Report on Big D's Electronics Inventory Expenditure (ACC539)

This report analyzes the inventory expenditure process of Big D's Electronics, a retail store with locations in Sydney and Newcastle, selling various electronics. The report begins with an executive summary and table of contents, followed by an introduction explaining the importance of inventory control. The core of the report involves the development of a level 0 data flow diagram (DFD) illustrating the inventory expenditure process. It then identifies internal control weaknesses, such as the lack of demand forecasting, inventory checks, and sufficient qualified employees. The report assesses the impact of these weaknesses, which include potential sales reduction, profit loss, and payment inaccuracies. Finally, it recommends specific, practical internal controls to mitigate these weaknesses, including implementing a demand forecasting system, establishing inventory checks, and hiring sufficient, qualified staff. The report concludes with a summary of findings and recommendations, followed by a list of references.

Running head: ACCOUNTING
Accounting
Name of the Student
Name of the University
Author’s Note

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Executive Summary
The main aim of this report is to develop a 0 level data flow diagram for the inventory
expenditure process of Big D and identity the internal control weakness along with their
impact so that effective controls can be suggested. This report analyses the situation of the
company with for the development of diagram and effective controls. The findings of the
report states that Big D has certain internal control weaknesses in inventory expenditure like
demand forecast, inventory check and lack of employees. The major recommendations are
the implementation of demand forecasting mechanism, inventory check process and
recruitment of sufficient employees.

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Table of Contents
Introduction................................................................................................................................3
Level 0 DFD of Big D's Inventory Expenditure Process...........................................................4
Internal Control Weakness, their Impact and Appropriate Control Implementation.................5
Conclusion and Recommendations............................................................................................7
References..................................................................................................................................8

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Introduction
Inventory control is considered as an essential factor with the aim to ensure effective
production of goods for catering to the demands of the customers. Inventory control can be
considered as a process to ensure that the company maintains the appropriate amount of
stocks in order to be able to meet the demand of the suppliers without any delay while
maintain the cost associated with the whole process to a minimum level (Axsäter, 2015). The
aim of this report is to develop a data flow diagram for Big D and to identify the weakness in
existing inventory control with the aim to assess their impact and development of appropriate
strategies.

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Level 0 DFD of Big D's Inventory Expenditure Process

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Internal Control Weakness, their Impact and Appropriate Control Implementation
It can be seen from the provided information that Big D has certain internal control
issues related to the inventory expenditure cycle. In needs to be mentioned that these issues
have negative impact on the organizations and it needs effective strategies. The whole
discussion is shown below:
Internal Control Weakness Impact of the Weakness Appropriate Controls
Demand Forecast: In case the
companies fail to track the
demand of their products, it
can lead to low product
turnover than the expectations.
As per the provided
information, the computer of
the purchasing clerk of Big D
has pre-determined recorder
points and recorder quantities
for each inventory item. Big D
does not have effective
mechanism for forecasting
their demand. It implies that
the inventor control process of
Big D does not have any
mechanism to readjust the
stock level as per the decease
or increase in demand of
products. It can be considered
as a major weakness in the
internal control of Big D (do
Rego& de Mesquita, 2015).
This weakness has certain
negative impact on the
organization as it can affect the
sales of the company. In the
absence of demand forecasting,
Big D will not be able in
increasing or decrease in
production based on the
increased or decreased demand
of their products. It can lead to
reduction of sales and loss for
Big D (Wild, 2017).
In order to mitigate this
internal control weakness, it is
needed for Big D to implement
cloud-based ERP system. The
implementation of this system
will ensure updating the
demand trend of the products
of Big D. In the presence of
this particular demand trend,
the company will be able in
readjusting their pre-defined
recorder points and recorder
quantities. This system will be
majorly helpful in cater to the
demand of the customers in the
effective manner
(Jaipuria&Mahapatra, 2014).
Inventory Check: According
to the provided information,
there is not any mechanism for
checking the inventory in Big
D throughout the whole
This particular internal control
weakness has certain negative
impact on Big D as it can lead
to the failure in keep tracking
the movement of inventory.
With the aim to avoid this
weakness in internal control of
inventory, the need for Big D
is to implement an online
inventory management system.

