Internal Control System Analysis of Bell Studio Company

The assignment involves analyzing the internal control system of Bell Studio Company, including its procedures for processing various activities such as purchasing raw goods, making payments, and payroll management. The analysis reveals several weaknesses in the system, which can be addressed by developing effective strategies and plans to enhance performance and effectiveness.

Strategic Information Systems
for Business and Enterprise

Executive summary
The report is about the internal control system, payroll system, purchase and cash disbursement
system of Bell Studio which is an Adelaide based wholesaler of art supplies. The organisation
procures its supplies from different parts of world namely China, Australia, Japan and New
Zealand. The enterprise has a centralised system which is connected to different terminals at
different locations. The report is mainly about the purchasing, cash disbursement, payroll system,
the way things are carried out in the company. Like when purchase department checks the
inventory and it is found out that inventory is below safety level, a purchasing order is placed
digitally and the hard copies of the same is sent to vendor and purchasing department. Likewise,
functioning of other systems has been shown through the data flow diagrams in the report.
Further, it is evident from the report that company's internal control system faces few drawbacks
which has to be removed for making the organisation more efficient and effective so that costs
could be reduced and profits could be increased.

Table of Contents
Executive summary.........................................................................................................................2
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
Data flow diagram of purchases and cash disbursement systems................................................1
Data flow diagram of payroll system...........................................................................................3
..........................................................................................................................................................3
System flowcharts of purchase system........................................................................................5
System flowchart of cash disbursement system...........................................................................8
System flowchart of payroll system.............................................................................................9
Describing weakness in the internal control of each system along with risk associated with the
identified weaknesses.................................................................................................................10
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................13

INTRODUCTION
Different organisations have different internal systems for carrying out the routine
functions of the business such as inventory control system, payroll system, cash disbursement
system etc. (Hung and et.al., 2016)The present report is about the Bell Studio which is a
wholesaler of art supplies located in Adelaide, Australia. The project report will show various
data flow chart diagram related to company's payroll, cash disbursement, purchasing system etc.
Further, the assignment will highlight the internal control weaknesses in each system and the
kind of risks associated with identified weaknesses.
MAIN BODY
Data flow diagram of purchases and cash disbursement systems
A data flow diagram is a chart that provides the layout regarding how the information is
passed from one terminal to another terminal in a process or system.
Data flow diagram of purchasing system:
1

Data flow chart of cash disbursement
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Illustration 1: Data flow diagram of purchasing system-1
Source: created by author

From the above charts, it can be seen that different clerks of different roles in maintaining
the expenditure cycle smoothly which in turn leads to smooth production and supply of art
related items (Kusmantini and et.al., 2018). Like, it was observed that when the purchasing clerk
checks the inventory ledger and when it comes to know that inventory is below the safety level,
it selects the valid vendor from the list of vendor and places an order digitally. The hard copy of
this order is sent to the vendor and the other copy id filed by the purchasing department. The
internal weaknesses here is that paperwork and movement of these documents between different
parties slows the functioning of operations in the company.
Similarly, when the cash disbursement clerk receives the documents related to the
purchased order who then files them until the due date of payment comes. When the due date
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Illustration 2: Illustration 1: Data flow diagram of purchasing system-2
Source: created by author

arrives, the clerk prepares a cheque of the amount written in the invoice which is then sent
through mail to the vendor. After which, the disbursement clerk files the invoice, receiving
report from receiving department and a copy of the cheque in the cash disbursement department.
So, this is how the information related to purchasing of orders and payment of cash to the vendor
takes place in the Bell Studio.
Data flow diagram of payroll system
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Illustration 3: Data flow diagram of payroll system-1
Source created by author

The above data flow chart of the Bell studio shows how the payroll function is carried out
and which department are responsible for the proper accounting of the payroll transaction of the
company. It has been seen that payroll process of the organisation starts with the recording of
hours worked of the employees by the way of time cards. These time cards are then reviewed by
the supervisors who after getting the satisfaction from the correctness of the time card, submit
these to the payroll department. Payroll clerk then feeds the data in company's HR integrated
system after which the hard copies of the same are sent to the account payable department and
one copy is filed in the payroll department (Kamariotou, Kitsios and Grigoroudis, 2018). The
data so posts by the payroll clerk is then reflected in the digital employee records.
When the time cards are filed by clerk then cheques are sent to supervisors who then
distributes the same amongst the employees.
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Illustration 4: Illustration 3: Data flow diagram of payroll system-2
Source created by author

