ACC539 - Analyzing Internal Controls: Chipps Limited Expenditure

This report provides a critical analysis of the internal control system at Chipps Limited, focusing on the expenditure cycle. It identifies weaknesses in areas such as verbal notification of goods received, cashier responsibilities, numerous purchasing clerks, and inadequate reviewing of open purchase orders. The report discusses the impact of these weaknesses, including the potential for material misstatements in financial statements and increased risks of errors and fraud. To mitigate these risks, the report suggests implementing specific internal control measures, such as developing written purchase order records, segregating duties, reducing the number of purchasing clerks, promoting coordination between staff, and regularly reviewing open purchase order transactions. The analysis concludes that addressing these weaknesses through effective internal control systems and appropriate strategies is essential for maintaining the integrity of Chipps Limited's financial reporting.

Running head: ACCOUNTING INFORMATION SYSTEM
Accounting Information system
Name of the student
Name of the university
Student ID
Author note

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Table of Contents
Part A:........................................................................................................................................3
Flowchart documenting the acquisition to payment system:.....................................................3
Part B:.........................................................................................................................................4
Introduction:...............................................................................................................................4
Discussion:.................................................................................................................................5
Conclusion:................................................................................................................................8
References list:.........................................................................................................................10

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Part A:
Flowchart documenting the acquisition to payment system:
(Source: created by author)

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Part B:
Introduction:
The report is prepared to critically analyze the internal control system of Chipps
limited by evaluating the expenditure process. In addition to this, the report also address the
impact of such identified weakness in the internal control system along with the specific
internal control measures that can be taken by the organization to mitigate the identified risks.
Discussion:
Internal control weakness Impact of weakness Control to mitigate the
weakness
Verbal notification of the
goods received to the
purchase department.
The purchasing clerk is
verbally informed about the
goods that have been
received by the receiving
department.
If the purchasing clerks are
verbally informed about the
goods that has been received. It
is quite possible that the
purchasing clerk forgets the
total amount of goods that are
received or might wrongly
record the total number of items
that has been delivered in the
purchase order (Winstead &
Wenger, 2015). There is an
increased risk that the
accounting records of the
company will be inaccurate and
incomplete with regard to the
purchase order. In such
The weakness of the control
system of MPP limited can be
mitigated by the development of
the written format to record the
purchase orders which would
presents the total number of
goods that has been delivered to
the customers. In addition to
this, the receiving department of
the company should notify the
purchasing clerk by signing a
delivery note which would give
description of the total number
of items that are delivered
(Aleqab et al., 2016). This is
considered essential because it

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situation, there is the possibility
than the material misstatement
of the financial statement of
Chipps Limited cannot be
prevented.
would act as proof and evidence
for the department head who is
engaged in the preparation of
purchase requisition. The copies
of the invoice generated should
be matched with the delivery
note created by the receiving
department.
Cashier being responsible for
maintaining the cheques
signature machine key and
monitor the use of signature
plate. The cashier of Chipps
limited has the responsibility of
maintaining the cheques and
ascertaining that the signatures
are correctly done. This is
regarded as the weakness in the
internal control system of
Chipps limited because cashier
should not be entrusted with the
responsibility of signing all the
cheques as there are high
chances of errors.
It is essential for the business to
have adequate control over cash
because cash is regarded as
most liquid of all the assets.
Since the treasurer and cashier
is responsible for signing all the
cheques above $ 5000, there is
the possibility that the cashier
might conduct an error in terms
of missing on the total number
of cheques that have to be
signed by the treasurer. In
addition to this, it can also be
seen that both the treasurer and
cashier are responsible for
signing all the cheques, there
might arise the conflict of
interest or conflict due to the
performance of objective.
There should be segregation of
duties among the employees
and rigorous control procedures
over the handling of cash. The
rigorous control procedures
involve is settling the
appropriate credit and
conducting the credit checks. In
addition to this, there should be
appropriate segregation of
duties between the treasurer and
cashier. The treasurer should be
entrusted with the responsibility
of signing all the accounts and
the cashier should be
responsible for checking the
signed documents.

