Internal Control Weakness and Risks in Bell Studio's Purchase, Cash Disbursement, and Payroll Systems

The report discusses the weaknesses and associated risks in the Purchase, Cash Disbursement, and Payroll Systems of Bell Studio. It includes data flow diagrams, system flow charts, and recommendations for improving internal controls.

Strategic Information Systems
for Business and Enterprise
May 1
2019
Student ID:
Student Name: T1 2019

Executive Summary
The report is showing complete detail about the Purchase System, Cash Disbursement
System and Payroll System of Bell Studio. All possible weaknesses in all systems along
with risks are mentioned in the report.
The data flow diagrams and system flow charts of each system are also depicted in the
report.
The data flow diagrams and system flow charts are easily describing the system and the
users can easily understand the complete system. All processes are mentioned by the
data flow diagrams while all the flows are clearly being shown by the system flow
charts.
Report
Contents
Executive Summary.....................................................................................................................................2
Report..........................................................................................................................................................2
Introduction.................................................................................................................................................3
Data Flow Diagram of Purchases and Cash Disbursements systems...........................................................4
Data Flow Diagram of Payroll System..........................................................................................................6
System Flow Chart of Purchases System ....................................................................................................7
System Flow Chart of Cash Disbursement System.......................................................................................8
System Flow Chart of Payroll System..........................................................................................................9
Internal Control Weakness and Risks Associated..............................................................................10
Purchase System....................................................................................................................................10
Cash Disbursement System...................................................................................................................12
Payroll System.......................................................................................................................................14
Conclusion...............................................................................................................................................15
References.................................................................................................................................................16

Introduction
There report is based upon the Bell Studio. The report is summarizing the Purchase
System, Cash Disbursement System and Payroll System of Bell Studio. The report is
completely describing the three systems pictorially by data flow diagrams and flow
charts.
The possible weaknesses in inter control in all systems is being defined in the report
and associated risks along with all specified weakness is also being defined in the
report.
The internal control in terms of auditing and accounting is a process of assurance of the
objectives of organization, reliable financial transactions, acquiescence with law,
policies and regulations etc. It helps in preventing and detecting the frauds in the
organizations and protects the resources of the organizations both physical and
intangible.

Data Flow Diagram of Purchases and Cash Disbursements systems

Data Flow Diagram of Payroll System
(Lucid Software Inc. 2018) (Smartdraw, LLC 2019)

System Flow Chart of Purchases System

System Flow Chart of Cash Disbursement System
(visual-paradigm n.d.)
(Mind Tools n.d.)

System Flow Chart of Payroll System

Internal Control Weakness and Risks Associated
The internal control in terms of auditing and accounting is a process of assurance of the
objectives of organization, reliable financial transactions, acquiescence with law,
policies and regulations etc. It helps in preventing and detecting the frauds in the
organizations and protects the resources of the organizations both physical and
intangible. Internal Controls should be managed properly to prevent frauds and
scandals. If there is weakness in the Internal Controls of the system, the organization
has to bear a huge loss physical and intangible both. (Wollacott M. 2019)
There may be different weaknesses and their risks in different systems. In Bell Studio,
we are concentrating on three systems- Purchase System, Cash Disbursement System
and Payroll System. Any weakness in Internal Control is very serious issue and should
be rectified on time to prevent of huge loss. The weakness in Internal Control of Payroll
systems etc. is very big blunder. It should be resolved on primary basis.
(myaccountingcourse.com 2019)
Purchase System
The Purchase System is very complicated and very soft area in every organization
because it is linked to the money transactions etc. The weakness in Internal Control of
this system is a great loss in its resources, reputation and revenue etc.
There are so many areas in which the weakness may occur in the Purchase System.
Therefore, to prevent the loss ensure the following things-
Demand for valid business expenses
The management should demand for the valid business expenses because the
vendors, suppliers or any employee can do frauds in the expenses. It is very soft area
where the frauds can occurs. If any of vendors, suppliers or any employee do
something wrong, the expenses will be high. Therefore, this should be strong and
weakness should be resolved from here. There should be strong internal control on
checking valid business expenses.
The risks associated with it are that the frauds can be easily occurred and it will directly
affect the revenue of the organization. (Educator Association 2019)

