Bell Studio Case Study: Analyzing Internal Control Weaknesses

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Case Study- Bell Studio
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Table of Contents
Executive summary..................................................................................................................................3
Introduction................................................................................................................................................4
Purchase system......................................................................................................................................5
Internal Control Weakness of Purchase System..............................................................................6
Cash Disbursement System....................................................................................................................8
Internal Control Weakness of Cash Disbursement System............................................................9
Payroll System........................................................................................................................................11
Internal Control Weakness in the Payroll system...........................................................................12
Conclusion...............................................................................................................................................14
References..............................................................................................................................................15
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Executive summary
Bell studio is a company which is based in Adelaide and is a wholesale supplier of art.
Business analyst has been appointed in the company which will help to understand the
major processes in the company along with its subprocesses or subparts of those
processes. This report will help the management in gaining the understanding of these
processes and the connection of the same with the attainment of objectives by the
company. Understanding of the several processes in the organisation will help the
organisation in decision making by the company. The report will explain the requirement
of the system and the processes like Purchase system, cash disbursement system and
payroll system. As the business analyst of the company analysis of the internal control
of the system along with the relevant weaknesses in the internal control of the
processes will be highlighted. Also, exposure to the risk due to the weakness in the
internal control will be specified to the management of the Bell studio with the help of
this report.
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Introduction
This report will focus on the overall analysis of the several processes in the Bell studio
and details about the functions that have been performed by Bell Studio. As there are
several processes that are incurred in the organization and also the processes are
divided into various subprocesses or parts, it is important for any organization to
conduct an analysis of such processes along with the weakness of the internal control
of such process. It is also seen that the departments and processes of the organization
are interconnected to each other thus it is important for Bell Studio to make bifurcation
of the project properly so that efficiency and effectiveness of the particular department
along with the whole organization are increased. In the given report three systems or
processes of the company have been identified and the internal control weakness of the
same has been depicted which would help to know the areas of improvement and the
risk associated with the process due to weak internal control. The understanding of the
same has been provided with the help of the system flowchart or data flow diagram.
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Purchase system
In any type of organisation, the purchasing department plays a major role as it helps in
providing raw material or any other material which is further used or sold by the
organization. Purchase system is the system which manages all the purchases in the
organization. Purchase system helps the organization to procure the material or any
other purchases required by the production department, thus, is an important process
for the organization as it enables timely availability to the organization of raw material or
any other requirement of the organization (Weedmark, 2019).
Purchase system is present in Bell Studio as in all other organization and Bell studio
follows a particular process in the purchase process. Firstly, the inventory subsidiary
ledger is checked by the purchasing clerk in the purchase system. After the purchasing
clerk checks the ledger the next step is of a selection of vendor by the clerk along with
making of a digital purchase order for the same once the selection of vendor is finalized.
Printout of the purchase order has also been taken where the first copy is sent to the
vendor and a duplicate copy is kept by the purchasing department. The goods are
reconciled with the purchase order & packing slip after the arrival of the same. Manual
hard copies of the receiving report are also prepared by the clerk. Shelving of goods,
filing of documents and updating of records & ledger is also done in the purchase
system after the above process. Overall review of the purchase system of Bell Studio
has been summarized below and the same has been depicted in the flow chart as
follows:
 Checking Inventory Subsidiary Ledger
 Selection of vendor from the vendor file
 Two Hard Copies of the same is printed
 Receiving clerk inspecting goods
 Digital Purchase Order reconciled with items by receiving clerk
 Preparation of Hard Copies manually
 Inventory subsidiary ledger updated
 Receiving of report and purchase order, sending of invoice
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Internal Control Weakness of Purchase System
Internal control is a major process in an organisation which plays an important part in
achieving of objectives of the organisation (Wollacott, 2019). Weakness in the internal
control of the purchase system can lead to many problems in the organisation. It is thus
important to identify the weakness of the purchase system and highlight the exposure to
the risk because of such weakness. Weakness identified in the purchase system of Bell
Studio and risk exposure for the same is as follows:
 The selection of vendor is done on the basis of vendor file already maintained by
the organisation which does not give preference to the new suppliers which are
ready to supply at a better price or quality thus missing of opportunity by Bell
Studio. Preference is given only to the old vendors or existing vendors. As there
is a weakness in the internal control of the purchase system there is a risk that
the company might overpay the existing vendors as there may be certain new
vendors who are ready to supply at the lower price or might give faster delivery
than the existing vendors.
 Internal control of the purchase system only benefits the company if Bell Studio is
engaged in trading business i.e. purchasing of the product and selling the same
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without carrying out any modification, customisation, assembling, etc. Thus if Bell
Studio is engaged into above activities of customisation, modification or
assembly then, in that case, the purchase system of Bell Studio will not be
beneficial and lead to a risk of orders not completed as per the specification of
the customers.
