Strategic Information Systems Case Study: Rainbow Illusion Analysis

This case study report provides an in-depth analysis of Rainbow Illusion's IT strategic information systems. It begins with an executive summary outlining financial reporting, transaction cycles, e-commerce, and management reporting, as well as the associated risks in internal control processes. The report then delves into the specific strengths of Rainbow Illusion's system, such as the use of a unified sales system across all stores, sequential numbering, separation of duties, commission-based pay for sales staff, salaried managers, and centralized invoice processing. It explores how these strengths help regulate sales transactions and mitigate potential issues. The report also examines situational pressures that can lead to employee fraud and discusses the benefits of a distributed computerized system. Furthermore, the study covers transaction processing systems, financial reporting systems, and management reporting systems, along with their roles within the accounting information system. It also explores the potential situational forces that can increase the likelihood of fraud within the company. The report concludes by highlighting the importance of robust internal controls and ethical considerations in preventing fraud and ensuring the integrity of the IT systems.

Running Head: IT 0
STRATEGIC INFORMATION SYSTEM

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Executive Summary
This report outlines various notions related to financial reporting, transaction cycles, e-
commerce, management reporting and the significant risks associated in internal control
process. The report is also connected to Rainbow Illusion situation in Australia trading read
to wear clothes for young women’s.
With depth analysis of Rainbow Illusion case, it also highlights six key strengths that can also
help in evading some of the specific problems. These respective strengths focused on all
stores using alike sales system, adopting of number sequencing, duties separation, sales
individual and young cashiers are paid wages plus commission relying on volumes of sale,
managers and associate manager are compensated on salary base and send all invoices related
to sales and other transactions to centralised processing division system.
It is also explained in the report that how strength has benefitted to Rainbow illusion in
effective regulating the transactions related to sales. Similarly, one of the key factor that force
any employee to indulge into fraud is situational pressure and thus it must be consider
primarily by any corporate. With regards to this, there is also a glimpse of distributed
computerised system as its functionality are considered by various companies as benefits.

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Table of Contents
Introduction................................................................................................................................3
Strengths in Rainbow illusion’s System....................................................................................4
Problems evaded by integrating strengths..................................................................................4
Situational force that would upsurge the possibility of fraud....................................................6
Reasons for companies to install a distributed computer system rather than centralised one. . .8
Conclusion..................................................................................................................................9
References................................................................................................................................10

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Introduction
It is important to know various aspects before going into depth analysis of the case. It
includes system of accounting information, its subsystem and their linkage in the significant
case. Grabski et al (2011) defined accounting information system as collection of resources
like persons and equipment’s developed to convert financial and other sorts of data into
relevant information. It can renovate whether system is computerised or manual. The
computerised system has several benefits with making job easier with use of various
applications in the software and with performing other functions such as collection,
bookkeeping and operating of transaction data, spreading of financial data and so on.
The accounting information system has three sub-systems also and they include –
 Transaction Processing System (TPS) – There is five transaction cycle in TPS and
every cycle undertake the tasks in their own way with sharing of mutual attributes. In
addition, these cycles are also present in all sorts of businesses such as profit or non-
profit. One of the five cycles is revenue cycle defined as the repeated set of corporate
activities and associated information processing operations that are related with
offering products to consumers and pull payment from them. The key objective of this
cycle is to offer adequate product in right place at the right time for the right price.
Some of key basis revenue cycle activities include collection of cash, entry of sales
order, billing and shipping (Schroeder and Gibson, 2009).
The next cycle is expenditure cycle which aims to ensure that all products are ordered
as per the requirement and thus is related activities are associated with the purchasing
and payment of products. Payroll cycle in the system ensures with effective
management of the employee force and also considered as recurring set of business
activities. In the production cycle, raw materials and labour are transformed into
finished goods. At last, financial cycle involves interactions with creditors and
investors (Rimal et al, 2011).
 Financial reporting system/ General ledger – In accounting information system, it
is another subsystem linked to all other systems by the transaction are firstly logged in
distinct journals and those transactions summary goes into financial reporting system
which goes to be the source of input to management reporting system. There is an

