Case Study- Adam & Co

This case study explores the expenditure cycle of Adam & Co, a wholesaler of industrial supplies. It discusses the purchase system, cash disbursement system, and payroll system, along with the internal control weaknesses and associated risks. The flowcharts provide a detailed understanding of each system. The report highlights the need for proper internal controls to mitigate risks.

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:
In accordance to the underlying demonstration, it can be said that the use of the
flowchart helps to understand the process of different department of the company.
The information available in the case study regarding Adam and Co, shares their
engagement in the industrial supplies and make use of three departments for
processing the expenditure cycle. The lack of proper internal control system
increases the probability of risk increment in the system. In order to represent the
managing director of Adam and Co the following report is made and this report
assists in the risks, process and internal control evaluation of the expenditure cycle
process.

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:
Based in Perth, Australia, Adam and Co are known to be wholesalers of the
industrial supplies. Inventory sourcing is accomplished by the companies hailing
from the manufacturers in Thailand, Vietnam and China. The company also adopts a
centralized accounting system having networked terminals available at different
locations. The expenditure and cycle procedure of the company are made of the
three main systems comprising of the purchase system, payroll system and cash
disbursement system. In this report, the procedures of the three departments of the
expenditure cycle is explained with the help of flowchart that provides with a detailed
presentation.
Discussion:
System flow chart of purchase system:
In order to have a better understanding of the purchase system, a flow chart
system has been incorporated which eases the explanation of each of the system
separately, right from explaining the workflow process to stepwise approach in
solving the work the task in any system. The complete evaluation of the purchase
system of Adam and Co can be explained by one by one stepwise direction as
indicated in the flow chart. These diagrams depicts in assisting the users in obtaining
gains by proper understanding and evaluation of the purchase system. The initiative
of the journey begins from the approval of the purchase order to receiving invoice
and obtaining the delivery which is ultimately followed by the closure. The
identification of the requirement of the order placement is obtained by the purchasing
clerk as and when he/she checks for the inventory subsidiary ledger falling below a

CASE STUDY- ADAM & CO
predetermined level thereby making sure that there is timely purchase order that is
done. There are certain requirement which the clerk needs to keeps to do on the
check points and few approvals which are significant in initiating the purchase to be
made. Consequently, it can be said that the initiation of the purchase system is
obtained by identification of the inventory requirement accompanied by the purchase
order, placement of the order and receive of the order and liability recognition. The
inventory control can be made even more productive and efficient by adopting a
purchase system so as to complete the given task as and when required by the
purchasing department.
After the placement of the order all the documents are filed in the purchase
department and eventually they are added to the purchase file, and the goods which
are received by the receiving department. After the complete inspection is done by
the receiving desk, the reconciliation of the purchasing skip and the information in
the digital purchase order is done. Then after the receiving clerk prepares the hard
copy of the receiving report. Consecutively the goods are placed on the shelves
along with the updating of inventory subsidiary ledger and finally the receiving report
is filed in the receiving department. The most essential documents which are
payable in the department are the supplier’s invoice, digital purchase order and the
receiving report payable by the clerk (Turner et al. 2016). The update of the
inventory control payable control is also done by the clerk. The last step of the
purchasing system is accomplished when the purchase order copy, supplier’s
invoice and receiving report is transferred to the cash disbursement department for
further processing’s.

CASE STUDY- ADAM & CO
The above flow chart helps in describe the purchase system of expenditure
cycle of Adam and Co; there is also stepwise explanation of the expenditure cycle
which eases the process of understanding the procedure.

CASE STUDY- ADAM & CO
System flow chart of cash disbursement system:
Cheques are mainly used in almost all the business transaction also it helps in
assisting the establishment of written record that thereby helps in cash
disbursement, the payment mode through cheques are a very enhanced method of
payment. The account payable department are held responsible for the cash
disbursement notification (Riley and Ward 2015).
Designing of the cash disbursement system should be done in the manner
that assist the company in processing the payment appropriately so that the
accounts payable are satisfied when they are due. Any notifications about the cash
disbursement is made by the accounts payable department. The efficiency of the
process is enhanced by taking some specific steps prior making the final payment to
the vendor (Kocsis 2019).

Filing of the documents received
Cash disbursement clerk
Preparing a cheque
Invoiced account
Treasurer
Vendor
Sign
Updating cheque register, subsidiary ledger and payable control
Filing the documents
Mail
Receiving
clerk
CASE STUDY- ADAM & CO
The steps of the cash disbursement system includes:
Filing of the received documents- All the documents received from the
accounts payable department are filed by the cash disbursing clerk on the due date
after it has been received.

CASE STUDY- ADAM & CO
Preparation of cheque- The cheque is prepared for the invoiced account and
such cheque is prepared on the due date. After the cheque is prepared, it is send to
the treasurer for signing and then the vendor is mailed the same.
Updating the ledger- The computer terminal is used by the clerk for updating
the accounts payable control account, cheque register and accounts payable
subsidiary ledger (Vardon et al. 2018).
Filing of the documents by receiving clerk- The process of cash disbursement
is completed when the documents such as receiving report, purchase order copy,
invoice and the cheque copy is filed in the department by receiving clerk.
System flow chart of payroll system:
Payroll processing is the administration of the financial records of employees
such as wages, bonus, salaries, net pay and deductions. The payroll of the
organization is processed by following specifics steps in the whole payroll system. It
include all the steps that is required for processing the final payment of salaries to
the employees. Employers are able to avoid the penalties imposed by the
department of labor laws when a solid payroll processed is adopted by the employer
(Cleary 2017). The way payroll is processed is dependent upon the length of time
that is taken for processing. In the small business like Adam and Co, total number of
hours worked by employees is traced using the spreadsheet or the time card and
such recording is considered to be time consuming. Moreover, several errors can be
produced in several areas and this calls for a detailed process that integrates various
controls.

