Analysis of Internal Control Systems and Recommendations for Laurel Pty Ltd

This report contains a detailed analysis of the internal systems maintained by Laurel Pty Ltd and provides recommendations for improvement. It focuses on the reasons for increasing inventory costs and the effectiveness of inventory management procedures. The report also suggests the implementation of a business intelligence system to expand the company's operations.

Accounting Information System
Name of the Student
Name of the University
Author Note

A document flowchart is prepared to document the expenditure and inventory management
system of Laurel Pty Ltd. The flowchart is shown below:

Table of Contents
Executive Summary................................................................................................................1
Introduction............................................................................................................................2
Objectives...............................................................................................................................2
Findings..................................................................................................................................2
Conclusion and Recommendations........................................................................................8
References..............................................................................................................................0

Executive Summary
This report contains a detailed analysis of the internal systems maintained by Laurel, a large
listed company based in Australia. The purpose of the analysis is to identify the strengths and
weaknesses present in the systems and understand how they are responsible for the increasing
inventory costs. The analysis of the internal control systems is shown in the form of a table
which explains at least one weakness from each of the respective departments. Another vital
objective of conducting this research is to advise the management of the company about the
implementation of a business intelligence system and how it will help the company in
expanding its scale of operations from the level at which it is operating in the current
scenario.
After conducting the above mentioned analysis, it is found that there are various internal
control weaknesses that affect the expenditure incurred by the organisation and its inventory
management processes. The major flaw in the system is the flow and availability of
appropriate information in a short notice from the time of processing a particular order. No
proper reconciliation also makes the safeguard of assets and inventory difficult. The areas
that are in need of major improvements are proper communication channels between
departments, better safeguarding of assets and reducing the workload of the receiving
department to undertake better inventory management.

Introduction
This report has mainly focused on the internal control systems implemented by Laurel
Pty Ltd. It aims to find the reasons for the increasing inventory costs and the efficiency of the
inventory management procedures applied by Laurel. It then proceeds to highlight the aspects
that are considered to be significant in the reasons for the increasing costs of the entity. The
feasibility of the company expanding its current production levels and the requirement of the
implementation of a business intelligence system are also identified as a part of the
requirements suggested by the CEO of the organisation.
Objectives
The objective of this report is to identify the reasons for Laurel’s increasing
expenditure and the effectiveness of its inventory management process by reviewing the
various internal control procedures it has in place. This is to provide the management with an
advice about the introduction of Business Intelligence at the entity and whether the entity is
well equipped to expand its business from its current production capacity.
Answer to Question 1
Findings
After conducting a thorough analysis of the inventory management cycle of the
organisation, the following findings which are considered to be useful for advising the
organisation have been identified in regards to the various departments:
Departments Internal Control
Weakness
Impact of the
weakness
Measures to
control the
weakness
Purchasing
Department
Lack of
consistency in
following up the
orders due to
limited capacity in
handling a large
number of orders
at one point of
Due to the delay in
reviewing the
discrepancies in
the supplier
invoice, PO and
receiving report,
sometimes
suppliers have to
By installing a
business
intelligence
system, there will
be a significant
reduction in the
time taken to
process all the

time. face the
inconvenience due
to the delay caused
in settling their
issues by the
existing system.
This delay in
processing
particularly occurs
in situations where
the suppliers have
already sent their
tax invoices about
the lack of
coherence in the
PO, receiving
report and tax
invoice. However,
in situations where
all the clerks are
busy with a large
number of orders,
the follow up to the
suppliers is
delayed and causes
the suppliers to
wait for a longer
time than usual.
Checking the
orders that have
been delayed for
more than two
weeks also leads to
a loss of time in
discrepancies
occurring between
the PO, tax invoice
and receiving
report related to an
order. The costs
involved in
maintenance of a
large number of
records will be
reduced. Large
number of orders
can be dealt with
much ease than
they are being done
with the current
system in place.

meeting the needs
of the suppliers
and causes an
increase in transit
costs of the
inventory. Lack of
sufficient capacity
to handle a large
number of orders is
also another
weakness.
Receiving
Department
Understaffing Due to the lack of
sufficient number
of staff, there is an
increased burden
on the existing
staff to maintain
the records
accurately and
generate a
receiving report in
a timely manner.
They have to work
overtime on a lot
of occasions which
increases the
margin of error in
the reports
processed or
generated by them.
Any delay on the
part of the
receiving officers
The introduction of
a business
intelligence system
removes the need
for having
additional staff
while also reducing
the burden on the
existing staff
employed by the
organisation. In
case of any
mismatch between
the POs and
receiving orders,
the time required to
act on the same
and notify them to
the purchasing
department will be
much lesser than it
is taking in the

