounting Information Systems are
globally employed to overcome several issues that may affect the business.

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Introduction
In the current world, the rate of rate of effective demand and efficiency in preparing,
recording and analyzing the financial data within companies is at a higher speed (Darrough, et al,
2012). Because of the increased, Adam & Co has developed several measures within the
organization to meet its customers’ needs. Organizations have got various control measures
depending on the objectives, mission and goals set by an organization and due to this, systems in
accounting information have greatly influenced the trends in ensuring efficiency and effective
performance in organizations (Agbenyo et al, 2018). Therefore, an accounting information
system can be defined as a tool or structure that an entity employs to internally control and
ensure that every financial activity is performed in the most efficient and proper format
(Nashwan, 2018). Internal control systems has got rules, policies and regulations that require to
be followed by an organization to offer high efficiency and strengthen the set policies. These
policies help any organizations to reach its target basing on the objectives set (Darrough, et al,
2012). The internal control system is said to be composed of five components that include;
environmental controls, risk assessments, information and communication, monitoring and
control activities. The system is also divided into three that is to say; the purchases control
systems a, system of cash disbursement and then payroll system as they are discussed below;
The flowchart of purchases system
The purchases flowchart system is defined as a set of steps or stages that is followed by a
company while purchasing and procuring assets, materials, inventories or even stock that are
required by the business to operate. In other words, the purchase flowchart system is a couple of
events that are worked upon by different individuals (Monisola & Rekiat, 2016). The system is

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therefore conducted in about nine different stages or forms. The first stage of the system is all
about ‘needs recognition’ and the last process is about ‘needs satisfaction’. In a situation where
there is need in the entire organization or even a section of the organization, a recognition note
has to be developed and later authorized by managers (Agbenyo et al, 2018). The quotations are
then acquired and its from the quotations where the prominent supplier is chosen through issuing
him/her a purchase order. Later, delivery is performed. At the moment goods are delivered,
inspection is done to ensure they are of high quality and in case the goods are in the suitable
condition then payment is approved to the supplier. The last step is then taking a recording for
the purchases in the ‘books of accounts’ (Nashwan, 2018). The figure below presents the
purchase flow chart that has got all the steps followed throughout the process.
Figure 1: Purchase flowchart process
Source: FMD Prostarter, 2017

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Weaknesses of the purchase flowchart
In an internal control system, any weakness is considered a limitation or hindrance in the
control system that negatively affects an organization by preventing it from achieving its goals
and objectives (Lai et al, 2017). Well as a risk is that factor that is likely to threaten the
performance of an organization or company by causing a damage to its assets, profits or even
structure. Risks in a company are categorized differently and some of them may include market
risks, financial risks, risks directed to the business and many more (Hosban, & Thaibat, 2018).
Because of this reason, various companies have different strategic methods of internal control
systems to minimize on the occurrence of these risks. In this paper, the risks discussed are those
that are experienced in Adam & Company basing on its purchase control system (Hosban, &
Thaibat, 2018).
Basing on the company’s system, a weakness is seen to arise from limited separation of
duties . It is revealed that the clerk is allocated to a number of duties and this becomes uneasy to
him as its unfair and it leads to practice of dishonesty (Lai et al, 2017). Situations like purchasing
of unwanted products that lead to imperfect purchase accounts and other threats are observed in
the purchasing system.
Flow charts that are designed manually tend to have a lot of mistakes and errors, this
makes them difficult for the customers to understand and interpret. At times, wrong information
may be recorded and this exposes the business to larger risks (Thorps et al, 2019). The risk that is
brought about by the manually written receipt or report is the high level of miscommunication
and poor interpretation (Prasetyaningsih et al, 2014). The effect of the risk that may arise from

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the poorly produced reports and the wrongly done statements, poor quality outcomes brought
about by wrong measurements and so many other outcomes that may lead to mistrust of people
to the company (Thorps et al, 2019). Furthermore, as a result of poor reports, it may be difficult
to make an analysis and a follow up at a given period. In cases where errors are realized, it takes
long and some activities within the company remain at a standstill.
According to the environment of internal control systems, effectiveness and efficiency of
an organization is realized when duties are separated (Mahadeen, et al, 2017). The implication of
this statement is that in an organization there should not be a worker who performs several
activities alone or individually (Prasetyaningsih et al, 2014). Unfortunately, within Adam & Co,
the story is different. From the information obtained regarding the company, the clerk is
responsible for performing a set of activities such as determining how much purchase for stock
should be made, when to make purchases and also selecting the vendor who should supply the
company (Akwa-Sekyi & Gene, 2016). However, all the above duties are antagonistic with the
effectiveness and the efficiency of an internal control system. This only shows that Adam and
company is likely to experience threats and risks that appear as a result of poor quality produce,
fraud, inadequate reports and so many more risks that are in line with ;low ‘duty station’ levels
(Mahadeen, et al, 2017).
Flowchart of cash disbursement system
The cash flow disbursement is regarded as a procedure that internally determine the
inflows and the outflows for a given time frame. The time frame usually tends to interchange for
either a week, day, years or even beyond one year (Levy, 2017). The flowchart for cash
disbursement is created with the purpose of solving debts and liabilities of the organization to

