Internal Control Weakness in Bell Studio's Accounting System

This report discusses the internal control weakness in the accounting system of Bell Studio, a supplier of art materials. It examines the weaknesses in the purchasing, cash disbursement, and payroll systems, and identifies the associated risks. Mitigation strategies are also discussed.

Running head: STRATEGIC INFORMATION SYSTEMS
Strategic Information Systems
Name of Student-
Name of University-
Author’s Note-

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Executive Summary
This below discussed report consists of the working accounting process of the Bell
Studio. The Bell Studio consist of three different system that are explained in this
report related to the accounting system in the organization. Each of the processes
are explained in this report and states the internal control weakness that each of the
system processes in the organization. The internal control weakness of all the
systems are described in this system describing their mitigation process in the
system. All the mitigation processes are explained in this report.

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Table of Contents
Introduction...................................................................................................................3
Data flow Diagram of Purchase and Cash Disbursement System...............................3
Data flow Diagram of Payroll System...........................................................................3
System Flowchart of System........................................................................................3
System Flowchart of Cash Disbursement system........................................................3
System Flowchart of Payroll System............................................................................3
Internal Control Weakness and Risks Associated.......................................................3
Conclusion....................................................................................................................3

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Introduction
The background of the Bell Studio is taken in this report as case study. This
studio deals as a supplier of art materials. For conducting its processes, Bell Studio
has transaction cycles in which the vendors and the suppliers of the company are
paid for their supplies. The organization is an Adelaide based company of art
supplies. The manufacturers of the company are from different locations.
The company mainly has an accounting system that is centralized at all the
location of Bell Studio. The expenditure of the Bell Studio has different procedures
such as purchasing system, Cash disbursement system, and Payroll System. This
report describes different transaction cycles of the Bell Studio, the financial; reporting
system carried out in Bell Studio and the management system of the organization.
As the system of the Bell studio is based on the computer-based system, there is a
need to include many control processes that are to be included to overcome the
weakness of the current ERP system in the organization. This report defines all such
internal weakness of the system and states the steps that are to be taken to
overcome those problems.
Data flow Diagram of Purchase and Cash Disbursement System
Figure 1: Data Flow Diagram
(Source: Created By author)

4STRATEGIC INFORMATION SYSTEMS
Data flow Diagram of Payroll System
Figure 2: Data Flow Diagram
(Source: Created By author)
Description: The DFDs shown above are the purchasing system of Bell
Studio about how they purchases materials from the different manufacturers. The
data flow of the cash disbursement is also shown in this report that show the
disbursement of cash to the vendors and the third system whose data flow is sown in
the report is the payroll system by which the employees are paid.
In the purchasing system and the cash disbursement system, there are
processes, database store and the input/output processes that describes the
purchasing system and the cash disbursement system of the Bell Studio. According
to the diagram, the clerk responsible for purchasing first checks the inventory and if
the inventory needs to be refilled, the clerk picks up a supplier from the supplier
database and place the order through mail. Again when the materials comes from
the supplier at the receiving center. The receiving clerk checks the supplier invoice
and the purchasing receipt and forwards the receipt to the cash disbursement
department for paying the cheque to the supplier.
The seconds diagram shows the working process of the payroll system
carried out in Bell Studio. The working process of the purchasing system starts with
the checking the time card of the employees and when the time card is checked, the
time is entered in the record book and cheque is forwarded to the supervisors for the
distribution. The cheque is also forwarded to the bank with the total amount of payroll

5STRATEGIC INFORMATION SYSTEMS
that is to be given to the employees. The cheque that is sent to the ledger
department for their sign and is then sent to the bank in their imperest account.
System Flowchart of Purchasing System
Figure 3: System Flowchart
(Source: Created By author)
System Flowchart of Cash Disbursement system
Figure 4: System Flowchart
(Source: Created By author)

6STRATEGIC INFORMATION SYSTEMS
System Flowchart of Payroll System
Figure 5: System Flowchart
(Source: Created By author)
Description: The flowchart of the systems are shown in the diagram above.
The system flowchart includes three systems of the Bell Studio that is carried out in
the account system. Figure 3 shows the system flowchart of the purchasing system,
figure 4 shows the system flowchart of the cash disbursement system and the figure
5 shows the system flowchart of the payroll system.
The purchasing system is shown by the procedure of the system and the
decision is shown in a decision box in the diagram. In the purchasing system,
decision is taken whether to place an order with the suppliers. If the inventory is
empty, then only the system will proceed. All the details of the procedures of the
purchasing system are shown in diagram. The cash disbursement shows all the
procedures that are taken to make payment to the suppliers of the system. The
payment is made through cheque and are sent to the suppliers through email. The
thirds diagram in this report depicts the payroll system about how the employees are
being paid from the company. The system states the payroll system about the
procedure that is undertaken to pay the employees associated with the operation of
the business. The employees are also paid through cheques after verifying their time
cards which shows their working hours in office. The payroll system includes sending
the payroll cheque to the bank’s imperest account so that the employees are able to
withdraw their salary from the bank. The treasurer of account payable department
signs the cheque and sends to the bank.
Internal Control Weakness and Risks Associated
Internal control Weakness of Purchasing department:
1. The first weakness of the purchasing department is occurring of data breach
in the system (Wellin 2016). When the purchasing system is being carried out
in the system, all the related data are stored in the centralized system. There

