Internal Regulatory Flaws in Bell Studio ERP System

This report analyzes the Bell Studio ERP system and identifies internal control weaknesses in the purchasing and cash disbursing systems. The absence of authentication, approval process, monitoring, and separation of duties pose risks to the system's security and integrity.

Bell Studio ERP 1
BELL STUDIO COMPUTER INFORMATION SYSTEM
By Students Name & Number
Course
Lecturer
University
Location of Institution
Date

Bell Studio ERP 2
Contents
1.0. Introduction...............................................................................................................................3
2.0. Bell System Diagrams.................................................................................................................3
2.1. The Purchasing and Cash Disbursing System Data Diagrams.................................................4
2.2. Employees Salary Payment (Payroll) System.........................................................................6
3.0. Bell Studio Subsystem’s Flowchart Diagrams............................................................................7
3.1. Bell Studio Purchasing Module..............................................................................................7
3.2. Bell Studio Cash Disbursing System.......................................................................................9
3.3. Employees’ management System Flowchart(Payroll)............................................................9
4.0. Internal Regulatory Flaws........................................................................................................10
4.1. Purchasing, Cash Disbursing Systems..................................................................................11
4.1.1. Absence of Authentication Mechanism.......................................................................11
4.1.2. Absence of Approval Process.......................................................................................11
4.1.3. Inexistent Monitoring Process.....................................................................................12
4.1.4. Absence of Separation of Duties..................................................................................12
4.1.5. Dependence on Human Manual Actions......................................................................12
4.1.6. Absence of Auditing and Transaction Tracking Mechanism.........................................13
4.2. Payroll/Employee Management System..............................................................................13
4.2.1. Absence of Authorization Mechanisms........................................................................13
4.2.2. Absence of Automated Employees’ Time Management Controls................................14
Absence of Employees’ Data Verification System........................................................................14
4.2.3. Lack of authentication..................................................................................................14
5. Conclusion.......................................................................................................................................15

Bell Studio ERP 3
Strategic Information Systems for Business and Enterprise
Executive Summary
Bell art company hopes to get an analysis of its enterprise information system to
discover various vulnerabilities that exists within the system. Consequently, the system was
decomposed into various subsystems and discussed using data flow diagrams and system
flow diagrams for the various components. After careful analysis various subsystems of the
ERP system, various challenges in the internal control of the systems were discovered. The
most occurring weakness of the system was the lack of authorization and monitoring and
verification processes. These and other weaknesses were therefore discussed in relation to the
risks they pose to the operations of the company.
1.0. Introduction
Strategic information systems enable businesses attain a high level of competitive
advantage by streamlining their operations (Altaf and Khalil, 2016). These systems are
created to operate in accordance to the business model of the organization. Businesses that
employ strategic information systems reap many benefits such as reduction of costs.
Additionally, computer systems help reduce or prevent fraud that may occur during execution
of transactions. For successful application of computer systems, understanding their
operations, models and control mechanisms is important. This paper seeks to dissect the Bell
Studio computer based ERP system in terms of its structure, operations and control
weaknesses that might exist within the system.
2.0. Bell System Diagrams
Data flow diagrams enable us to visualize the model of the system under discussion
(Ibrahim and Yen Yen, 2010). Various system modules can be decomposed into individual

Bell Studio ERP 4
subsystems and represented using data flow diagrams. This section is going to present data
flow diagrams for purchases and cash disbursement, and payroll subsystems.
2.1. The Purchasing and Cash Disbursing System Data
Diagrams
The purchasing and cash disbursing modules are crucial for Bell Studio operations.
Most transactions take place on this part of the system. Consequently, the area has huge
security impacts on the system. This makes internal controls on this part of the system
necessary to ensure that the company does not lose money. In most companies, fraudulent
transactions start on this part and progress to other areas where identifying and controlling
them is impossible unless thorough audit of the whole system takes place. For Bell Studio,
the main actors on this part are the Purchasing Clerk, Receiving Clerk, Accounts Payable
Clerk, Cash Disbursement Clerk, and the Treasurer. Each of these members has a role to play
in the progress of the transaction.

