Case Study- Adam & Co

The paper demonstrate the application of the flowchart for explaining the process of the different departments of the organization. Such analysis is based on the information’s presented in the case study about Adam and Co that is engaged in industrial supplies and has process its expenditure cycle with the help of three departments. It has been found from the analysis of the systems that there exist risks due to the existence of weakness in the internal control system.

Running head: CASE STUDY- ADAM & CO
Case study- Adam & Co
Name of the Student
Name of the University
Author Note

CASE STUDY- ADAM & CO
Executive summary:
The paper demonstrate the application of the flowchart for explaining the process of
the different departments of the organization. Such analysis is based on the
information’s presented in the case study about Adam and Co that is engaged in
industrial supplies and has process its expenditure cycle with the help of three
departments. It has been found from the analysis of the systems that there exist risks
due to the existence of weakness in the internal control system.

CASE STUDY- ADAM & CO
Table of Contents
Introduction:..................................................................................................................2
Discussion:...................................................................................................................2
System flow chart of purchase system:........................................................................2
System flow chart of cash disbursement system:........................................................2
System flow chart of payroll system:............................................................................2
Identifying the internal control weakness in the system and its associated risks:.......2
Conclusion:...................................................................................................................2
Reference list:...............................................................................................................3

CASE STUDY- ADAM & CO
Introduction:
The report is prepared for presenting to the managing director of Adam and
Co which is related to the evaluation of the risks, process and internal control of the
expenditure cycle procedures. Adam and Co is a wholesaler of industrial supplies
based in Perth, Australia. Sourcing of inventories is done by the company from the
manufacturers in Thailand, Vietnam and China. A centralized accounting system has
been adopted by the company which has a networked terminals located at different
location. The expenditure and cycle procedure of the company consist of three
systems which comprise of purchase system, payroll system and cash disbursement
system. A system of flow chart has been incorporated for explaining each system
separately. The flow chart diagram is used to represent the process of workflow and
a step by step approach for solving the task within any system (Bendovschi, 2015).
Discussion:
System flow chart of purchase system:
In this section, the purchase system of Adam and Co is evaluated by
describing the steps using the flow chart that identifies the process one by one. Such
diagrammatic representation assist the users in gaining a through understanding of
the system of purchase. The journey from the purchase system initiates from getting
an approval of the purchase order by creating purchase order, receiving invoice
getting delivery followed by the closure. The need of placing the order is identified by
the purchasing clerk when he checks for the inventory subsidiary ledger and when it

CASE STUDY- ADAM & CO
falls below a predetermined level. Ensuring that the purchase order is done timely
requires the clerk to perform several check points and some approvals which would
initiate the purchase to be made. Hence, the initiation of the purchase system is
done by identifying the inventory requirement, preparing purchase order, order
placing, receiving the order, goods receiving and liability recognition. The process
adopted by the purchase system to complete the task can be made efficient if the
inventory control function supplies the information on order from the file of vendor
and inventory required by the purchasing department (Banks, 2018).

CASE STUDY- ADAM & CO
The above diagram depicts the system flow chart of the purchase system of
Expenditure cycle procedure of Adam and Company. Each of the steps performed in
the purchase system of the expenditure cycle has been explained step by step for
thoroughly understanding the procedure.

CASE STUDY- ADAM & CO
After the purchased order is placed and the documents are filed in the purchase
department and the documents are added to the purchase file, goods are received
by the receiving department. Reconciliation of the purchasing skip and the
information in the digital purchase order is done after the inspection is completed by
the receiving clerk. The receiving clerk then prepares the hard copy of the receiving
report. Now the goods are placed on shelves along with the updating of inventory
subsidiary ledger and then the receiving report is filed in the receiving department.
Until the supplier sends the invoice, other copy of receiving report prepared by
receiving clerk is received by the receiving department. The three documents
present in the accounts payable department that is supplier’s invoice, digital
purchase order and receiving report is reconciled by the accounts payable clerk
(Cleary, 2017). Moreover, the clerk is also responsible for updating the inventory
control account payable control account and subsidiary ledger of digital accounts
payable. The last step of the purchasing system is completed when the purchase
order copy, supplier’s invoice and receiving report is transferred to the cash
disbursement department for further process.
System flow chart of cash disbursement system:
Business transaction for most of the companies are done through cheque and
this helps in the establishment of a written record that assist in the process of
disbursing cash. The internal control of the company is enhanced with the practice of
writing cheques. Furthermore, the notification of the cash disbursement need is the
responsibility of accounts payable department. The effectiveness sand efficiency of
the process is enhanced by taking specific steps before making the payment to

CASE STUDY- ADAM & CO
vendor. Such steps comprise of cash management technique, reconciliation of
vendor account and authorization of payment (Dwivedi et al., 2015).
The department of cash disbursement system is responsible for managing the
cash which is a careful insight of the cash receipt and cash balances for meeting the
adequate balance of cash for meeting the obligations. The documents is received by
the accounts payable clerk and is reviewed for the clerical accuracy and
completeness by the cash disbursement clerk. After this step, cheques are prepared
by the clerk on the due date for then invoiced account. The dollar amount entered in

