ACCOUNTING INFORMATION SYSTEM.

Running head: ACCOUNTING INFORMATION SYSTEM
ACCOUNTING INFORMATION SYSTEM
Name of Student
Name of University
Author’s Note

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Executive Summary
This research report deals with the risk and internal control weakness of the production
department, accounts payable department and cash disbursement department of Adam &
Company. The flowchart is being created for each and every department. The report concludes
with the recommendation suggesting the better operations of the company.

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Table of Contents
Introduction......................................................................................................................................3
Purchases System of Adam & Company.........................................................................................3
Processes..........................................................................................................................................4
Internal Control................................................................................................................................5
Risk..................................................................................................................................................6
Cash Disbursement System.............................................................................................................7
Flowchart of Cash Disbursement.....................................................................................................7
Process.............................................................................................................................................8
Internal Control Weakness..............................................................................................................8
Risks................................................................................................................................................9
Payroll System...............................................................................................................................10
Process...........................................................................................................................................11
Internal Control Weakness............................................................................................................11
Risks..............................................................................................................................................12
Conclusion.....................................................................................................................................12
Reference.......................................................................................................................................14

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Introduction
In this report, the analysis of Adam & Company’s placing order process, cash
disbursement process and the salary paying process are being scrutinized. This report also
provides the system flow chart of different departments starting from the purchasing department,
cash disbursement process and payroll process (Balsam, Jiang and Lu 2014). The report also
discusses the internal control weakness and the associated risk that are present in the different
departments of the company.
Purchases System of Adam & Company
The purchasing system of Adam & Company is explained with the help of flow chart.
The flow chart of purchases system is explained below:

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Purchasing Clerk
Vendor
Accounts Payable Clerk
Receiving Department
Prepares a digital purchase order
Quantity Item is Low
Purchasing Department
Inspect digital purchase order
Clerk checks and update inventory
Clerk updates ledger inventory control
Flowchart of Purchases System
(Sourced by Authors)
Processes
The purchasing process starts with the purchasing clerk. The purchasing clerk inspects
the inventory subsidiary ledger in every morning. If the system is showing the inventory low,
then the purchasing clerk tends to issue the purchase order (Catubig, Villano and Dollery 2015).
The purchasing clerk first chooses the vendor from the file of the company’s vendor file. After
the selection process of the vendor, the purchasing order tends to issue the digital purchase order.

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These copies are being sent to the vendor and the receiving department, which then send to the
accounts payable clerk. The account payable clerk tends to forward the order to the cash
disbursement department..
Internal Control
As per the provided case, it can be understood that Adam & Company contains some of
the internal control weakness. Documentation is one of the prime pieces of evidence which
authenticates the transactions. Documents of the financial transactions hold high importance as
the transactions are recorded and accounted for records. In Adams & Company, purchasing
clerk, regarding the selection of the vendor and issuing the order (Chang and Chen 2014). The
company faces the problem of favouritism here, and maybe the most inefficient vendor may get
the order. The company needs to implement the rule where the purchasing clerk requires to
consult with the purchasing manager before issuing the purchase order. The purchasing manager
should be the one to select the vendor, not the purchasing clerk because, in this manner, the
corruption or favouritism in the business can be avoided.
One of the most critical discrepancies, which can be highlighted is the security system.
The company does not use any security system, which in the long run may affect the business.
The leakage of the trade information may leak, which will lead to a loss for the company. The
flowchart of the market needs to be improved as more steps need to implement in the purchasing
department (Chang et al. 2014). The purchasing clerk only checks the processing of the digital
purchase order. The other members of the department don’t take part in the checking process.
The purchasing clerk issues the purchasing order whenever the inventory goes down. The
purchasing clerk did not check for the demand of the product in the market. The accounts
payable clerk did not clarify with the production department manager about the invoice, which is

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issued by the purchasing clerk. Receiving department does not a concern with the managers
about the invoice issued instead of the receiving department forward the invoice to the accounts
payable clerk for issuing the order.
Risk
The main risk, which can be identified from the internal control weakness is the
company’s control over the purchasing order, is not present. The risk of misusing the purchasing
order may increase, and the use of inefficient vendor may also be used. The company, in this
manner, excessive inventory and the company will be on the verge to realize the loss. The risk of
time lost may have to face by the company (De Simone, Ege and Stomberg 2014). The cost of
the company may also increase due to misrepresentation of the purchasing order. The company
needs to implement the software, which will eradicate the risk of over-ordering of the inventory.
Another major problem which can be detected is that the company has a big
communication gap with the vendor. It will raise a massive question regarding the production
issue. The company also has no protection policy regarding the inventory order (DeFond and
Lennox 2017).