Amount of
stock
Received Goods Report File
Analyse
Inventory
Status
Inventory File
Select
Vendor
Qualified Suppliers File
Generate
Duplicate
d
Purchase
Orders
Digital Purchase Orders File
Print
purchase
orders in
duplicate
Purchasing
Clerk
Vendor
Receiving
Clerk
Verify received
goods in against
Purchasing Order &
vendor’s packing slip
Generate
Delivery/Rec
eiving Report
Stores
Clerk
Update
Inventory
Subsidiary
Ledger
Accounts
Payable
Clerk
Print Hardcopies of
the Purchasing
order
Digital Purchase Orders File
Update
creditors/Accou
nts Payable
ledger Update
General
Ledger
Cash
Disbursement
Clerk
Update Cheque
registerUpdate
creditors/account
s payable ledger
Vendor name,
addresses
Product Details
Terms, prices
Prices, quantities
Purchasing Order
copy 1 (PO1)
Purchasing Order
(PO2) copy 2
Purchasing Order (PO2)
and ,
Packing Slip (PS)
PO1, PO2
Item Details
Invoice
Receiving/Delivery
Report (RR2) copy 2
Receiving/Delivery
Report (RR1) copy 1
Purchasing Order
Invoice, PO1, RR2
Invoice, Purchasing
Order, Receiving
Report
RR1
Invoice, PO1, RR2
Cheque
Cheque
Inventory goods File
Inventory Ledger
Cheque
details A/C Payables/Creditors File
Bell Studio ERP 5

Payroll
Clerk
Enter workers’
number of
hours worked
Work Hours File
Print in
duplicate
payroll register
(PR1/2)
Save to
Employees
Digital
records
Employee/Workers Records
Generate
Payment/
disbursem
ent
voucher
Accounts
Payable
Clerk
General
Ledger(G
L) Clerk
Send to
general
Ledger
General (GL) Ledger file
No. of Hrs.
PR1
PR2
PR2
Disbursement
/paymentvouche
r
Payment voucher
Hrs. Worked
Hours Worked
payment voucher
Employee data
Bell Studio ERP 6
Figure 1. Purchasing and cash disbursing module
2.2. Employees Salary Payment (Payroll) System
Payroll system enables an organization to ensure correct and timely compensation of
the services rendered by employees (Hanim Rusly et al., 2018). This section is going to
present the company’s payroll module data flow diagram. The Bell Studio employees who
interact with the Bell Studio payroll system are the accounts payable clerk, general ledger
(GL) clerk, and the Payroll Clerk.
3.0. B
e
l
l
Studio Subsystem’s Flowchart Diagrams
System flowchart is a diagram that is used to show the flow of data within the system.
For this reason, the system flow chart helps to understand the work process within the
system.
Figure 2. Payroll Data Flow Diagram

Bell Studio ERP 7
3.1. Bell Studio Purchasing Module
Main activities within the purchasing department include the monitoring of inventory
levels, selecting suppliers, preparing digital purchase orders, receiving goods and preparing
receiving reports. Other activities include reconciling packing order with the purchase order
and updating the inventory subsidiary ledger. The purchasing clerk, receiving clerk and store
clerk, carry out these activities. The system module flowchart is displayed in next figure.

A
Monitor
Inventory Levels
Valid vendors
file
Select Vendor
Generate digital
Purchasing (DPO) order
report
Purchasing
order
Purchase Order
(PO) files
B
Packing slip
Prepare
Receiving
Report
Receiving
Report
Fill in Inventory
Ledger
Inventory
Subsidiary
Ledger file
Reconcile
packing slip
purchase order
Vendor
Warehouse
File File
Bell Studio ERP 8
Figure 3. Purchasing system

A
Prepare Check
Invoice
Receiving
Report
Purchase
Order
Update
Company’s Check
Register File
Check
Register File
Update Account
Payable
Subsidiary
ledger
Cash Payable
Subsidiary
ledger file
File
Bank
Bell Studio ERP 9
3.2. Bell Studio Cash Disbursing System
Figure 4. Disbursing system flowchart
3.3. Employees’ management System Flowchart(Payroll)
The payroll system flowchart represents the workflow within the payroll department.
Main actors in this area are the payroll clerk and accounts payable clerk. Activities carried
out include inputting time card data, preparing payroll registers, creating disbursement
vouchers and updating the general ledger.

