Case Study - Adam & Co.

The attached report contains an analysis of the purchases, cash disbursements and payroll system of Adam & Co. It starts off with an introduction of the company and the nature of the business that it is involved in. After which, the system flowcharts of all the systems are drawn to simplify the process that is undertaken by the company. This is also helpful in analysing the systems.

Running head: CASE STUDY – ADAM & CO.
Case Study – Adam & Co.
Name of the Student
Name of the University
Author Note

1CASE STUDY – ADAM & CO.
Executive Summary
The attached report contains an analysis of the purchases, cash disbursements and
payroll system of Adam & Co. It starts off with an introduction of the company and the
nature of the business that it is involved in. After which, the system flowcharts of all the
systems are drawn to simplify the process that is undertaken by the company. This is
also helpful in analysing the systems. After which, the report proceeds to identify the
weaknesses of each system and the risks that are likely to occur due to these systems.

2CASE STUDY – ADAM & CO.
Table of Contents
Introduction........................................................................................................................3
System Flowchart of Purchases System...........................................................................4
System flowchart of cash disbursements department.......................................................5
System flowchart of the payroll system.............................................................................6
Description of internal control weaknesses and risks.......................................................7
Purchases system..........................................................................................................7
Cash Disbursements System.........................................................................................7
Payroll system................................................................................................................8
Conclusion......................................................................................................................8
References.....................................................................................................................9

3CASE STUDY – ADAM & CO.
Introduction
Adam& Co. is involved in the business as a wholesaler of industrial supplies. Its
inventories are sourced from Vietnam, Thailand and China. The accounting system of
the entity is a centralised one with terminals existing at different points. This report is
being prepared to evaluate the processes, risks and internal controls for different
aspects of its expenditure cycle. This is done primarily by preparing a flowchart that
contains the details of the purchases, cash disbursements and the payroll system
implemented by the organisation. The information obtained from the flowcharts is used
in assessing the systems of the entity. This is helpful in assessing the situation of the
organisation as a whole and in finding the areas where it can improve. The flowcharts
follow the system that was in implementation in the organisation at the time of analysis.
After which, the weaknesses and the risks faced due to those weaknesses are stated.
The report ends with a conclusion which contains an overview of the entire report and
the measures that the entity should undertake to improve the current systems in place.

4CASE STUDY – ADAM & CO.
System Flowchart of Purchases System
Purchase clerk conducts a check
of the inventory subsidiary ledger
from his computer terminal
Is the available
quantity of any
specific item too
low?
Yes No
Select a vendor from the
valid vendor file and
prepare a digital purchase
order
End
Prepare two copies of the digital order. File one in
the department. Send other copy to the vendor.
Digital order record is added to the purchase order
file
Goods come to the receiving department.
Receiving clerk checks them and reconciles
with the packaging slip and purchase order
Prepare two hard
copies of receiving
report.
One report is taken with the goods to inventory
warehouse and shelved. The inventory subsidiary
ledger is updated. Report is filed in the department.
Other copy is sent to accounts payable
department. It is filed until supplier invoice
arrives.
Accounts payable clerk receives supplier invoice.
Reconciles purchase order copy, receiving report
and supplier invoice
Updates the accounts payable subsidiary ledger,
accounts payable control account and inventory
control account digitally.
Send the three documents to the
cash disbursements department.

5CASE STUDY – ADAM & CO.
System flowchart of cash disbursements department
Cash disbursements clerk files
the documents received from the
purchases department until their
due date of payment.
Is the
payment
due date
applicable?
Yes No
Prepares a cheque
for the invoiced
account End
Sends the cheque to
the treasurer
Treasurer signs it and mails
the same to the vendor
Update cheque register, accounts
payable subsidiary ledger and the
accounts payable control account
Receiving clerk adds cheque copy to
the three documents that he has and
files them in the department.

6CASE STUDY – ADAM & CO.
System flowchart of the payroll system
Employees record the hours worked
on their time cards on a daily basis.
They give it to the supervisors for
review
Is the data in
the employee
cards correct?
Yes No
Payroll clerk inputs time card
data and prints hard copies of
pay cheques along with two
copies of payroll register.
Post these to the digital
employee records.
File the time cards in the payroll
department.
Send the employee cheques to
supervisors for review and
distribution
Send one copy of the payroll register to
the accounts payable department. File
the other in the department.
Clerk in accounts payable department
reviews the register and manually prepares a
disbursement voucher
Send the voucher and the register
copy to the general ledger
department
Prepare a cheque for the entire payroll and
deposit the same in the Imprest account at the
bank
File a copy of the cheque in the department
Post it to the general ledger from the
department terminal, file the voucher, and
register in the department