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assortment of broader information to fulfil the requirements of several external users
in any corporate enterprise (Gelinas, Dull and Wheeler, 2011).
 Management reporting system (MRS) – It is known to be critical component of any
corporation inside control measures as it leads administration’s consideration to solve
several issues the business firm is facing in a timely manner. This encourages
effective management and benefits organisation in gaining its core purpose (Gelinas,
Dull and Wheeler, 2011).
Strengths in Rainbow illusion’s System
The six key strengths in Rainbow Illusion’s system includes –
 The sales transaction is performed by all the 30 stores and with using the same
system.
 On the basis of sales volume, sales personnel and young cashier are paid wages and
commission.
 The job of manager and assistant are full time and they were paid on salary basis.
 Duties separation.
 To each transaction, cash register allocated consecutive number.
 All sales invoices, tapes of cash register and return slips are gathered collectively to
central data processing division.
Problems evaded by integrating strengths
I. The sales transaction is performed by all the 30 stores and with using the same
system.
It implies that Rainbow illusion trails ERP system (Enterprise resource planning).
These systems help any business firm to synchronise all sides of organisation
operations with a traditional AIS (Chang et al, 2008). ERP system also facilitates the
information flow between all retail stores and all the functions are combined in a
single system which regulates to share sales information among themselves (Karsak
and Ozogul, 2009). This is regarded as strength in case of Rainbow illusion because it

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can control and regulate effective information flow required to each store related to
sales or others.
II. On the basis of sales volume, sales personnel and young cashier are paid wages
and commission.
When an employee receives income based in the percentage of the sales, it is termed
as a commission based pay system. Such system motivates employee to earn more
pay with increasing sales volume (Batt and Colvin, 2011). Considering Rainbow
illusion, sales individual and cashier can be encouraged with higher motivation to
gain high commission and there will not be any conflict among the sales personnel as
what would they get is related to their contribution to the firm.
III. The job of manager and assistant are full time and they were paid on salary
basis.
The managers and assistant managers are recruited based on their qualifications and
experience and therefore, it is their duty to accomplish the job for which they are
hired and no matter it takes 35 hours a week or 55 hours respectively. For their
particular performance, they are agreed to use their skills and their commitment
towards achieving organisation goal is a positive aspect for Rainbow Illusion.
The issues can effectively be avoided by Rainbow illusion as both assistant manager
and supervisor can offer their efforts constantly to the organisation and accomplish
their tasks in coordination with facilitation of sales transaction.
IV. Duties separation.
It is considered as one of the significant parts of control system and that is why
reflected as strength. Here, the three key objectives include –
 Structured organisation.
 There should be separation between transaction authorisation and transaction
processing.
 Record keeping should be disjointed from responsibility of custody of assets
The division of sales should not make the bill as client may be charger higher they
support the less than they should be billed. Bills also should not be prepared by the
account receivable division because they have charge over the account receivables
assets (Gelinas, Dull and Wheeler, 2011).
There is a proper separation of duties in the Rainbow Illusion as processing of sales
are made by four individual in line. Initially, salesperson does his duty and provides

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invoice to the cashier with retaining one copy in its sales book. Afterwards, the
invoice is assessed by the cashier and then finish its part for processing sales
transactions. Then the everyday settlement was performed by assistant manager
related to the assessment by store manager. Ultimately, the cash, cheque and sales
with credit card are reviewed by the manager with making of bank deposit regularly.
In this manner, responsibly of all employee are separated effectively which in turn
benefits to decrease any sorts of risk of deception in Rainbow Illusion.
V. To each transaction, cash register allocated consecutive number.
Considering sales transactions processing, developing numeric code can control
efficient and effective processing of data. If there is no code in the system, it can be
called as disadvantageous as corporate undertakes abundant transactions with
identical attributes and build challenges to differentiate one from the other (Putra and
Suryaputra, 2014).
The administration can be watchful with sequential coding related to any sort of
misdirected transaction deal if it discovers any gap when the processing of transaction
is going on. When there is consecutive number assigned, it would be easy to discover
the cause and effect of the error or it is difficult to solve the issue (Putra and
Suryaputra, 2014). With Rainbow Illusion, this mechanism has benefit the company
in regulating the transaction of sales efficiently.
VI. All sales invoices, tapes of cash register and return slips are gathered collectively
to central data processing division.
Batch processing system has been adopted by Rainbow illusion which allows the
administration efficiently undertaking the large transactions. When similar transaction
group are collected and carried together for the processing, it is termed as batch. It
benefits to evade the issue of inefficiency in operations and lack of control over
transactions processing (Gelinas, Dull and Wheeler, 2011).
All sales invoices, tapes of cash register and return slips are gathered collectively for
processing which also helps and benefits manager to assess of all at once. Hence, this
can solve the issue of system inconsistency.
Situational force that would upsurge the possibility of
fraud