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Three documents received
Files and wait for payment till due date
Update the system
Treasurer signs off the cheque
Preparing Cheque
Cash Disbursement System
Flowchart of Cash Disbursement
(Sourced by Authors)

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Process
After the cash disbursement department received the invoice from the accounts payable
department, the clerk of the cash disbursement holds the document till the due date. On the day
of the due date, the clerk of the cash disbursement tends to prepare the cheque against the
amount which was invoiced by the purchasing department clerk. After making the check, the
clerk of the cash disbursement tends to send the mail to the vendor (Feng et al 2014). The cash
disbursement clerk then updates the cheque register, subsidiary ledger and the accounts payable
control account. The cash disbursement clerk tends to file the receiving report and purchase
order
Internal Control Weakness
As per the provided case it can be identified that the cash disbursement department of the
company holds some internal control weakness. They can be termed as follows:
 After receiving the invoice from the purchasing clerk, the cash disbursement clerk tends
to keep the invoice in the file till the due date. The cash disbursement clerk does not
verify the invoice which is send by the purchasing clerk. Thus, a considerable amount of
risk arises.
 The cash disbursement clerk waits for the due date for preparing the cheque. This
increases the chances for risk due to which the company might face the problem.
 When the invoice sends to the treasurer, the treasurer just signs the cheque. The treasurer
does not check or back tracked the invoice order. The treasurer does not even try to
enquire about the vendor. Thus, this increases the risk for the treasurer (Hammami,
Temponi and Frein 2014).

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 The cash disbursement policy of the company also has some flaws regarding the signing
of the documents and issuing of the purchase invoice.
 There is no system of providing the information of issued purchasing order to the
management or executives of the company.
 Cash disbursement update the system and the accounting books without consulting and
authenticating the information with the higherups.
Risks
As per the analysis of the case study, it can be observed that Adam & Company holds
considerable amount of risk regarding the issuing of the purchasing order in the purchasing
department. The risks arise mainly from the behaviour of the cash disbursement clerk of holding
the invoice till due date. It increases the chances of missing the due date. These will increase the
beliefs of distrust between the company and the vendor. The company may not be able to meet
the customer’s demand. The company’s sales structure may also get hampered. While preparing
the cheque, the cash disbursement clerk did not take anyone’s concern.
Moreover, the cash disbursement clerk never contacts or information about the cheque
(Lawson et al. 2015). This is the reason due to which the chances of fraudulency arise. This may
hamper the financial structure of the company in the long run and even may hamper. Another
significant risk, which can occur in the cash disbursement department is the reluctant attitude of
the treasurer. The treasurer signs off the cheque and then issues the cheque to the selected
vendor. The treasurer never tries to enquire about the vendor and the authentication of the
invoice released. Due to the reluctant attitude of the treasurer, the company can face financial
problem in future.

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Accounts Payable Department
Payroll clerks inputs the time and date
Payroll clerks checks the time card
Sends employee pay checks to the superannuation
Payroll System
Payroll System
(Sourced by Authors)

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Process
As per the case study, Adam & Company tends to use “no work no pay policy”, where
the employees are paid based on the total time spent by the employees in the office or factory.
The employees of the company record their respective working hours in the time card. The time
card then reviewed by the supervisors at the end of the week. The revision mainly was done by
the supervisor from the payroll department. The payroll clerk is the one who inputs the data of
working hours in the computer terminal system (Luzzini 2015). The payroll department clerk is
making the two copies. One copy is for the payroll department, and another copy is for banks.
The accounts payable clerk further prepares the disbursement voucher. This voucher is
transferred to the ledger department. Accounts payable clerk writes the cheque which is then
deposited in the accounts of the bank. Another copy is being filed against the accounts payable
department as proof which needs to be recorded.
Internal Control Weakness
The first weakness which can be identified is that there is no computerized system to
keep track of the working hours of the employees. The employees provide working hours. As per
the analysis, the company tends to ensure their working hours in the time card. There may arise a
case of fraudulency in terms of delivering falsify working hours by the employees of the
company. The system for reviewing the time card of the employees are not very efficient. The
supervisor, who is from the payroll department tends to check the time card of the employees
every week. The indifferent attitude of the supervisor may lead to an increase in the risk of
facing the inefficient performance from the employees (Sefideh and Asgari 2016). The
supervisor should check the time card every day. Another internal control weakness, which can
be detected is that the company is still using the old-fashioned way of taking attendance of

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employees. The company can install the whole system for receiving and maintaining the
presence (Úbeda, Alsua and Carrasco 2015). Moreover, the payroll department clerk does not
recheck or clarify the report, which is released by the supervisor.
Risks
As per the analysis of the case study, it can be observed that the company need to focus
on implementing the system which can eradicate the old school attendance system. The system,
which company follows have many issues regarding the misconduct (Ware 2015). This may
affect the everyday operation of the company, and overall, the performance of the company
drastically decreases. Another problem, which can be identified in the payroll department of the
company is that the payroll department clerk does not consult with any higherups (Sun 2016).
These create the communication gap between the management of the company and the
employees of the company. Thus, it may also affect the overall performance of the company.
Conclusion
As per the analysis of the case study, it can be observed that the company’s purchasing
order system holds some serious weaknesses which may not only the hamper the profit margin of
the company, but it will also affect the sustainability of the company. The communication
between the management of the company and the production department of the company is very
vivid. It seems that the clerks have no interest informing the higher ups for taking some of the
important decision like issuing for purchase order, issuing payment to the vendor and even the
payment of the salaries or wages, which are presented to the employees of the company. It can
be observed that the company is not fond of using new software like business intelligence and
digital dashboard to maintaining the everyday operations of the business. Thus, to maintain the
sustainability and profitability high up, the company need to focus on the improvement of the

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new technologies in the system. This will help the company to, maintain the business in all three
areas.

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