Accounting Information Systems Analysis: Adam & Co Case Study Report

This case study analyzes the accounting information systems (AIS) of Adam & Co, focusing on the purchase, disbursement, and payroll systems. It examines the flowcharts of each system, identifying potential risks and weaknesses within each process. The analysis explores issues such as separation of duties, lack of specialization, and manual data processing, which can lead to errors, fraud, and financial losses. The study also suggests improvements for internal controls, emphasizing the importance of proper management, employee training, and the implementation of robust reconciliation procedures. The report also addresses the risks associated with cash management, data entry errors, and the need for secure document storage to mitigate potential threats to the company's financial stability and reputation.

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Accounting Information System
Student’s name
Course
Instructor’s name
Institutional affiliation
City and state
Date

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Table of Contents
Executive Summary.....................................................................................................................................3
1.1. Introduction.........................................................................................................................................4
Figure 1: The Flowchart of the Purchases System...................................................................................6
2.1.1Risks and Weaknesses in Purchase flowchart..................................................................................6
2.2. The disbursement flowchart System.....................................................................................................7
2.2.1 Common risks and weaknesses observed in the cash disbursement system at Adam & Co............8
2.3. The flowchart of the pay roll system..................................................................................................10
Figure 3: System payroll flowchart........................................................................................................10
2.3.1 The risks and weaknesses within Adam and company payroll system..........................................11
Conclusion.................................................................................................................................................11

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Executive Summary
The study seeks to assess information accounting systems especially in internal control
system management. In this context, the case study company is Adam & Co limited. This paper
therefore the paper investigates the internal control systems of Adam and Company using three
systems. These systems include the following payroll system, cash disbursement and purchase
system of the organization. Furthermore, the paper examines the weakness and risks influenced
by every control system in the company with their respective resolutions. It is therefore clear that
several companies are attributed to challenges which arise from internal control systems due to
improper managements. Such managements end up making the companies to fail and thus
quitting the business. In addition, some procedures are highlighted in the way how companies
can resolve such risks and thus attaining their set objectives especially Adam &Co limited.

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1.1. Introduction
Currently in the world, the rate of demand is more effective and reliable services being
given to customers. This situation demands for well prepared, recorded and analyzed data
together with consistent reporting of financial statements (Hla& Teru,2014). Due to such a need,
Adam & Company has tried to provide various procedures and resolutions among all the units of
the company in order to meet the interests of the clients. It is believed that various companies
provide resolutions in relation to the vision, targets and the goals of the organization. For this
case, Accounting Information Systems are considered to be very essential in the field of
accounting in order to ensure efficiency, reliability, accuracy and profitability in the company
(Agbenyo et al, 2018). In this context, accounting information system can be referred to as the
equipment of the structure applied by the company or any organization to control and monitor
the organizations performances. These performances are mostly hinting on the financial and
accounting systems since they act as the backbone of the business entity due to the accuracy to
eliminate financial errors and losses (Nashwan, 2018). The organization’s control system has
been guided with various laws and principles that should be followed to ensure proper
governance and prosperity of the business. Such rules and principles set are useful since they act
as the key procedures of operation of the company in order to reach its set targets (Darrough et
al, 2012). More so, the system of ‘internal control’ is comprised of five categories and such
categories include risk assessment, environment controls, communication and information
system, monitoring and evaluation of control systems. In this case of Adam and Company,
accounting information systems are categorized into three. These include payroll system,
disbursement system and system of purchases. These accounting information systems are
explained as below.