will impact the
inventory
management
system as a whole.
Their overtime
wages are also
likely to be a
reason for the
increased
inventory costs.
current system. A
better system can
correct the
discrepancies by
the receiving
department itself
without having to
depend on the
purchasing
department on
every occasion.
Inventory
management
High number of
staff employed
without leaves
While it is
encouraging that
the staff employed
in inventory
management are
very efficient and
never take a leave,
it increases the
chances for
increased costs due
to human error and
the delay in
identifying the
discrepancies. The
time required for
communicating an
error is much
higher and the risk
of errors is also
high.
To overcome the
problems of
depending solely
on the staff,
equipping them
with an
intelligence system
will be useful to
them in identifying
the differences in
purchasing orders
and receiving
orders. A business
intelligence system
will also be helpful
in communicating
the same to the
department heads.
Lack of
Reconciliation
There is no proper
reconciliation to
Appointing more
members for

check whether the
inventory present
in the warehouse
matches with the
business records or
not.
safeguarding the
inventory and
conducting a
reconciliation of
the records and
assets on a frequent
basis to ensure
there are no frauds.
Accounts Payable Informing about
discrepancies to
the purchasing
department instead
of the accounting
department
Informing the
discrepancies to
the purchase
departments leads
to a delay in the
payment as the
purchase
department also
has to take care of
complaints from
the receiving
department and
update the various
department heads
about the statuses
of their orders.
To ensure that the
process of
inventory
management takes
place smoothly,
instead of
purchasing
department, an
accounts
department should
take care of the
complaints of the
accounts payable
department so that
there is a forward
flow of
information instead
of backward flow.
This will also
separate the
process of
payments from the
inventory
management
procedures thereby

ensuring that there
is a separate
department in
place to have a
check and control
on the costs
incurred by the
entity in a given
financial year.
Overburdened
Manager
As the manager
has to personally
take care of each
and every payment
to be made, it
causes the process
to become
monotonous and
delays in
authorising the
payments quickly.
Due to the lack of
cash payments,
some suppliers
who may not have
access to electronic
systems might
refuse to do
business with the
organisation.
An intelligence
system that
automatically
authorises
payments on the
basis of their past
occurrences and by
identifying certain
common trends in
each and every
transaction
removes the need
for the manager to
check each and
every transaction
individually and
hence reduces the
costs involved in
processing an
order.
Conclusion and Recommendations
While it can be suggested that the present internal control system of Laurel is doing
its best to ensure that the business runs in a smooth manner, it will not be sufficient in case of

an expansion of the current production facilities by the business. The organisation is currently
suffering due to understaffing and over dependency on particular individual members in
every individual department of the inventory management system. Hence, there is a need and
scope for the introduction of a Business Intelligence system that reduces the time span
involved in solving issues related to mismatch of inventories and the time required to process
a particular payment. In case of the company going along with the proposed expansion
suggested by it, the business intelligence system will help in the smooth running of the
business. Reconciliation should also be undertaken on a frequent basis to curb on the
fraudulent activities undertaken by the members of the staff.
Answer to Question 2
a. Business intelligence is a set of processes and tools that make sense out of raw data
obtained from a particular source. The decisions by an organisation can be made
based on facts and not on the basis of assumptions or other irrational concepts.
Business intelligence has become a much popular concept in recent times than the
traditional forms of accounting. A business intelligence dashboard is a tool helpful in
the process of data visualisation. It consists of both services and software together to
help in data processing and obtaining meaningful information from the data provided
through the business intelligence devices implemented in the organisation. This has a
direct impact on the strategic and operational business decisions made by a particular
entity. It provides information about the status of various business analytics metrics
like key performance indicators (KPIs) and other relevant data for the business like
the costs of a particular process and the efficiency levels of a particular procedure that
is implemented by the entity.
b. In the case of Laurel Pty Ltd., business tools and digital dashboards can be used to
obtain data that will be more relevant in suggesting the measures that they should

implement as a part of the production process of the organisation. As it is highly
useful in the measurement of KPIs and setting up benchmarks, it is useful for the
managers to find a particular area that can be used in helping the efficiency of the
business process. It also helps the management to make decisions about what their
benchmarks will be in relation to the goods produced in a year. The system also
makes it easy for the entity to identify business trends and market conditions while
also easily spotting the problems that need to be addressed.

References
Romney, M. B., Steinbart, P. J., Mula, J. M., McNamara, R., & Tonkin, T. (2013).
Accounting Information System. Frenchs Forest: Pearson Australia.