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investor control process. It can
be seen from the provide
information of Big D that the
company has employed a fully
automated inventory control
system where there is not any
function to check the
inventory. It is a major
weakness in the internal
control related to inventory of
Big D (Glickman et al., 2015).
Apart from this, it will add
some more costs to the
company. In addition, major
discrepancies in the inventory
control process due to lack of
inventory check can shut down
the whole business of Big D
(Ogbo&Ukpere, 2014).
It is a reliable system that will
keep Big D updated on the
status of the inventory on the
real-time basis. It will be
majorly beneficial for as it will
eliminate loss of profit along
with empowering Big D with
sales reps by implementing
more visibility and clarity on
the level of inventory (Feng et
al., 2014).
Lack of Proper Employees
and Training: It can be seen
from the provided information
that Big D has high staff
turnover in the areas of
accounts payable; and the
company is currently searching
for additional two staffs in this
section. It implies that Big D
does not have sufficient
employees in this section to
take care of all the works like
entering purchase order
number, retrieval of goods
received report, extraction of
the details of daily payments
due, final payment and others.
Hence, the lack of sufficient
staffs can be considered as a
major internal control
weakness of Big D.
In addition, due to high
employee turnover in this
section, it might happen that
Big D has hired staffs for this
department with insufficient
These weaknesses have major
negative impact on the
company’s operation as it can
lead to wrong payment of the
accounts payable of Big D. At
the same time, the lack of
staffs can destroy the balance
of the whole inventory control
system in the company. Apart
from this, the department of
accounts payable will not be
able in completing their tasks
in the correct manner due to
the presence of insufficient
staffs. Moreover, it can lead to
the generation of incorrect
payment documents by the
company that need to be sent to
the banks (Tom Jose,
Jayakumar&Sijo, 2013).
In order to diminish this
weakness in internal control, it
is needed for Big D to ensure
the hiring of sufficient staffs on
immediate basis in the section
of accounts payable. At the
same time, it is needed for Big
D to ensure the effective
training procedures for the
staffs so that they can
effectively perform the tasks
related to inventory control. In
this case, Big D can consider
the implementation of cloud-
based inventory management
system that will provide the
employees with proper
training. Implementation of
this system helps in creating an
easier learning curve for the
employees. In this process, Big
D will be able in controlling
their various activities in
inventory control in the
effective manner (Lashgari,

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qualification and knowledge.
Thus, it can also be considered
as a major internal control
weakness of Big D (Wild,
2017).
Taleizadeh& Sana, 2016).
Conclusion and Recommendations
The above discussion discusses about the weaknesses of the internal control related to
inventory management of Big D. It can be seen from the above discussion that the internal
control process of Big D has certain weaknesses; they are lack of demand forecasting, lack of
inventory check and the lack of sufficient number of employees and qualified employees. At
the same time, the above discussion also discusses about the negative impact of these internal
control weaknesses on the business of Big D; such as decrease in sales, loss of profit,
incorrectness in the payments of the suppliers, lack of tracing to the inventory level of the
company and others. Based on the whole discussion, some recommendations are discussed
below:
 The recommendation to the management of Big D is that the company is needed to
take into consideration the implementation of demand forecasting mechanism so that
they can observe the decrease and increase in the demands of products.
 Apart from the above, it is also recommended to Big D that they should ensure the
implementation of specific system that will do the necessary inventory checking of
the company as it is helpful in inventory tracking.
 It is also recommended to Big D to hire the qualified employees on immediate basis
for the department of accounts payable.

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References
Axsäter, S. (2015). Inventory control (Vol. 225). Springer.
doRego, J. R., & de Mesquita, M. A. (2015). Demand forecasting and inventory control: A
simulation study on automotive spare parts. International Journal of Production
Economics, 161, 1-16.
Feng, M., Li, C., McVay, S. E., &Skaife, H. (2014). Does ineffective internal control over
financial reporting affect a firm's operations? Evidence from firms' inventory
management. The Accounting Review, 90(2), 529-557.
Glickman, S. L., Jackson, D. A., Lipsey, M. J., Phillips, P., & Rogers, F. J. (2015). U.S.
Patent No. 9,147,174. Washington, DC: U.S. Patent and Trademark Office.
Jaipuria, S., &Mahapatra, S. S. (2014). An improved demand forecasting method to reduce
bullwhip effect in supply chains. Expert Systems with Applications, 41(5), 2395-2408.
Lashgari, M., Taleizadeh, A. A., & Sana, S. S. (2016). An inventory control problem for
deteriorating items with back-ordering and financial considerations under two levels
of trade credit linked to order quantity. Journal of Industrial & Management
Optimization, 12(3), 1091-1119.
Ogbo, A. I., &Ukpere, W. I. (2014). The impact of effective inventory control management
on organisational performance: A study of 7up bottling company nile mile enugu,
nigeria. Mediterranean Journal of Social Sciences, 5(10), 109.
Tom Jose, V., Jayakumar, A., &Sijo, M. T. (2013). Analysis of inventory control techniques;
A comparative study. International Journal of Scientific and Research
Publications, 3(3), 1.
Wild, T. (2017). Best practice in inventory management. Routledge.

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Wild, T. (2017). Best practice in inventory management. Routledge.