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is a risk of getting data breach in the system when the data is uploaded in the
cloud.
2. All the data are stored in the computer centralized system and that is an
internal flow in the system. There might be problem of dealing with the
computers in the system.
3. While recording the data in the centralized system, the information or the data
uploaded might be incorrect information. The clerk might upload the
information mistakenly in the system.
Risks Associated with purchasing system:
1. Potential Fraud: The first risk that is associated with the purchasing system is
the potential fraud risks. The centralized system is dependent on the
computers and that might lead to large problems in Bell Studio. Storing all the
data on the cloud of the accounting centralized system, there is a risk of
hacking the financial data of the system.
2. Technical Risks: there might be several issues while dealing with the
computer systems. While uploading the purchasing receipt or the invoice in
the system, there might be power outage in the organization (Quirke 2017).
There might be computer virus and computer might stop working because of
the virus.
3. Incorrect information: There might be a risk of uploading incorrect information
in the system as there is clerk has the responsibility to all those works. It is
human error and human error might occur accidently in the system.
Internal control Weakness of Cash disbursement system:
1. The weakness of the cash disbursement department is occurring of data
breach in the system. When the cash disbursement department is being
carried out in the system, all the related data are stored in the centralized
system (Woerkom et al. 2016). There is a risk of getting data breach in the
system when the data is uploaded in the cloud.
2. All the data are stored in the computer centralized system and that is an
internal flow in the system. There might be problem of dealing with the
computers in the system.
3. While recording the data in the centralized system, the information or the data
uploaded might be incorrect information. The clerk might upload the
information mistakenly in the system.
Risks Associated with cash disbursement system:
1. System Crash: The first risk that is associated with the cash disbursement
system is the potential fraud risks (Upward and Jones 2016). The centralized
system is dependent on the computers and that might lead to large problems
in Bell Studio. Storing all the data on the cloud of the accounting centralized
system, there is a risk of hacking the financial data of the system.
2. Malicious Hacks: there might be several issues while dealing with the
computer systems (Thompson 2017). While uploading the purchasing receipt
or the invoice in the system, there might be power outage in the organization.
There might be computer virus and computer might stop working because of
the virus.
3. Reducing physical audits: There might be a risk of uploading incorrect
information in the system as there is clerk has the responsibility to all those

8STRATEGIC INFORMATION SYSTEMS
works. It is human error and human error might occur accidently in the system
(Safari, Faraji and Majidian 2016).
Internal control Weakness of payroll system:
1. The weakness of the payroll system is that the management is based on the
maintained records that are related to the financial as well as cost accounting
system.
2. All the data are stored in the computer centralized system and that is an
internal flow in the system (Quirke 2017). There might be problem of dealing
with the computers in the system.
3. While recording the data in the centralized system, the information or the data
uploaded might be incorrect information (Luftman, Lyytinen and Zvi, 2017).
The clerk might upload the information mistakenly in the system.
Risks Associated with payroll system:
1. Biased Interpretation: The risk that is associated with the payroll system is the
potential fraud risks (Korableva and Kalimullina, 2016). The centralized
system is dependent on the computers and that might lead to large problems
in Bell Studio. Storing all the data on the cloud of the accounting centralized
system, there is a risk of hacking the financial data of the system.
2. Maintains record manually: there might be several issues while dealing with
the computer systems. While uploading the purchasing receipt or the invoice
in the system, there might be power outage in the organization. There might
be computer virus and computer might stop working because of the virus.
3. Having different skills: There might be a risk of uploading incorrect information
in the system as there is clerk has the responsibility to all those works
(Haynes 2015). It is human error and human error might occur accidently in
the system.
Conclusion
Centralized based computing system is the particular type of architecture in
which all the working process is being performed by only one central server. The
centralized system mainly enables to have computing resource, the management
system, and the and-ministration system in the central server of the organization.
The responsibility of the central server is mainly responsible for delivering the
application logic, provides the computing resources and includes the processing in
the system.
The centralized system that is used by the Bell Studio mainly includes the
client and server architecture where all the computer systems at different locations
are connected with the central server. The working system of the Bell Studio is
discussed in the report above. The system consists of the transaction system, the
management system, and reporting the financial system of the organizations. The
networks of the systems are connected to a network to a particular central server
that helps the organization to process the computations. As all the nodes are
primarily dependent on central server for accessing the application, computing,
internet storage, security and storage within the system, there are many pitfalls in the
system. The systems on the Bell Studio are to investigate those issues and find out

9STRATEGIC INFORMATION SYSTEMS
proper mitigation techniques to improve their accounting information system. The
operation of the organization is explained in the report. All the weakness of the
above stated three system are explained in this report defining the mitigation process
of the system.
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