HA2042 Accounting Information Systems: Case Study of Adam & Co

This case study analyzes Adam & Co, a wholesaler, focusing on its expenditure cycle, including purchase, cash disbursement, and payroll systems. The assignment presents system flowcharts for each department, detailing the processes and identifying key checkpoints. The analysis reveals weaknesses in the internal control systems, such as manual processes, lack of centralized systems, and potential for errors and fraud. The purchase system's reliance on hard copies and manual reconciliation increases the risk of errors and fraud. The cash disbursement system's lack of centralized computer systems makes it prone to errors and fraud. The payroll system's reliance on manual input and review exposes it to potential inaccuracies and fraud. The report aims to evaluate the risks and internal control processes within Adam & Co, identifying areas for improvement and suggesting measures to strengthen the company's financial controls.

Running head: CASE STUDY- ADAM & CO
Case study- Adam & Co
Name of the Student
Name of the University
Author Note
Executive summary:
The report is prepared to evaluate the risk and internal control process in terms of its
strength and weakness. The analysis is based on the case study presented on the
company Adam and Co. The three department of Adam and Co has been separately
analyzed using the system flow chart that depicts the process in identified steps.
These departments include purchase department, payroll department and cash
disbursement department. The later part of the report depicts the description of the
weakness of internal control system of each departments.

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:
The report is prepared to be presented to the managing director of Adam &
Co evaluating the risks, process and internal control of the expenditure cycle of the
company. Adam and Co is a wholesaler of supplies which source its inventories from
different countries such as Thailand, China and Vietnam. The procedure of
expenditure cycle of the company comprised of purchase system, cash
disbursement and payroll system. The risks, process and the weakness associated
with the internal control of the different systems of the company has been evaluated.
The process different systems of has been understood with the help of flow chart
which helps in evaluating the state of the current situation for further improvement
(Salimi et al. 2016).
Discussion:
System flow chart of purchase system:
The system of purchase involves the journey from the creation of purchase
order through the approval of purchase order, delivery, invoicing and closure and the
purchase order becomes a legally binding document if the purchase order is
accepted by the vendor. The process of the purchase order comprise of various
checkpoints and approval of the tasks of input for ensuing that the processing of
purchase order is done timely. Hence, purchase system initiates with the
identification of the need of inventory, placing the order, receiving inventory and
recognizing the liability. The depletion of inventories is done by selling the finished
goods. A digital purchase order is prepared by the purchasing clerk when the level of
inventories drop below the predetermined point and the purchase order is made to
the vendor after they are chosen from the vendor file. The purchase order process
initiated when the copy of purchase order is send to vendor as well as to the
purchasing department and the purchase order file has the digital record of purchase
being done (Apostolou et al. 2017).
The process of purchase order can be made efficient if much of the routine
ordering information needed by the purchasing department from the valid vendor file
and inventory is supplied by the inventory control function. In the next step of the
purchase process, the receiving department receives the goods that has been
ordered. The information presented in the digital purchase order and the purchasing
slip is reconciled against the goods received by the receiving clerk and this is done
after inspection. Two hard copies of receiving reports is manually prepared by the
receiving clerk. Receiving report is filed by the clerk in the department after the
inventory subsidiary ledger has been updated and the goods are shelved. The
accounts payable department receives the other copy of the receiving report where
the filing is done until the arrival of the invoice from supplier. Accounts payable clerk
is also responsible for reconciling the three documents that is hard copy of digital
purchase order, invoice from suppliers and receiving report. In addition to this, the
digital accounts payable subsidiary ledger, inventory control account and the
accounts payable control account is updated by the accounts payable clerk in the
general ledger. The step of purchase process is completed after the receiving report,

CASE STUDY- ADAM & CO
invoice and the purchase order copy is send to the cash disbursement department
(Loo and Bots 2018).

Purchasing
department Receiving department Accounts payable
department
Monitoring inventory records
Inventory levels
Preparing digital purchase order
Choosing a vendor
Sending to vendor
Filing in the department
Preparing two hard copies
Adding to purchase order file
Receive goods
Reconciliation and inspection
Hard copies of receiving report
Manual preparation of receiving report
Inventory warehouse
Updating inventory subsidiary ledger
Filing of the report
Filing of the report
Arrival of supplier’s invoice
Printing digital purchase order hard copy
Digital purchase order, supplier’s invoice and receiving repo
Reconciliation
General ledger
Updating of accounts
payable, accounts payable
subsidiary ledger and
inventory control account
Cash disbursement department
CASE STUDY- ADAM & CO
Chart 1: System flowchart of purchase system
Source: created by author
The above flowchart depicts the whole process of purchase system of Adam
and Co.

Filing of the documents received
Until the due date
Cash disbursement clerk
Preparing a cheque
Invoiced account
Treasurer
Vendor
Sign
Updating
Receiving clerk
Purchase order copy, invoice, cheque copy and receiving report
Filing
CASE STUDY- ADAM & CO
System flow chart of cash disbursement system:
All the documents such as invoice, purchase order and receiving report are
received by the accounts payable department. These documents are filed by the
accounts payable clerk until the due date of payment. For the invoiced account, a
cheque is prepared by the clerk on due date and it is then signed by the treasurer
and mailed to the vendor. After this, the accounts payable subsidiary ledger, cheque
register and the accounts payable control account is updated by the cash
disbursement clerk. The process of disbursing cash is completed after the purchase
order copy, invoice, cheque copy and receiving report is filed in the department by
receiving clerk (Murthy 2016).
Chart 2: System flowchart of cash disbursement system
Source: created by author
The above chart depicts the process of the cash disbursement system of
Adam and Co and the process ends with the filing of all the documents by the
receiving clerk in the account payable department.