7CASE STUDY – ADAM & CO.
Description of internal control weaknesses and risks
Purchases system
The main problem with the purchases system is the lack of supervising authority.
The purchasing department clerk and the receiving department clerk are duly involved
in each of their jobs. These include checking the level of inventory, deeming whether
the available levels of stock are sufficient or not and understanding when and which
vendor to a place an order from. The receiving department clerk is responsible for
maintaining the receiving report of goods and storing them in the warehouse. However,
the lack of a proper authority leads to different risks. The primary among them is the
dependency on the clerks to do their job efficiently. Even if they fail to do so, there is no
way in which the company can determine the same. There is also the dependency on
the vendor to not commit any form of fraud or error. The lack of appropriate scrutiny on
the invoice sent by him is also a cause of concern for the entity. While it can be said that
the errors committed by them can be discovered at the time of reconciliation, a common
error in all the documents like purchase order and packaging slip leads to the error
remaining the same and thereby affecting the organisation. The delay in the process of
the arrival of the supplier invoice after the clerk receives the receiving report increases
the risk of it getting misplaced. Any important document getting misplaced leads to the
misstatements in the books of accounts. It also affects the further procedures which are
dependent on the usage of the supplier invoice and the receiving report. The accounts
payable control account is updated by the receiving clerk himself. This causes a lack of
authority in the organisation. Interference from people of different departments impacts
the autonomy in the organisation and also may lead to confusion in the manner in which
the entity conducts its business. There is a lack of appropriate authority for the return or
exchange of goods. The organisation does not employ anyone who is involved in
checking the quality of the goods and rejecting them if their quality is not up to
acceptable standards. There is also no internal control mechanism to determine the
quality of the goods. This also leads to the risk of using low quality goods in the
manufacture of the products (Sandberg and Mena 2015).
Cash Disbursements System
One of the problems with this department is the overburdening of the clerk. He
has to reconcile a lot of documents and maintain them until the due date of payment
arrives. Delay in the processing of the documents causes the payment to get delayed.
This causes the entity to lose the value in the money that it could have gained by
receiving the payment at the right time. The budget that needs to be allocated for the
various activities undertaken by the organisation are also impacted due to this delay
(Dai and Gao 2014).The other problem is the lack of a signatory authority in the
absence of the treasurer. This causes delay in making the payments to the vendor and
hence impacts the reputation of the entity. The responsibilities undertaken by the cash
disbursements clerk are too many in number. He has to maintain the balance between
the accounts payable department and the receiving department. The number of
accounts that need to be updated by him are very high and hence it increases the risk

8CASE STUDY – ADAM & CO.
of error in the activities undertaken by him. There is a need to change the same in this
system. The involvement of the receiving clerk from the purchases department also
influences the activities of the cash disbursements clerk and in turn affects the reliability
of the records maintained by the entity (Attom 2013). Another problem with this system
is the allocation of the available funds and clearly stated guidelines about how to spend
these funds (Herrera and Ibeas 2015).
Payroll system
The major weakness of the payroll system is the use of time cards for recording
the time worked by the employees. This is because the time cards have been identified
to be an outdated system that can be easily tampered (Oloyede, Adedoyin and Adewole
2013). As the data in these cards is recorded by the employees themselves, there is the
risk of frauds being undertaken by the employees and recording the wrong time in the
cards. Although they are reviewed by the supervisors, this only leads to a delay in the
process and increases the burden on them to correctly check and reconcile all the time
cards in a proper manner. The other problem with the time cards is their storage and
maintenance. There is no time limit for the maintenance of the time cards and hence the
organisation has to spend additional resources and time in keeping these cards
properly. The pay cheques written by the clerk are sent directly to the supervisors of the
various departments. There is no authorisation of the cheques written by the clerk.
Hence, the activities of reconciliation of the time cards, their maintenance and writing
the cheques are all dependent on the accounts payable clerk (Thite and Sandhu 2014).
In case of any problem faced by this clerk, the entire payroll system comes to a halt and
there are no alternative options available to do the things in the required manner. The
risk of false claims being made by the employees about their payroll for a particular time
is also very high due to this system (Sullivan 2014).
Conclusion
After conducting an exhaustive analysis of the purchases, cash disbursements
and the payroll system implemented by the organisation, it can be suggested that the
main problem of the organisation is the lack of sufficient number of staff. This leads to
an increased dependence on the staff that are available while also increasing their
responsibilities. This also leads to a high chance of the occurrence of errors. It also
increases the number of documents that the entity needs to maintain. This increases
the chances of them getting misplaced and impacting the flow of the business. Some of
the practices of the organisation like using time cards for maintaining the employee data
are very risky as they are more prone to the risk of being tampered with. While
employing additional people in the entity reduces the burden on the people existing in
the current system, a business intelligence system can also be used to improve the
efficiency and time taken for the existing processes to be completed. There should also
be regulatory mechanisms in place that supervise the activities undertaken by the
people involved in the different systems. It is to make sure that there are not many
errors taking place due to the fault of the employees.

9CASE STUDY – ADAM & CO.
References
Attom, B.E., 2013. Cash management practices by micro and small-scale enterprises at
Kasoa in the central region of Ghana. Asian journal of business and management
sciences, 3(2), pp.01-12.
Dai, Y. and Gao, Y., 2014. Real-time pricing decision making for retailer-wholesaler in
smart grid based on game theory. In Abstract and Applied Analysis (Vol. 2014).
Hindawi.
Herrera, C.A. and Ibeas, A., 2015, June. A simulation model for a Cash Concentration
and Disbursements System. In 2015 23rd Mediterranean Conference on Control and
Automation (MED) (pp. 895-902). IEEE.
Oloyede, M.O., Adedoyin, A.O. and Adewole, K.S., 2013. Fingerprint biometric
authentication for enhancing staff attendance system.
Sandberg, E. and Mena, C., 2015. Exploring strategic strengths and weaknesses of
retail purchasing groups. The international review of retail, distribution and consumer
research, 25(3), pp.276-297.
Sullivan, R.J., 2014. Controlling security risk and fraud in payment systems. Federal
Reserve Bank of Kansas City, Economic Review, 99(3), pp.47-78.
Thite, M. and Sandhu, K., 2014. Where is My Pay? Critical Success Factors of a Payroll
System–A System Life Cycle Approach. Australasian Journal of Information
Systems, 18(2).