Efficient and Cost Effective Ordering
The ordering process should be very efficient and cost effective. If the order is not
correct, the complete purchase process will be wrong. If the purchase order format is
not correct, it will be the weakness of the purchase system.
There are so many risks associated with it like incorrect goods delivery, contact with
incorrect supplier etc.
Correct Stock Checking
The stock checking process is very critical and important process in the Purchase
System. It may be weak if there is no proper checking process at this point. There
should be proper checking for stocks and if the quantity is less, the purchase process
should be started.
There are so many risks associated with it like out of stock condition, excess quantity for
some stocks etc.
Use Approved Suppliers
For goods purchase the organizations have to contact to the suppliers and the suppliers
should be approved. If the suppliers are not approved, there will be no guarantee of the
good quality for the received goods. It will be weakness of the system if the
unauthorized suppliers are contacted for purchase order. There should be proper
internal control on checking that only authorized vendors can be contacted.
There are so many risks associated with it like poor quality goods received, delay in
goods receiving, indirectly delay in order delivery to customers, and indirectly harm the
reputation of the organization.
All Items are written on Serial Numbered Purchase Order Form
All items should be mentioned serially on the purchase order form to prevent the out of
stock condition etc. it will be weakness of the system if there is no proper checking of
writing all items on the purchase order form. There should be proper checking that all
orders are written on the purchase order form.
There are so many risks associated with it like out of stock condition, delay in goods
receiving, indirectly delay in order delivery to customers, and indirectly harm the
reputation of the organization

Check Quality/Damage of Goods
The quality or damage of all received items should be checked carefully. It is very
important step before sending to the inventory storage. It will be weakness of the
system if there is no proper checking arrangement for receiving goods. There should be
proper checking of received goods.
There are so many risks associated with it like damaged goods, low quality goods etc.
Follow Suppliers for Unmatched Purchase Order
If purchase order is not matched then the supplier should be followed. It will be
weakness of the system if there is no proper following of the supplier. It will be huge
loss for the organization from the resource point of view as well as reputation point of
view. If purchase order is not correct then the supplier should be followed.
There are so many risks associated with it like unwanted goods etc.
Cash Disbursement System
The Cash Disbursement System is very complicated and very soft area in every
organization because it is linked to accounts etc. The weakness in Internal Control of
this system is a great loss in its resources, reputation and revenue etc.
There are so many areas in which the weakness may occur in the Cash Disbursement
System. Therefore, to prevent the loss ensure the following things-
Request Payments for only Valid Expenses
The management must request payments for the valid expenses because any
employee can do frauds in the expenses. It is very soft area where the frauds can
occurs. If any of the employee do something wrong, the expenses will be high.
Therefore, this should be strong and weakness should be resolved from here. There
should be strong internal control on checking valid business expenses.
The risks associated with it are that the frauds can be easily occurred and it will directly
affect the revenue of the organization.
Standardized Cheque Requisition
The cheques should be standardized i.e. there should be fixed format of all cheques, fix
banks etc. It is very major point in the Cash Disbursement System. It will be weakness
of the system if there is no proper standard of cheques in the system. There should be
proper internal controls for checking the same.

There are so many risks associated with it like delay in payments, payment rejection
etc.
Safe Custody of Cheque Books
The cheque books are very important asset in every organization. It should be protect
very well. There should be proper authorization i.e. not all members can take cheque
books. Only some members of organization can take cheque books. It is very important
part of the Cash Disbursement System. It will be the weakness of the system if there is
no proper internal control in the system. There should be proper internal controls to
secure the cheque books.
There are so many risks associated with it like loss of money. (Hearst Newspapers,
LLC 2019)
Customer Signature
The customer signature is very important asset in the Cash Disbursement System.
Customer signatures are the most valuable thing in all transactions. Without customer
signature, the tprocess should not be completed. Before completing the process of all
orders the customer signature is mandatory. There should be proper authorization on
the same. It is very important part of the Cash Disbursement System. It will be the
weakness of the system if there is no proper internal control in the system. There should
be proper internal controls to check the customer signature.
There are so many risks associated with it like incorrect transactions, insecure
transactions etc. (Elsevier Inc. 2017)
Duty Segregation
There should be proper segregation in between the duties of all entities of the Cash
Disbursement System. it is the most important part of te system to differentiate the work
and all duties of the entities and to distribute their wages based upon their duties. It will
be the weakness of the system if there is no proper internal control in the system. There
should be proper internal controls to check the duties of all entities.
There are so many risks associated with it like incorrect payments etc.