CASE STUDY- ADAM & CO
The payroll process of Adam and Co can be explained by using a flowchart
that helps in the identification of every single steps performed in the payroll system
of the expenditure cycle (Mancini and Lamboglia 2017). The step of the payroll
process of company can be explained in the below discussed points.
Collection of the timecard information- Total number of hours worked by the
employees must be analyzed and collected by the employer. It is found that the

CASE STUDY- ADAM & CO
employees of Adam and Co every day records the total number of hours worked on
the time cards. Such employee’s can either manually sign in or the badges can be
scanned in the digital time.
Verification of the timecard information- The information presented on the time
card is reviewed by the supervisor of the department as he checks for the
appropriateness and correctness of data on the card and then the time card is
submitted at the end of each week to the payroll department.
Preparing the digital record of employees- The central payroll system is used
for inputting the data on the timecard in the processing department. After the data
are inputted, two copies of the payroll register, hard copy of pay cheques is also
inputted in the digital records of employees (Gelinas et al. 2017).
Filing of the payroll register in the general ledger department- One copy of
payroll register is filed in the payroll department with the time cards and the other
copy is send to the accounts payable department.
Distribution of employee pay cheques- In this step, the various supervisors of
the department conducts the verification of the employee pay cheques and the same
is distributed amongst the employees of different departments (Mahama et al. 2016).
Preparation of disbursement voucher- The disbursement voucher is manually
prepared by the accounts payable clerk along with viewing the payroll register. After
the voucher is prepared, the general ledger department receives the payroll register
and the voucher send by the clerk.
Issuing paychecks- In the next step, it is the responsibility of the accounts
payable clerk to write the cheque and the cheque is issued for the whole payroll and

CASE STUDY- ADAM & CO
then it is deposited in the bank account. This step is followed by filing of the cheque
copy in the department of account payable.
Filing of the whole documents in the general ledger- Using the computer
terminal of department, the received payroll register and the voucher is posted to the
general ledger by clerk. The process of payroll is completed when these two
documents are filed in the department.
Description of the weakness in the internal control of system and the risk
related to such weakness:
The analysis of the case of the procedures of the expenditure cycle of Adam
and Co have ascertained the facts deducing the weakness associated with such
systems.
The internal control weakness associated with the purchase system of the
expenditure cycle and the identified risks is illustrated below:
 Lack of adequate authorization for the verification of documents- It is essential
for the organization to ensure the documentation completeness and there is
proper verification of the documents prepared. It is observed that the
documents prepared are not verified for its correction by any second
authorized approval and this results in increasing the likelihood of theft and
fraud activities.
 Manual preparation of reports- There exist probability of human error when
the reports are prepared manually along with the scope of committing fraud. It
can be observed that the receiving clerk of the purchase system is manually
preparing the receiving reports giving chance to increase the discrepancies
between the goods received and recorded (Collier 2015).

CASE STUDY- ADAM & CO
The internal control weakness associated with the cash disbursement system
of the expenditure cycle and the identified risk is illustrated below:
 Lack of monitoring-The cash disbursement system of the company do not
have person or staffs for performing review steps and this weakens the
internal control system. In the absence of monitoring of the system, the
possibility of committing human error or staffs of the company engaging in
some fraud activities increases (Asatiani et al. 2019).
 Absence of verification before filing- The documents received from the
purchase department is filed by the cash disbursement department without
conducting any verification of accuracy and correctness of what is being
received. The system using which the cash of the company is disbursed do
not have procedure in place that would be used for verifying the documents.
The internal control weakness associated with the payroll system of the
expenditure cycle and the identified risk is illustrated below:
 Lack of segregation of duties- One of the factors strengthening the internal
control system is segregation of duties. It can be observed that the tasks
performed in the entire payroll department is assigned to single individual say
payroll department clerk. This makes it difficult to enhance the accountability
of the records in there occurs any error while recording (Amirul et al. 2017).
 Lack of independent internal verification-It can be observed from the given
case that the procedures of the payroll system and all the documents are not
verified either on a surprise or periodic basis. There is no identification of any
existing discrepancies. Organization or strengthening their internal control
system should conduct an independent internal verification.

CASE STUDY- ADAM & CO
Conclusion:
The explanation of the steps of each of the system of the expenditure cycle of
Adam and Co has been done using flowchart that provided diagrammatic
representation of the procedures of the whole system. The report addressing the
internal control of the entire procedures of expenditure cycle relating to the system
such as cash disbursement, purchase and payroll has ascertained some of the
weakness in the system along with the risks associated with it. Using flowchart has
resulted in gaining an understanding of the entire system of the expenditure cycle in
an adequate manner.

CASE STUDY- ADAM & CO
References list:
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accounting process characteristics on accounting outsourcing-Comparison of users
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Collier, P.M., 2015. Accounting for managers: Interpreting accounting information for
decision making. John Wiley & Sons.
Gelinas, U.J., Dull, R.B., Wheeler, P. and Hill, M.C., 2017. Accounting Information
Systems. Cengage Learning.
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CASE STUDY- ADAM & CO
Mahama, H., Elbashir, M.Z., Sutton, S.G. and Arnold, V., 2016. A further
interpretation of the relational agency of information systems: A research
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Turner, L., Weickgenannt, A.B. and Copeland, M.K., 2016. Accounting Information
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Vardon, M., Castaneda, J.P., Nagy, M. and Schanau, S., 2018. How the System of
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CASE STUDY- ADAM & CO