CASE STUDY- ADAM & CO
the cheque, voucher number, cheque number and other pertinent data is recorded
as a part of preparation of cheque. Furthermore, the treasurer or the cash
disbursement department manager receives cheque along with other supporting
documents and the cheques are signed by the concerned person and the signed
cheque is mailed to vendor. With the help of computer terminal, the accounts
payable control account, accounts payable subsidiary ledger and cheque register is
updated by the cash disbursement clerk. The process of disbursing cash is
completed with the filing of receiving report, purchase order copy, invoice and
cheque copy in the department (Andon et al., 2015).
System flow chart of payroll system:
A computer driven payroll system helps in managing and automating the
functions of the system of payroll in any organization. The payroll system of Adam
and Co is calculated manually along with the posting of the records from the
computer terminal of the payroll department. The payroll system of the organization
ought to accommodate the total number of hours worked and all the workers in an
accurate manner (Riley & Ward, 2015). In addition to this, the potential of error is
minimized using the automated payroll system. The sequential steps associated with
the payroll system of Adam and Co is illustrated below.
Collecting the information of timecard- It is required by the employer to collect
and interpret the information concerning the total number of hours worked by
employees. This might involve punching the card in a stamp clock, computerized
time clock and manual filing out of the time sheet. For evaluating the correctness of

CASE STUDY- ADAM & CO
the timecard, the supervisor of the payroll department reviews and then submitting it
to the department (Christ & Nicolaou, 2016).
Verification of the information on timecard- The information collected on the
timecard data is summarized by the payroll clerk for verifying that the correct amount
of time is recorded on the card.
Posting of timecard input and copies of relevant document in the digital
employee record- The data on the time card is inputted by the payroll clerk using the
central payroll system and the hard copies of pay cheque is printed along with the
copies of payroll register. All these documents are then posted on the digital
employee records (Turner et al., 2016).
Distribution of employee pay cheques- After the time card is filed in the payroll
department, the employee pay cheque is reviewed by the supervisors and the same
is distributed to the employees in different departments. One copy is disbursed to
the accounts payable department and the other is filed in the payroll department with
the time card.
Preparation of disbursement voucher- The preparation of disbursement
voucher is done manually by accounts payable clerk after the payroll is reviewed.
The general ledger department receives the payroll register and voucher.
Depositing the cheque in the bank account- In this step, the prepared cheque
for the employees are deposited in the bank account. This is done after the cheque
is written by the accounts payable clerk for the entire payroll (Michelon et al., 2015).
Posting of the documents to general ledger- The department computer
terminal is used by the general ledger clerk to post the payroll register and voucher.

Supervisor Department of
Payroll
Department of
Accounts
payable
Department of
general ledger
Reviewing of time card for correctness
Employee pay cheques are reviewed.
Distribution of employee cheque to different departments
Inputting data in Time card
Printing hard copies of pay cheque
Two copies of payroll register
Filing one copy of payroll with the time card
Clerk reviews the register
Preparing Disbursement voucher
Writing of cheque by clerk
Depositing in the bank account
Filing copy of Cheque
Posting to general ledg
Filing in the department
CASE STUDY- ADAM & CO
Filing of the register and the voucher is done in the department after they are posted
in the general ledger (Budiarto et al., 2018).

CASE STUDY- ADAM & CO
The above diagram depicts the system flowchart of the payroll system of
Adam and Co that provides a detailed disclosure of step by step activities of process
of how the payroll of employees are done. A complete automation of all the payroll
functions is assumed by the flowchart. The database of time keeping used by the
time clock is assumed in the process flow and this cause the elimination of punching
the data (Huerta & Jensen, 2017).
Depiction of the weakness in the internal control of system and the risk
associated with identified weakness:
The weakness of the internal control system and the risks associated with the
purchase system of Adam and Co is listed below:
 All the expenditures incurred should be supported by the documents and
should be verified the authorized person. It can be observed from the case of
Adam that the purchase department has adequate documents depicting the
purchase process but the documents are manually prepared by the
purchasing clerk which increases the chance of committing human error
(Libby, 2017). In addition to this, there also exist the risk of fraudulent
activities as the number of units ordered might not match to the original
invoices.
 In the event of any discrepancies related to the purchase order in the
purchase system, there do not exist any methods for correcting the same
which weakens the system of internal control. Moreover, manual recording of
the data might causes the assertion of accuracy at risk in relation to inventory.

CASE STUDY- ADAM & CO
The weakness in the internal control system and the risk associated with the
cash disbursement system are listed below:
 There exist an issue of accountability in the cash disbursement system as the
manual preparation of cheque might result in any misuse or conducting of nay
misconduct. In addition to this, there is the possibility of conducting other type
of theft and fraud.
 For the purpose of verification of the documents in the system, the evidentiary
supporting the transactions do not suffice. In such circumstances, the control
system is weakened.
The weakness in the internal control system and the risk associated with the
payroll system are listed below:
 The payroll department has lack of segregation of duties as the tasks is not
distributed amongst different staffs, it is either one or two staffs are engaged
in handling the entire payroll system which might create conflicts.
 The voucher and disbursement coupon that might cause the mistakes to
occur and in addition to this, it can also be inferred that lack of monitoring in
the department can be reason for the occurrence of error and any theft. This
endangers the reliability of the information presented in the accounts (Wisna,
2015).
Conclusion:
The report presents the flow chart of the system of payroll, cash disbursement
and purchase of Adam and Co and the analysis of each of the steps are done by
retrieving the information from the case study. The system flow chart designed has
assisted in understanding the steps and the overall process of all the three systems.

CASE STUDY- ADAM & CO
From the analysis of the facts related to the different systems, it is inferred that there
is some weakness in the internal control system and that causes some of the
assertions risks such as accuracy and completeness risk and this results in
weakening the internal control system.
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CASE STUDY- ADAM & CO
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CASE STUDY- ADAM & CO
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CASE STUDY- ADAM & CO