System flowcharts of purchase system
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Illustration 5: system flowchart of purchase system-1
source: created by author

 Checking inventory held by company: First and foremost, clerk checks the inventory
ledgers for determining number of inventory held by company.
 if amount of inventory is founded low: if clerk detects too low amount of inventory
held by business, clerk further processes for giving order for purchase.
 identification of numerous vendors: clerk identifies various vendors who could sell
specific inventory to the company.
 ask for quotations: a letter is being send to each appropriate vendor as to ask the to send
their quotations. (Yoshikuni and Albertin, 2018)
 selection of best vendor: the most economic vendor is being selected by vendor.
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Illustration 6: Illustration 5: system flowchart of purchase
system-2
source: created by author

 make digital order of purchase: after selecting the best vendor, a digital order is being
placed for purchasing the inventory.
 print of hard copy of order: a hard copy of the digital order is being printed. one copy
sent to vendor and other to purchasing department.
 receive of goods: after sending copy of order, vendor sends the good which is received
by the clerk.
 inspection of goods: clerk makes a proper inspection of goods for detecting if goods
received by company is equal to order placed.
 reconciliation of items against information of order: clerk reconciles all the
information with the goods received by Bell studio.
 preparation of manual copy of receiving report: clerk prepares a manual receiving
reports on the basis of goods received by company.
 goods sent to warehouse: after proper reconciliation and preparation of receiving report,
goods is sent to warehouse of firm.
 filing of receiving report one copy of the receiving report is filed by the purchase
department. another copy of receiving report to be sent to payable department.
 formation of digital reports of all the documents: After receiving supplier's invoice,
hard copy of digital purchase order, and all other documents are being reconciled.
 update inventory control account : after reconciliation, clerk updates the ledgers of
inventory control system.
 all reports sent to cash disbursement department: at the end, all the reports are being
sent to the cash disbursement department.
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System flowchart of cash disbursement system
 Receiving documents from purchase department: Process of this department begins
with receiving documents from the purchase department.
 filing of documents: All documents are filed by the cash disbursement clerk till the date
of payement.
 preparation of cheque for invoiced account : a cheque is sent prepared by clerk on due
date as per amount due.
 sent to treasurer for signing : the cheque is sent to the treasurer to take the sign and
mail the cheque to vendor.
 updation of cash register: clerk updates the cheque register, ledgers related ti account
payable and other accounts related to payable control.
 filling of all reports, invoice, cheque copy. : at the end, clerk files all the reports in the
cash disbursement department.
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Illustration 7: system flow chart of cash disbursement system
Source: created by author