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2.1. The Flowchart of Purchases System
The system of purchase flowchart is known as the combination of all procedures that are
followed by the specified company while in the process of getting procuring equipment, stock,
assets and inventories in order the business to operate continuously. In addition, the flowchart of
purchase system is referred to as the series of items that can be operated by the individuals at
various levels (Monisola&Rekiat, 2016). Also, the purchases system is characterized with about
nine (9) levels. The very fists step is categorized the reconciliation needs and the last stage which
talks about the needs of satisfaction of the customers. At this particular time, when the company
is in need of extending its information about finance, it should therefore acquire a specific
document entitled as the Recognition document which is therefore accepted and approved by the
heads of the company (Agbenyo et al, 2018). With this, several information is acquired by using
quotations. Therefore, the staunch supplier is chosen to process him with the purchase order.
Most significant is that, the process of delivery in the organization can be done within this period
since the products are gauged properly to attain high quality and efficient services. With this
situation, the products are considered to be at all the stages and that their payments can be
initiated and given to the suppliers. Finally, the last stage of this process is to record all the
products purchased and put them in the book known as “book of accounts” (Nashwan, 2018).
For this case, the flowchart of the purchases system which involves all the stages that are to be
followed is represented in the figure below.

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Figure 1: The Flowchart of the Purchases System
Source: FMD Prostarter, 2017.
2.1.1Risks and Weaknesses in Purchase flowchart
In the company, when the organization’s control system is influenced by the risks and
weaknesses, therefore, such risk is termed as the obstacle which is likely to hinder the
performance of the company. It is evident that when the risks outweigh operations of the
company, this implies that the company is likely to achieve its set goals (Lai et al, 2017). On the
other hand, risk is considered as the factor in that the chance of occurrence on the company that
have got some threats on the performance of the company is high. In addition, several
organizations have experienced various risks. These risks are risks on financial operations,
market risks and many others (Hosban&Thaibat, 2018). In relation to this, organizations use
several strategies which resolve issues about internal control systems in order to decrease the
chances of getting risks. In this context, the weaknesses and risks that Adam & Company in
relation to system of purchases in control system are explained below;

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Due to the organization’s performance, the factor of separation of responsibilities
observed in company are limited. Several responsibilities especially on purchase department can
be allocated to the clerks in the section whereby some errors may occur. In addition, the products
which are purchased at sometimes by the clerk are unwanted which make the purchase’s
calculations to be wrongly calculated and recorded. This incidence may affect the system of
purchasing thus leading to the losses of the organization. By considering the internal control
systems in the environment, reliability and effectiveness in the operations of the organization can
be seen when specialization exits in the company (Mahadeen et al, 2017). This therefore implies
that different employees who make sure the tasks are performed can be perfectly done in the
‘area of specialization’ (Hailu, 2014). Most significant is that, Adam & Company does not
consider such statement due to the activities that are performed by the purchases clerk more
especially when the clerk lacks experience. Also, the clerk is responsible to determine the level
of stock which is supposed to be purchased (Akwa-Sekyi& Gene,2016). However, it is evident
that all the activities performed by the clerk that are supposed to be done by the procurement
officer who are responsible in purchasing and procuring what is required in the company
(Prasetyaningsih et al, 2014). Therefore, such weakness can expose the company to the risks of
getting loses being brought up by the purchase of unnecessary assets, improper production,
purchasing few products for much money and may uncertainties in purchasing system
(Mahadeen et al, 2017).
2.2. The disbursement flowchart System
In this context, cash disbursement flowchart system is referred to as the process that is
done step by step in order to acquire the outflows and internal flows especially in the specified
period (Decker 2015). The timeframe for the disbursement system can be taken into the weekly,

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monthly, yearly or daily basis (Levy, 2017). The reason as to why cash disbursement is
developed is to settle liabilities and debts for the company as well as meeting the costs of
purchasing products in order to strengthen the operations of the company. With this system,
cheques or cash in bank can be used for payments (Monisola&Rekiat, 2016). With this, the cash
disbursement flowchart system is represented in the figure below;
Figure 2: The Cash Disbursement system flowchart
Source: Vishekbatra, 2019
2.2.1 Common risks and weaknesses observed in the cash disbursement system at
Adam & Co
In this changing world, companies that tend to have their cash kept and managed by one
individual are at high risks of making losses. This implies that any revenue of a company must
be under control by at least three or more people to minimize on the losses that are uncalled for
(Bowers, 2017). However, the company should have trust in these people before entrusting them
with its money. The risk that arises when one individual is responsible for the revenues of the
company is that the individual may poorly budget for the money or fraud may occur and at the