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Cash Disbursement System
Cash disbursement in the process of paying or disbursing of the money by the
organisation thus helping in the effective and efficient management of cash payments in
accounts of Bell studio including cash account, accounts payable accounts, etc
(businessdictionary, 2019). Documentation of payment made through cash is also
properly managed by the organisation with the help of a cash disbursement system.
Cash disbursement system in Bell studio is operated in the following sub-processes:
 Receipt of the document as sent by accounts payable department
 Filing of the document until the due date by cash disbursement clerk
 Invoiced amount cheque prepared
 Cheque signed by the treasurer
 Signed cheque mailed to the vendor
 Relevant accounts and documents updated
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In the process of the cash disbursement system once the documents are received from
the accounts payable department the cheque is processed as per the amount received
from the accounts department. The invoiced amount cheque is prepared and signed by
the treasurer after making a proper investigation of the same. After signing and
completion of the cheque the same is sent to the vendor via mail and documents as well
as information is updated as required in accounts like a cash account, accounts payable
account and register.
Internal Control Weakness of Cash Disbursement System
Weakness in the internal control of the Cash Disbursement System has been identified
and settled by the Bell Studio. If the weakness in the internal control is not sorted, then
the company will get exposed to the risk occurring due to such weakness. If risk gets
capitalised then the company may face many issues in the cash disbursement system
and also overall organisation (Sullivan, 2019). Some of the weakness in the internal
control system of the organisation is as follows:
 There is not enough flexibility in the cash disbursement system as the Bell Studio
is following the similar type of process for all type of transactions and the system
does not change even if the transactions vary a lot from each other. This rigidity
in the cash disbursement makes it difficult for the company to adopt any new
technology. Also, there are transactions which are not so frequent in the
organisation and it becomes difficult for the company to adopt the same thus
leading to misreporting of income.
 There is not any subprocess in the cash disbursement system to take
authorization by the higher authority for particular transactions or transactions
above a particular limit. Thus information for cash disbursement is received from
the accounts payable department with any intervention from the higher authority.
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Thus there is a risk of frauds amongst the department which might cause major
loss to the company.
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Payroll System
Payroll system is a system that helps in the process of making payment to the
employees and also helps in complying with the legal & tax requirements of the
company related to employees. This system focuses on all types of payment made to
the employee during and after employment. Payroll system determines the salary and
perks of the employees by supervising the duration of working of the employees by way
of various methods or instruments like biometric devices, time card, etc (Handrick,
2019). Thus it can be seen that the payroll system in the organisation is very important
as the same help in the payment of employees and determining the efficiency of the
employees. Bell Studio also has the payroll system and it uses a time card to determine
the duration of employees. Employees of Bell Studio keep track of the hours worked by
recording the same. A centralised computer terminal is used by Bell Studio to post the
inputs relating to employees from different areas. Digital records of the employees are
posted after processing of the time card's data and printing hard copies of the same.
After the overall review cheques are prepared and sent to the supervisors of the
respective departments to which employees belong where the cheques are distributed
amongst employees. Accounts department is sent a copy of the same to record in its
books. The overview of the payroll system of Bell Studio is as follows:
 Employees time card recorded for hours worked
 Supervisor reviewing the time card
 Submit time card to data process & payroll department
 Inputs the time card data by payroll clerk and printing cheque copies
 Sending of Employees paychecks to various departments
 Respective departments finalising the payroll cheques
 Disbursement Voucher prepared
 Writing of cheque and depositing the amount in the company's bank account
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Internal Control Weakness in the Payroll system
Internal control weakness in the payroll system can lead to data entry errors and
discrepancies in the amount computed leading to overpayment to employees, fines,
penalties, etc. Identification & rectification in the internal control weakness is important
for the organisation as the exposure to risk is minimised from the same (Harper, 2019).
Internal control weakness and the risk associated with the same in the payroll system of
the Bell Studio are as follows:
 Time cards used by the employees to check the duration is not cross-verified by
the appropriate authority thus chances of frauds by the employees get increased
due to lack of proper subsystem in the Payroll system. Thus if the fraud occurs
on behalf of employees then, in that case, the company is at risk of loss in
monetary terms and also loss in the goodwill of the company.
 There should be an alternate for keeping a track of employees timing such as
biometric devices as the usage of time cards might not give any accurate results.
Also, there are no other means if the time cards are not showing the correct
picture. Thus the company should implement the more secure method which
could help in the proper implementation of a collection of data for employees
giving accurate payroll system in Bell Studio. There is a risk of employees
fraudulently changing or manipulating the data in time cards thus in a weakness
in the internal control of the payroll system.
 Data collected from the time card should be verified by the higher authority which
is not happening currently in the internal control of the Payroll system which
might lead to incorrect payment made to the employees. There is no verification
of sheets by a higher authority which is sent to the respective departments thus
there is a risk of fraud by department heads to benefit the employees of the
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