Case Study: Evaluating Adam & Co's Accounting Information System

This case study examines Adam & Co's accounting information system, focusing on its expenditure cycle which includes purchase, payroll, and cash disbursement systems. The analysis involves creating system flowcharts for each department, detailing the processes from purchase order generation to cash disbursement. The assignment identifies internal control weaknesses, such as manual processes and lack of segregation of duties, and assesses the associated risks, including potential inaccuracies, fraud, and misappropriation of funds. The study highlights the importance of a robust internal control system to ensure accurate financial records and prevent operational inefficiencies. The case study concludes with an overview of the identified weaknesses and their impact on the company's financial health and operational integrity, emphasizing the need for improved monitoring and verification processes.

Running head: CASE STUDY- ADAM & CO
CASE STUDY- ADAM & CO
Name of the Student
Name of the University
Author Note

CASE STUDY- ADAM & CO
Executive Summary:
In this paper, the role of accounting information system in the context of operating
policies and structure of organization has been presented. For such analysis, the
case on Adam and Co explaining its different system of the procedure of expenditure
cycle has been evaluated. The assignment states the evaluation of the method of
risk and internal control based on strength and the weakness of the organization.
This process of analyzing the risk and internal control is explained with the help of a
case study of a renowned company named Adam and Co. There are three different
departments in Adam and Co, which have been engaged in determining the total
amount of purchase, payroll, and the amount of cash disbursed. The remaining part
of the assessment represents the flaws of internal control system arises in each
department.

CASE STUDY- ADAM & CO
Table of Contents
Introduction:..................................................................................................................3
Discussion:...................................................................................................................3
System flowchart of purchase system:.........................................................................3
System flowchart of cash disbursement system:.........................................................5
System flowchart of payroll system:.............................................................................5
Identification of the internal control weakness and the risk associated with the
system:..........................................................................................................................6
Conclusion:...................................................................................................................7
Reference list:...............................................................................................................9

CASE STUDY- ADAM & CO
Introduction:
The aim of this assignment is to establish a concrete a framework on
evaluation of risk, process and method of internal control on expenditure cycle of the
company. Therefore, it can be said that the framework will assist the managing
directors of Adam & Co for growth and development. Adam & Co is engaged in
wholesale business and the company collects its resources from Thailand, China
and Vietnam. The process of expenditure cycle of Adam & Co consists of purchase
system, payroll and cash disbursement system. The process of expenditure cycle
can be defined with a flow chart, which provides an overview of evaluating the state
of transactions concerning present situation for further development and growth
(Farkas and Hirsch, 2015).
Discussion:
System flowchart of purchase system:
The overall purchase system of an organization is engaged in formation of
purchases order, approval of purchase order, and delivery of the purchased items
and preparation of invoice. Thereafter the purchase order becomes a legally
enforceable by law, if the vendor accepts it. There are several checkpoints and
approval of tasks in the process of purchase order where it helps to ensure that the
process of purchase order is accomplished within the time. Thus, the purchase
system introduces the importance and need of inventory, placement of order on time,
receipt of inventory and identification of liability. The reduction of inventory is done by
sale of finished goods. When inventory start decreasing below the predetermined
level the purchasing clerk will prepare a digital purchase order. After getting the
appropriate files from the vendor then only the digital purchase order can be sent to
the vender. The process of purchase order begins when the copy of purchase order
is delivered to the vendor along with the purchasing department (Aubert and
Bernard, 2017). According to the study the company should keep an evidence of
purchase order in a digital form.

CASE STUDY- ADAM & CO
The company can implement the process of purchase order effectively if the
purchase department is updated through regular information of purchase order from
valid vendor file and the information of supplier of inventory. In the subsequent stage
of this process, the receiving department receives the previously ordered goods.
Therefore, to maintain transparency the officials reconciles the information recorder
in digital form and purchasing slip based on goods accepted by the clerk after
investigating the situation properly. The receiving clerk undertakes the responsibility
of preparing hard copies of manually maintained reports. The responsible clerk has
to keep two copies of the receiving report as evidence (Albring et al. 2016).
Therefore, the clerk would file the receiving report after the subsidiary ledger account
of the inventory is updated with current information and the stocks of finished goods
are set aside properly. Therefore, according to the assessment the completion of

CASE STUDY- ADAM & CO
purchase process depends on delivering the copies of receipt report, invoice and
purchase order to the department of cash disbursement (Bressler and Bressler,
2017).
System flowchart of cash disbursement system:
The basic concept of cash disbursement system reflects the outflow of cash
due to purchase of goods or services. Usually the process of cash disbursement is
accomplished through the system of account payable .Every organization whether it
is small or large needs to imply the system of cash disbursement system effectively
to maintain a proper cash balance and to detect that the cash is paid for legitimate
reason (Wilford 2016). An effective framework of cash disbursement system requires
proper internal control system since the internal control system helps to detect the
fraud and misrepresentation of cash transaction within the company. Thus it can be
said that cash disbursement system helps to maintain the liquidity position of the
particular business since the organisation can able to meet the short term liabilities
without any disruption. According to the study the department of accounts payable
should aware of all the information and maintain all the relevant documents of
purchase order, invoice and receipt of report. These documents should be
maintained by the clerk of accounts receivable department till the due date of
payment. Then the responsible clerk would issue a cheque on the due date and the
treasurer would sign the cheque and send a copy of the cheque to vendor via mail
(Stafievskaya et al. 2015). After that, the officials of cash disbursement department
would update the balance of accounts payable subsidiary ledger, register of cheque
and accounts payable control account. Finally the overall cash disbursement
process comes to an end after filing the relevant copy of purchase order, copy of
invoice and report of receipt by the clerk.