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end the company may not gain but instead fall into losses. It is therefore advised that companies
like Adam and Company should never entrust any individual to be charge of all cash within the
organization since the company is exposed to a big risk (Levy, 2017).
Also, Adam and Company, the cash disbursement clerk performs several activities with
the company’s cash such as preparing files, making payments, preparing the cheque, making
updates in the ‘cheque register’, ledgers. All these activities can be done by more workers to
have effective performance in the business. The treasure of the company is also seen to be
performing multiple tasks which does not satisfy other workers (International accounting,
auditing and ethics, 2015). These two workers (treasurer and clerk) within the cash disbursement
department have got total authority over the company’s accounts including cash and
disbursement system (Salin, et al, 2018). Other workers may not be happy with such a situation
since they may expect fraud and loss trust in the respective people (Akwa-Sekyi& Gene, 2016).
However, its not recommended for every worker in the company to have access to the
company’s cash since again the chances of much fraud in the company are high. Its therefore
better for the directors to take charge of all the accounts to minimize on the losses. Also, the
system in the company does not provide specific time as when reconciliation of different
accounts (International accounting, auditing and ethics, 2015). All these issues combined do
have an effect on the company and so the risks it is exposed to are very high (Salin, et al, 2018).
Financial documents say receipts and reports are processed and kept manually. This makes it
very risky to unforeseen happenings say fire outbreak, theft and many more. These risks may
cause loss of important information. Data manipulation may also arise in the company
(Mitrefinch, 2019). The moment such documents are lost by the company, the risk of

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experiencing losses and this causes customers not to be condfident in the company, that is to say
the company losses its reputation to the public (Crouthamel, 2013).
Furthermore, since Adam & Co is a financial institution, it deals mainly in calculations,
data entry, data cleaning and data analysis too (Crouthamel, 2013). The risk of having errors in
calculations is quite common where by the people who enter the figures into the computers are
likely to enter them wrongly basing on the saying that ‘no man is perfect’. However, this issue
can be solved by employing data entrants that are well trained (Bowers, 2017).
2.3. The flowchart of the pay roll system
This kind of system is that which is used in finding and determining the total amount that
the company is entitled to pay the workers according to the trade contract terms (Indico, 2015).
Such trade contract terms include adding the working time especially for those workers who are
paid in terms of hours. The reason behind this is that payment made according to the hours
worked can easily be multiplied with the total wage rate per day (Levy, 2017). The system of
payroll is also a step by step process that requires evaluating the total time that is wholesomely
worked.
The flowchart below shows the system of payroll that is applied in determining the
employees’ wages in any organization (Beasley, 2019).

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Figure 3: System payroll flowchart
Source: Guilbault, 2019
2.3.1 The risks and weaknesses within Adam and company payroll system
It is very clearly stated that traditional ways of analyzing and finding out the total time
worked by the workers has negatively influenced the efficiency and the performance and the
control system within any organization. This is due to the fact that the traditional ways of
calculating money to pay workers by use of ‘time cards’ that have brought about employee
dissatisfaction since some workers are paid much more than others. The techniques and proper
recording systems are also not satisfying since the records are kept manually after being
processed (Nashwan, 2018).
Also, the payroll system at Adam and Company is seen to have some risks and threats
that are likely to weaken the control systems of the company. Besides the poor traditional
methods of calculating payment of workers that is to say, the use of time cards. The payroll
system at the company is not suitable. The payroll clerk is responsible for making payments to
all workers and this brings in a risk of other workers missing up their payments (Indico, 2015).

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Conclusion
Conclusively, it is very important to have an efficient and effective internal control
system within a company and its greatly advised for every company to take that issue seriously.
It is revealed that the performance of most organizations depends on the ways it utilizes its
resources. In the modern world, the performance of those businesses that have resorted to the use
of advanced technology such as computers in keeping their accounts and reports, monitoring the
performance of workers and marketing their products and services are seen to be at a higher
production rate. Therefore, accounting information systems are very essential to the company.
To wrap it all, Adam and Company limited should review all their internal control systems that
are likely to positively influence the performance of their business. In addition to the internal
control systems, even manual charts for purchasing, the time cards employed in recording time
should be amended.