System flowchart of payroll system
 Recording of hours working on time card each day: the payroll process starts with
recording working hours as per time card of each employee everyday.
 review of time card: Supervisor of payroll department reviews correctness of time card
and submits the report at the end of every week.
 input time card data in central payroll system: clerk inputs all the data in the central
payroll system of Bell studio located in the data processing department.
 print of 2 hard copies of pay cheque: 2 copies of pay cheque, time card data and
payroll register and posts to digital employee records is printed.
 send to supervisors for review: All the hard copies are sent to supervisors for
reviewing them.
 distribution to respective department employees: data related to salaries, wages and
other payments is distributed to the respective department employees.
 copy of payroll register send to account payable department: A copy of the payroll
register is sent to the account payable department for the purpose of reviewing the
register. And other copy file with time card in payroll department (Hagari and Yokono,
Mitsubishi Electric Corp, 2019).
 voucher send to general ledger department: clerk prepared vouchers and send them to
the general ledger department.
 writing of cheque by payable clerk : The payable clerk writes cheque as per amount
payable to each employee.
 depositing cheque in imprest account at bank: all cheques are deposit to the bank in
its imprest account.
 filling copy of cheque in account payable department : At the end, A copy of cheque
is file in the account payble department.
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Describing weakness in the internal control of each system along with risk associated with the
identified weaknesses
Internal control system refers to a process of controlling internal management and
processing of business activities . With the help of internal control system, company ensures that
each laws, rules, regulations and standards applicable to it has been complied properly by the
business organisation.
Analysis of Internal control system of Bell Studio in its various systems of business can
be analysed as under:
Purchase system
The company has developed a systematic system for purchasing raw materials and goods.
Managers of the company has developed a lengthy procedure of purchasing. In this regard, the
purchasing activity has been diversified in various stages. It has enhanced the need of effective
control system in this system. Further, the major responsibility of maintaining control over the
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purchases has been provided to the clerk of company. It has developed centralized authority in
the business organisation.
Due to adoption of centralized authority, risk of fraud in the purchase system of the Bell
Studio. It can be analysed as a key weakness of company's internal control system. Further, as
the process of selecting the specific vendor from whom company would purchase its raw
material and goods, is also performed by the clerk only, chances of selecting wrong vendor that
could be make the company to suffer a huge loss enhances.
Cash disbursement system
the cash disbursement system of Bell Studio concerns with making payment to suppliers
in context with the goods purchased by the company from its suppliers. Involvement of internal
control is required as to ensure the appropriate payment to suppliers can preventing company
from making any imaginary payments.
The major weakness of internal control system of cash disbursement system is in case
the company needs to makes a large amount of payment, chances of theft and fraud enhances.
Further, as Bell Studio does not have strong tracking system. In this regard, it enhances the
chances of fraud. Moreover, as the internal control would be conducted through employees of
company chances of misconducting increases.
Payroll system
This system of the company concerns with determining amount of wages, incentives,
bonus, commission, etc. of employees. With an effective internal control company leads in
safeguarding information of employees and protecting financial resources of employees.
Weakness in the internal control arises if managers makes fault in distribution of salaries and
wages among employees (The Internal Control Weaknesses of a Payroll System. 2018). It may
have a negative result towards company in form of employee dissatisfaction, fine and penalties
over company, etc.
in this regard, it can be analysed that there are numerous weakness in the internal control
of its various systems. Further, with the help of developing effective strategies, Bell studio can
reduce or eliminate these weaknesses from internal control of each department.
CONCLUSION
From the analysis of above study of the Bell studio company, it can be analysed that the
company has set a proper procedure for processing various activities like placing order for raw
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goods, purchasing and receiving goods, making payment to suppliers, salaries, wages etc, to be
paid to its employees. The development of proper processing helps the company in enhancing its
effectiveness in the performance of various business activities. The internal control system
contains numerous weakness that can be overcome by firm by developing effective plans and
strategies for company.
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REFERENCES
Books and Journals
Hagari, H. and Yokono, M., Mitsubishi Electric Corp, 2019. Controller and control method for
internal combustion engine. U.S. Patent Application 10/167,790.
Hung, S. Y. and et.al., 2016. Effect of information service competence and contextual factors on
the effectiveness of strategic information systems planning in Hospitals. Journal of
Global Information Management (JGIM).24(1). pp.14-36.
Kamariotou, M., Kitsios, F. and Grigoroudis, E., 2018. Strategic Decision Making using
Multicriteria Analysis: Information Systems Performance Evaluation in Greek SMEs.
In Proceedings of the 7th International Symposium and 29th National Conference on
Operational Research (pp. 184-188)
Kusmantini, T. and et.al., 2018, December. Moderation Effect of Strategic Information System
Development on the Relationship Social Sustainability in the Supply Chain and Firm
Performance. In Journal of International Conference Proceedings (Vol. 1, No. 2).
Yoshikuni, A. C. and Albertin, A. L., 2018. Effects of strategic information systems on
competitive strategy and performance. International Journal of Productivity and
Performance Management. 67(9). pp.2018-2045.
Online
The Internal Control Weaknesses of a Payroll System. 2018. [Online] Available through :
<https://smallbusiness.chron.com/internal-control-weaknesses-payroll-system-
15312.html>
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