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Numerous purchasing clerks
The requestor of the purchase
requisition form is verified by
one of the five purchasing clerk
of Chipps Limited. In addition
to this, the purchasing clerk of
the company is entrusted with
several number of jobs
associated with the purchasing
accounts ranging from the
verification of request to
sending the suppliers with
appropriate and creation of
purchase order (Lois et al.,
2018).
The existence of several
numbers of purchasing clerks
might results in the occurrence
of the issue of communication
gap. There might be over
recording of the purchase
account. Such overstatement of
the account might result in the
figures being materially
misstated and thereby
misrepresentation of the
financial statement of Chipps
limited. In order to facilitate
certainty and clarity in the
purchase ordering process, it is
required by the company to
introduce the robust procedures.
The negative impact is created
in terms of the conflict between
them and lack of coordination
that might results in either
occurrence of error or
conducting fraud activities.
It is required by Chipps limited
to employ one or two
purchasing order clerk so that
there exist coordination
between them. Furthermore
there can be occurrence of the
conflict of interest between the
clerks who are entrusted to
perform the same job.
Therefore, management of
Chipps limited should employ
other sales staffs and there
should not be more than two
purchasing clerks so that there
is the coordination among
employees. Therefore, it should
be the responsibility of other
staffs to request the price quote
and phone the suppliers. This
would help in preventing the
fraud.
Inadequate reviewing of open
purchase order
The open purchase orders
prepared by the purchasing
clerk are reviewed on a monthly
With regard to the purchase
transactions, there is the risk
that the accounting record of
company will be inaccurate and
inadequate because of missing
Chipps limited should hire
staffs for who would be
responsible for constantly
monitoring the sequence
number of the purchase order.

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basis. This done for following
up any open orders.
out of the orders that are
recorded (Aicpa.org, 2019).
There is the possibility that in
the event of purchasing clerk
and not regularly reviewing the
purchase order, there can be
misappropriation of the same.
This would help in ensuring that
the completeness of the
purchase order transactions has
been fulfilled. Moreover, the
purchase order will be reviewed
continuously and the chances of
occurrence of errors and fraud
act would be reduced to a
considerable extent
(Laosethakul et al., 2016).
For assessing the purchase
order, Chipps limited should
adopt the appropriate methods
of controlling system along with
maintaining strict control over
verification of the sequence
number of the purchase order.
Conclusion:
From the analysis of the internal control system of Chipps limited, it can be inferred
that there exist several weakness in the system which is associated with the purchase order
and purchase accounts. It has been ascertained that there exist weakness in the creation of
purchase order and the person associated with the person handling the purchase accounts. The
weakness in the internal control system results in the material misstatement of the financial
statements of Chipps limited. Such weakness has been addressed by developing the effective

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internal control system and designing the appropriate strategies such as segregation of duties,
reducing the number of purchasing clerks and promoting the coordination between the staffs.

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References list:
Aicpa.org. (2019). Retrieved 13 May 2019, from
https://www.aicpa.org/research/standards/auditattest/downloadabledocuments/au-c-
00265.pdf
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Firms. Indian Journal of Science and Technology, 10, 12.
Laosethakul, K., Tarasovich, B. M., & Boyer, B. (2016). Determining the most effective
pedagogical method of teaching SAP Enterprise Resource Planning exercises in an
introductory financial accounting course. Journal of the Academy of Business
Education, 17, 209.
Lois, P., Tabouratzi, E., & Makrygiannakis, G. (2017). Accounting Information Systems
course: perceptions of accounting and non-accounting students. EuroMed Journal of
Business, 12(3), 258-268.
Pearlson, K. E., Saunders, C. S., & Galletta, D. F. (2016). Managing and using information
systems, binder ready version: a strategic approach. John Wiley & Sons.
Winstead, J. L., & Wenger, M. R. (2015). Skills vs. Concepts: A Comparison of Practitioners'
and Educators' Preferences for Accounting Information Systems Proficiencies. AIS
Educator Journal, 10(1), 5-25.