CASE STUDY- ADAM & CO
System flowchart of payroll system:
The term payroll refers to the amount of compensation to be paid to by the
company for the welfare of the employees for a specific period. Payroll is one of the
most crucial parts of a company. The concept of payroll mainly explains the process
of paying wages and salaries to the employees according to hours worked for the
day. Therefore, it can be said that the payroll process indirectly monitors the
employee performance and track their activities. The case study of Adam & Co
identifies the basic factors of payroll system. The essential factors of payroll system
include the number of hours worked by the employees and the total hours worked
registered in the time card. The workers are paid according to the data recorded in
the time card. Therefore, time card acts as an indicator of overall employee
performance. The responsible supervisor of the company verifies the data recorded
in time card thoroughly to rectify the discrepancies or loopholes in the given
information. Then the verified time card should be presented to the department of
payroll system. Thereafter, all the information of time card is to be transferred to the
processing department by the clerk. Therefore, the in charge the department should
insert two copies of the register of the payroll system along with the hard copies of
cheque to the records of employee in digital form. Further, the time card is filed by

CASE STUDY- ADAM & CO
the payroll clerk of the payroll department. There are a lot of supervisors who
accepts the employee pay cheque for further analysis and thereafter these are
distributed among the employees of different departments. One duplicate copy of the
payroll register is to be filed with the department of payroll for further evidence and
other relevant documents is to be transferred to the departments of accounts
payable. The subsequent step is inspection of the register of payroll by the
responsible assistant of the department of accounts payable. The same person of
the account payable department takes the responsibility of preparing the voucher of
disbursement (O’Grady et al. 2016). There after the responsible clerk transfers the
register of payroll and the relevant documents of voucher to the department of
general ledger. Then the clerk of account payable department prepares a cheque for
the overall payroll and deposits the same in the bank account. Finally the clerk of the
department of account payable asks for a duplicate copy of the cheque as evidence.
Therefore, in this way the payroll system comes to an end. As per the study on
Adam & Co the clerk of general ledger department delivers the register of payroll and
the vouchers to the general ledger department.

CASE STUDY- ADAM & CO
Identification of the internal control weakness and the risk associated with the
system:
The internal control weakness of the purchase system of Adam and Co is
related to the manual preparation of receiving report by the receiving clerk in the
receiving department. The manual preparation of the report by the clerk might put
the business at significant risk relating to the inaccuracy in the financial records
(Lawrence et al. 2017). In the absence of unauthorized process, inefficient can breed
and growth is hindered.
The accountability of reviewing, authorizing and approving the purchase
based on the purchase order, signed agreements and the contract terms is not

CASE STUDY- ADAM & CO
ordered. In the absence of accountability, there is the possibility of unnecessary and
fraudulent purchases and unauthorization of the work performed by the suppliers. In
addition to this, there can be the misappropriation of funds due to the improper
charges made to the incorrect fund and accounts (Mohapatra et al. 2015).
Some of the internal control weakness of the cash disbursement system of the
company and the risks associated with such weakness are listed below:
 The probability of an employee being able to cover up the theft and stealing of
the assets is minimized because of segregating the duties to employees. It
can be observed from the case that the one or more tasks related to the
system of purchase is performed by one staff. This also causes the
employees to share the responsibility so that they are able to serve the check
on the work of other employees (Richardson, 2017).
 Lack of reliability- In the absence of accurate monitoring, there exist the
possibility that the produced documents supporting the transactions might not
be reliable. The accounting transactions should be supported by producing
suitable documents as the documentary evidence forms an important part of
the structure of internal control system (Berthelot and Morrill, 2016).
Some of the internal control weakness of the payroll system of the company
and the risks associated with such weakness are listed below:
 It can be observed from the analysis of the work of payroll department that a
single person that is the accounting clerk is responsible for inputting the data
in the time card, preparing hard copies, payroll register and positing in the
general ledger. This implies that there do not exist the assigning of one
particular job by one specific employee. The safeguarding of the assets
cannot be done in the absence of such segregation (Wilford, 2016).
 In addition to above, it has been found that the disbursement voucher is
prepared manually. This might results in occurrence of error and furthermore,
the company doe snit have any verification process in place for burying the
information contained therein.
Conclusion:
The analysis of the case study depicts the evaluation of the processes, risk
and the internal control system of the procedure cycle of Adam and Co. It has been
found from the evaluation of the facts that the internal control system of the systems
suffers from some weaknesses which has caused some of the assertions related to
different accounts at risk. The evaluation of the payroll system, purchase system and
the cash disbursement system has been done for measuring the efficiency and
effectiveness. From the overall analysis of the facts presented, it is inferred that
there exist a lack of monitoring and adequate verification process for verifying and
cross checking the accounting transactions. The disadvantages in the process of
expenditure cycle of Adam and Co is that most of the transactions are recorded
manually in the different departments such as payroll and purchase systems.
Furthermore, the data pertaining to the accounts become less reliable and accurate
in the absence of appropriate segregation of duties.

CASE STUDY- ADAM & CO
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