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meet the expenses incurred during the daily operations of the business. In this case, payments
can either be made with invisible cash or a cheque basing on the preparations (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 likely risks experienced by the company in the cash disbursement system
It is observed that companies that have their cash and revenue managed by an individual
are likely to face high chances of experiencing financial losses and thus there should be a group
of people who should be entrusted with the company’s finances (Bowers, 2017). In some
situations, some unethical practices say theft, misallocation of funds and fraud are very common
among finance officers and thus entrusting the company’s money like for Adam & Co should not
be encouraged since it may turn out to be a large risk to the company (Levy, 2017). At Adam &

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Company, the internal control system is still not enough since only the clerk and treasurer are
entitled to access the company’s accounts including the ‘purchase and cash disbursement
systems’(Salin, et al, 2018). However, this is not right since other workers may be disgraced by
the actions of other workers (Akwa-Sekyi & Gene, 2016). Nevertheless, income of the company
should not be accessed by each member since there are higher chances of money to be stolen.
The company’s system does not provide any particular time ‘reconciliation’ of various accounts
(International accounting, auditing and ethics, 2015). This together with the manual designing of
the cash statements continue weakening the organization’s control system.
The system of cash disbursement at Adam & Company is majorly manual. However, this
kind of system has got some benefits, there are several risks that are connected with this system
(Salin, et al, 2018). Many receipts and other financial statements are manually processed and
kept within the company. This puts the company at the risks of losing information through fore
outbreaks, information manipulation and many more threats related to these (Mitrefinch, 2019).
When such documents are lost by the company, chances of falling into financial losses are very
high and potential customers also may lose confidence in the company in other words, the
company loses public reputation (Crouthamel, 2013)
In addition, the risk of ‘common’ errors during financial data entry is also available in
Adam & Company. Since the business records are manually done, the chances of making errors
through wrong recording of figures, and failure of following the principles of double entry are
very high (Bowers, 2017). In everyday life, it is entirely known that no individual is perfect
implying that mistakes are common but though data is entered electronically but basing on
human calculations then errors have to be observed through what is known as “Gabbage in
Gabbage out” (International accounting, auditing and ethics, 2015).

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The company lacks those individuals whose profession is in line with auditing the
transactions field but rather the clerk has to perform all these functions, it reveals a big weakness
in the internal control system (Crouthamel, 2013). An experienced personnel should be
employed to solve the risks that may be faced by the company through reviewing all the
activities. Unfortunately, Adam & Company have no such a personnel who is meant to perform
all those tasks including evaluating, analyzing and interpreting the information. The company
also has no professional person to authorize all the transactions of the company (Mitrefinch,
2019). This contributes to the weakness of the company where the company may make wrong
transactions, incorrect charges on purchases, unnecessary calculations and many more related
issues that affect the company. The operations of the company may be ruin down in the long run.
The flowchart of the pay roll system
The payroll system is defined as a method that is employed in calculating and
determining the amount that the company may pay employees in relation to the terms of trade
contract (Indico, 2015). Such terms of trade contract that involves the summation of time worked
more so payments that are made on a hourly basis. Most significant is that, the payment that is
based on the time worked can be multiplied by the wage rate (Levy, 2017). However, this system
can operate in various steps or a procedure that involves evaluation of the summation of time that
is fully worked for. With this, the flow chart shows the payroll system used in determining the
salaries of employees in a specified organization (Beasley, 2019).

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Figure 3: Payroll System
Source: Guilbault, 2019
The weaknesses of the Adam and company payroll system
It is evident that traditional procedures of analyzing and evaluating the summation of
time worked by the worker has been such a influenced by the rising rate of inefficiency for the
previous periods. This is because of the limitations that are entailed with traditional methods
especially the time cards that have put the emergence of sophisticated equipments and techniques
for proper records (Nashwan, 2018). In addition, the system of the payroll at Adam and
Company is comprised of some threats that are significant. Besides, The time cards that are
traditional can be operated fully through manual standards that are exposed especially to
manipulations (Beasley, 2019). More so, there exists huge and fundamental potential of
exposure of various personnel since they can smoothly report on time. This therefore brings to
understanding that the management is likely to clear wages for hours that are not struggled for
(Indico, 2015).

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Conclusion
In conclusion, the efficient and effective system of internal control is fundamental
equipment that several active organization or firms should attain. Most significant is that, the
profitability level of the business entities or organizations is considered to be dependent about
the effectiveness which may result from actions such as resource utilization. In the current
situation, the market trends that have been initiated through technological advancement and
internal control system are more efficient and provide immediate responses about the change of
the government. In summary, Adam and Smith company limited is recommended to revise the
kind of internal controls that may yield positive results towards the organization. In relation to
control systems, current manual way of purchase charts, time cards used for recoding time
should be instilled in the company.

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