A
Time Card Data
Input Time data cardPay cheques
Time Data file
Payroll
Registers
Employees
Records
B
Gen. Payment
voucher
Update General
Ledger
General
Ledger File
File
Bank
Bell Studio ERP 10
Figure 5. Employees’ management system flowchart
4.0. Internal Regulatory Flaws
Internal control refers to the policies and procedures put in place to ensure security of
the company’s transactions (Lalić et al., 2011). These controls enable the company to prevent
occurrence of fraud. In cases where fraud has already taken place, internal controls enable a
company to detect the occurrence of the same and prevent further losses. This part of the
report is going to identify various internal control weaknesses that may be present in the Bell
Studio information system.

Bell Studio ERP 11
4.1. Purchasing, Cash Disbursing Systems
Despite the important role played by this system, various internal control weaknesses
put the system at risk. This makes the system vulnerable to manipulation and errors both
deliberate and unintended.
4.1.1. Absence of Authentication Mechanism
During the description of the system, we have not encountered the requirement where
the users of the purchasing and cash payment systems are required to log in. This shows that
there is no method of authentication in the system. Consequently, anybody who could access
the system has the ability to manipulate the information. Additionally, the system lacks role-
based authentication method for limiting various actions to different individuals based on
their positions in the company. The absence of an authentication mechanism renders the
system vulnerable to the threat of unauthorized access and possible data manipulation. For
example, an unauthorized person could access the system and sneak in details of a supplier
into the valid suppliers file. This could lead to the company making purchase requests to a
rogue supplier who cannot be traced. This absence makes the system the system susceptible
to the possibility of fraud.
4.1.2. Absence of Approval Process
The first major weaknesses of this part of the system is the absence of an existing
approval process for various user interactions with the system. This makes it difficult for
business leaders to detect any fraudulent activity or errors that may occur in the system. For
example, the Purchasing Clerk is able to place orders, and print digital purchase orders
without requiring any authorization or oversight by managers. The risk associated with this
weakness is that the Purchases Clerk can be able to place orders for goods that are not
required by the company.

Bell Studio ERP 12
4.1.3. Inexistent Monitoring Process
Despite the fact that different transactions are carried out by different Individuals,
there is no proof that those actions are real. Even if the Purchases Clerk makes an order and
the receiving clerk confirms the receipt of goods, there is nothing to prove that the goods
were actually ordered and received. Collusion between the employees is still a possibility
within this system. This means that the purchases clerk could collude with the receiving clerk
and have payment made for goods that were not delivered.
4.1.4. Absence of Separation of Duties
In this system, one individual carries out various duties. For example, the purchases
clerk is responsible for making orders and selecting suppliers. This is risky as it exposes the
company to collusion between the employees and with and suppliers (Lalić et al., 2011).
Consequently, the clerk could make orders in order to receive kickbacks. Additionally, the
suppliers could be able to influence the clerk’s decision on the amount of goods to order, and
their prices. The process of selecting a supplier should be delegated to a person who does not
have the power to make decisions on what is to be bought. This would make it difficult for
him/her to be influenced by suppliers.
4.1.5. Dependence on Human Manual Actions
The system heavily relies on human manual actions. This exposes the company to the
risk of human error and manipulation. For example, the ordering process relies on the Clerk
checking which goods are below required volumes. This means that if the Clerk forgets on
checking the items, no ordering would take place. Additionally, the system does not trigger
ordering process for the goods that are below reorder level. A well designed system should
trigger ordering action for goods below capacity to ensure that only such goods can be
ordered. The current system does not automate the process. This means that the clerk could
create orders even for goods that are not below capacity. Similarly, accounts payable data is