Payroll System
The Payroll System is very complicated and very soft area in every organization
because it is linked to payments of staffs, clear bills etc. The weakness in Internal
Control of this system is a great loss in its resources, reputation and revenue etc.
There are so many areas in which the weakness may occur in the Payroll System.
Therefore, to prevent the loss ensure the following things-
Supervise Time in and out
The employee’s in and out timing should be supervised. It should be monitored carefully
because if the time in and out is not correct, it will be the great loss for the organization
because some employees may mislead the organization. There should be proper
monitoring on time in and time out of employees. It will be the weakness of the system if
there is no proper internal control in the system at this place. There should be proper
internal controls to monitor the same.
There are so many risks associated with it like incorrect time in and out, incorrect
payments etc.
Work Hours on Time card Authorized by Supervisors
The working hours mentioned by the employees should be authorized by the
supervisors. If that is not authorized, the payment should not be clear because an
employee can submit wrong information on this. There should be proper monitoring on
this. It will be the weakness of the system if there is no proper internal control in the
system at this place.
There are so many risks associated with it like wrong payments, chances of fraud etc.
Accurate Calculations
There should be accurate calculations because it is very sophisticated and critical part
of the system. If the calculations are not correct, it is the major drawback of the system.
It will be the weakness of the system if the calculations are not correct in the system.
There are so many risks associated with it like wrong payments, inaccurate dues etc.

Payroll Supervisor
There should be supervisors to check all payrolls. If there is some mistake in payrolls,
some dues etc. all should be checked by the supervisor. It will be the weakness of the
system if there are some issues in payrolls, delay in payments etc. Therefore a
supervisor should be appointed at payroll to check all payrolls.
There are so many risks associated with it like wrong payments, delay in payments, log
time dues etc. (LBA Haynes Strand, PLLC 2015)
Conclusion
The report is showing complete detail about the Purchase System, Cash Disbursement
System and Payroll System of Bell Studio. The internal control, possible weakness, and
associated risks are also mentioned in the report.
All possible weakness in all the three systems is complete defined. The report is
elaborating all weaknesses clearly.
After studying the report the one can easily understand about the Purchase System,
Cash Disbursement System and Payroll System.

References
Lucid Software Inc. (2018). What is a Data Flow Diagram. [online]. Available from:
https://www.lucidchart.com/pages/data-flow-diagram. [Accessed: 1 May 2019]
visual-paradigm (n.d.). Flowchart Tutorial (with Symbols, Guide and Examples). [online].
Available from: https://www.visual-paradigm.com/tutorials/flowchart-tutorial/. [Accessed:
1 May 2019]
myaccountingcourse.com (2019). What are Internal Controls? [online]. Available from:
https://www.myaccountingcourse.com/accounting-dictionary/internal-controls.
[Accessed: 1 May 2019]
Educator Association (2019). Purchasing Process Internal Control Assessment: A
Comprenhensive Case Study Using Data Analytic Software. [online]. Available from:
https://www.aisej.com/doi/full/10.3194/1935-8156-11.1.9. [Accessed: 1 May 2019]
LBA Haynes Strand, PLLC (2015). Accounting Blog. [online]. Available from:
https://www.lbahs.com/blog/bid/397513/10-common-internal-control-deficiencies-found-
in-small-businesses. [Accessed: 1 May 2019]
Smartdraw, LLC (2019). Data Flow Diagram. [online]. Available from:
https://www.smartdraw.com/data-flow-diagram/. [Accessed: 1 May 2019]
Mind Tools (n.d.). Flow Charts. [online]. Available from:
https://www.mindtools.com/pages/article/newTMC_97.htm. [Accessed: 1 May 2019]
Hearst Newspapers, LLC (2019). Weakness in Financial Management Internal
Controls. [online]. Available from: https://smallbusiness.chron.com/weakness-financial-
management-internal-controls-66503.html. [Accessed: 1 May 2019]
Wollacott M. (2019). How to Identify Internal Control Weaknesses. [online]. Available
from: https://bizfluent.com/how-7866434-identify-internal-control-weaknesses.html.
[Accessed: 1 May 2019]
Elsevier Inc. (2017). Internal control weakness, investment and firm valuation. [online].
Available from:
https://www.sciencedirect.com/science/article/abs/pii/S1544612317305962. [Accessed:
1 May 2019]