CASE STUDY- ADAM & CO
System flow chart of payroll system:
The fundamental factor of the payroll system of Adam and Co is the total
hours worked by the employees and their recording on the time card. This time card
forms the basis of the payment to be made to each of the employees. All the
recordings made in the time card are verified and reviewed for correctness by the
supervisor. At the end of each week, the verified time cards are submitted to the
payroll department. After this, the time card data is inputted by the clerk of the data
processing department. In addition to this, it is also the responsibility of the clerk to
post two copies of payroll register and hard copies of cheque to the digital employee
records. In addition to this, the time card is filed in the payroll department by the
payroll clerk. Several supervisors receive the employee pay cheque for the review
and distribution to the employees of respective department. One copy of payroll
register is filed with the time card in the payroll department and the other copy is
forwarded to the accounts payable department. The next step is reviewing of payroll
register by account payable clerk and the clerk is also responsible for preparing the
disbursement voucher. The general ledger department receives the payroll register
and voucher sent by the clerk. A cheque is written for the entire payroll by accounts
payable clerk and the same is deposited in the bank account and in the last step, a
copy of the cheque is filed by the clerk in the accounts payable department. The
general ledger clerk post the payroll register and the voucher to the general ledger
after receiving and then the payroll register and the voucher is filed in the general
ledger department (Dierynck and Labro 2018).

Supervisor Department of
Payroll
Department of
Accounts payable Department of
general ledger
Time card is reviewed for correctness
Reviewing Employee pay cheque
Employee cheque are distributed to different departments
Time card data is inputted
Hard copies of pay cheque are printed
Two copies of payroll register
Filing one copy of payroll with the time card
Clerk reviews the register
Disbursement voucher is prepared
Clerk Writes the cheque
Depositing in the bank account
Cheque copy is filed
Posting to general ledge
Filing in the department
CASE STUDY- ADAM & CO
Chart 2: System flowchart of payroll system
Source: created by author
Description of the weakness in the internal control of system and its
associated risks:
The weakness which are faced by the purchase system of Adam and Co are listed
here as under:
 There is a manual preparation of the receiving reports which are in the form of
hard copies of the goods.

CASE STUDY- ADAM & CO
 Only until the invoice of the supplied goods in arrived the account payable
clerk files the receiving report. Thereby, it becomes a time consuming task to
fill in the receiving reports at that point of time.
Consequently, it can be said that the company has a low or poor records for
the intake as well as the records and the needs of the goods. The subordinate
employees are not found to question the incorrect transactions within the company.
Apart from this, also it can be said that by making the record of the receiving report
in the form of a hardcopy it becomes very hectic and also the chances of fraudulence
of the total amount of the goods might also occur (Chiu et al. 2019). As, it is
manually entered, thereby increasing the risk of errors might also be faced thereby
reducing the strength of the internal control of the purchase system.
The evaluation of the Adam and Co. and the internal control of the cash
distribution system has be done in terms of its effectiveness and it can be further
explained as follows:
The documents which are obtained for verification purpose also does not
suffice as received by the treasurer prior to the signing and mailing as the
system of the distribution of the cash also faces problems.
These factors are also found to pay way to the occurrence of fraud as the
figures which are mentioned on the cheque also might be misappropriate or
incorrect. The system of a centralized computer must be practiced so as avoid the
mistakes or the errors. Also in case there is centralized system record can help
detect the fraud activities that can easily be tracked, as a result of which the
transparency can be maintained (Ahmed et al. 2017).
The below listed factors are drawbacks which are faced by the payroll system
of the Adam and Co. and it can be explained here as under:
 There is scarcity of the task distribution amongst the accounts department,
starting from the data input task to time card data, printing of the hard copies
of the payroll register and the cheque and also the posting of all the record
are done by a single person that is the account clerk. So, this increases the
risk of fraudulence or data mismatch.
 Furthermore, the disbursement coupon or the voucher is prepared manually
which might result in the probability of occurrence of the mistakes. It can also
be found out that one of the major reasons of the fraudulence to happen might
be because of the lack of monitoring the transactions and also the
preparations of the documents for verifications, consequently, the reliability is
endangered. Additionally the procedure of the documentation is not
established properly thereby leading to an increase in the occurrence of
mistakes during the transactions verifications by the clerks (Pearlson et al.
2016).
Conclusion:
The above discussions briefly explains the risks which are associated with the
internal control system of the Adam and Co. expenditure cycle .The categorized
three departments that is the purchase system, the cash distribution system and the
payroll system has been taken into consideration for evaluating its efficiency and
effectiveness. The process of all the three departments has been explained by

CASE STUDY- ADAM & CO
preparing a system flow chart which helps in understanding each of the stages
properly. It can also be understood from the above discussions that the internal
control faces the weaknesses that also might rise the fraudulent activities and also
chances of mistakes by the staff members also is found to increase. One of the most
important drawback faced by this expenditure cycle is that the staffs are manually
engaged in the making and managing of the reports which in itself is a major factor
which leads to fraud. Also the lack of task segregation causes the data to be less
reliable and accurate, there is also not enough adequate data verification which
results in increase the risk of indulging in the fraud activities.

CASE STUDY- ADAM & CO

CASE STUDY- ADAM & CO
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