Bell Studio ERP 13
entered manually from the receiving report, instead of populating the account from digital
purchase order. This exposes the system to the possibility of making errors during entry as
well as deliberate manipulation.
4.1.6. Absence of Auditing and Transaction Tracking
Mechanism
The system lacks a means of auditing various actions carried out within the system.
There has been no description of various activities being logged for audit. This means that a
user could be able to act on behalf of another user without being discovered.
4.2. Payroll/Employee Management System
The payroll system is used for making payment for the employees. Various company
employees who come into direct interaction with the system are the payroll Clerk, and
accounts payable clerk and GL clerk. Other actors who are not in direct contact with the
system are the supervisors.
Control weaknesses of the payroll system
The control weaknesses of the payroll system is consistent with weaknesses in other
departments.
4.2.1. Absence of Authorization Mechanisms
The system lack authorization techniques. This means that the payroll clerk can
initiate a transaction activity without the need of authorization from the manager. Similarly,
the payroll clerk could be able to sneak an employee into the system without the requirement
of being authorized. In a proper system, all transactions entered would be held pending until a
manager approves them. In a system lacking this feature, the system is exposed to the risk of
fraud.

Bell Studio ERP 14
4.2.2. Absence of Automated Employees’ Time Management
Controls
Bell Studio’s workers manually write the number of hours served at the company on
their work cards. This poses a huge risk of employees colluding with supervisors for
additional hours worked. Similarly, employees can be able to enter more hours than the actual
hours worked. This is possible if the supervisor gets distracted or loses track of the
employees’ hours worked. Similarly, this exposes the system to the risk of human error
during entry of time data card. This could lead to employees receiving more hours that they
have actually worked for. Similarly, it could lead to disputes when fewer hours were
mistakenly entered by the payroll clerk. Additionally, dependence on time cards would mean
that employees would miss being paid if they failed to turn in their time cards on time. This
could be very inconveniencing in cases where an employee encounters an emergency at the
last minute and fails to turn up on time. This could expose the payroll to the risk of delay or
leaving out payments for deserving employees who failed to hand in their time cards on time.
The time cards could also be lost or destroyed. This would make it difficult to calculate the
amount of hours worked.
Absence of Employees’ Data Verification System
The payroll system lacks verification methods of verifying that the employees being
paid actually works for the company. For this reason, possibility of having fictitious
employees or former employees on the payroll is real. For example, the supervisor could
maintain time data cards for employees who have exited the company and keep punching
hours on it. The system also lack the methods of verifying that employees were actually
present or at the work site on each particular day.

Bell Studio ERP 15
4.2.3. Lack of authentication
In the payroll system, were are not informed that the payroll clerk is supposed to log
into the system by providing a username and password or any other authentication methods.
This leads us to believe that anybody who can access the system can be able to make
changes. This exposes the system to the risk of data manipulation.
5. Conclusion
Computer information systems play an important role in streamlining various business
activities. These activities may include acquisition of inventory materials, making payments
for goods acquired or payment of services offered by employees. Consequently,
understanding how a system works is crucial for success of the same. In order to understand
the system, various methods can be used to explain the system. These methods include the
use of data flow diagrams and system flowcharts. Apart from understanding the system,
proper analysis of system vulnerabilities is important. These vulnerabilities pose the risk of
losses through fraud and errors. To overcome this risk, the business employs various internal
controls. In this context, we have observed that various Bell Studio subsystems contain some
internal controls weaknesses that pose various risks to the business. Such include lack of
authorization mechanisms, absence of means of authentication, and limited automation. Other
weaknesses include lack of audit tracking and lack of separation of purchasing duties. Unless
these weaknesses are addressed, the system is exposed to risk of fraud.

Bell Studio ERP 16
Bibliography List
Altaf, M. and Khalil, M. (2016) Strategic Information System: A source of Competitive
Advantage, Information and Knowledge Management.
Hanim Rusly, F. et al. (2018) Payroll system: A bibliometric analysis of the literature, AIP
Conference Proceedings. doi: 10.1063/1.5055526.
Ibrahim, R. and Yen Yen, S. (2010) Formalization of the Data Flow Diagram Rules for
Consistency Check, International Journal of Software Engineering & Applications.
doi: 10.5121/ijsea.2010.1406.
Lalić, S. et al. (2011) ‘Internal Control and Problems of Modern Management in the
International Environment’, Research Journal of Agricultural Science, 43(3), pp.
406–415.