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Fraud is called to be as intentional deception from one party to another to secure unfair gain.
In corporate business surroundings, it can be said as wrong illustration of material fact and
deceit of business assets. It is separated as administration fraud and staff fraud. In employee
fraud, it includes individual benefits by straightly changing asset and cash. It going in
contradiction with the internal control framework for individual benefit. However, there is no
direct theft of assets in case of management fraud like that of employee fraud. In this, senior
executives may undertake deceitful practice to fulfil the investor wishes or to take benefit of
stock option (Gelinas, Dull and Wheeler, 2011).
Emotional Financial Lifestyle
Ego, high greed Inappropriate salary Addiction of alcohol
Fear of losing
employment
Wrong investment Pressure from peer
Power need Low credit rating Gambling habit
Losing job fear More personal debts Pressure from family
Employment
dissatisfaction
Severe financial loss Drug addiction
Incapable to follow
rules
Evasion from tax Sexual relationships
In the above situation of Rainbow illusion, it is possible that employee can commit fraud.
Wrong decisions were taken out when any staff stuck in a bad state and fraud becomes very
easy as per their perception to tackle the condition. There can be various types of fraud such
as mistreating vacation time, inside theft of corporate assets, demanding benefits which they
are not entitled to and so forth. A staff going through high force can undertake any practice
beyond business ethics.
The three foremost conditions which may increase the possibility of fraud with the help of
force includes management pressure to fulfil certain expectations relating to organisation goal
and client, financial stability endangered by industry and economy and pressure by the unit
financial performance to management (Kassem and Higson, 2012).
In the situation “A Reading of White-collar Offenders in Austria and Switzerland” force is
viewed as the deception cause where pressure was mainly initiated by management beliefs,

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stock market and other involved parties with also including harassment, maltreatment in
workplace, etc (Fuss and Hecker, 2008).
Any person who has greater level of individual ethics with low forces and narrow prospect to
compel fraud acts fairly rather than one who has low level of individual ethics with high
situational forces and perceives higher opportunities to undertake fraud. One can also not
commit fraud if there is no opportunity and no problem how challenging the situational force
is. The opportunity can also be restricted with execution of control procedures and this
ultimately precludes the conditional pressure in an organisation like Rainbow Illusion that
upsurge the possibility of fraud (Hall, 2012).
Reasons for companies to install a distributed computer
system rather than centralised one
When components of a software system are shared among multiple computers to enhance
performance and efficiency, it is termed as distributed computer system (Ricci, Rokach and
Shapira, 2011). It helps in identifying the IT functions into lesser information processing
units that are shared to end users and positioned under their control. On the other hand, all
data processing is undertaken by one or more larger computers kept at a central location in
centralised computer system and it serves at all areas of the enterprise (Hall, 2012).
There is more popular in relation with distribution computer system and it is because due to
the following reason –
Efficiency – In distributed system, the efficiency is being advanced because of gathering of
multiple computes operating parallel to each other and this breaks complex issues into
smaller fragments (Huebscher and McCann, 2008).
Reduction of cost: In distributed system, there is elimination of centralised tasks of data
control and conversion and condense complexity in application which benefits to decrease
development and maintenance costs and ultimately this enhances reduction in cost.
Backup: Backup is effectively available in distributed computer system with arrival of any
disaster such as earthquake, flood and fires. There will not be a big loss if disaster destroys a
single site and it can be regulated by other information processing unit.

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However there is much difficulty and complexity in developing distributed computing
systems but with more of its benefits and flexibility, the deployment and use of this system
by the enterprises are growing speedily.

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Conclusion
Ultimately, there should be proper implementation of all sides of accounting information to
sustain significant internal control to avoid unethical actions and fraud. In addition, this
report also discusses about situational pressure and importance of distributed computerised
system. It shows that accounting information system plays an important role for the effective
functioning of an enterprise. There is also an interconnection amid transaction processing
cycle and in scenario of Rainbow illusion, strength attributed has highly contributed in sales
transaction control with evading many issues.
Accounting information system offers various benefits to any businesses such as valid
transaction record, properly authorised transactions, fair and true disclosure and so forth.
Though, if any system is altered then it can negatively impact any corporate like Rainbow
Illusion.

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References
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adoption from the user's perspective. International Journal of production economics, 113(2),
pp.928-942.
Fuss, R. and Hecker, A., 2008. Profiling white-collar crime: Evidence from German-speaking
countries. Corporate Ownership and Control, 5(4), pp.149-161.
Gelinas, U.J., Dull, R.B. and Wheeler, P., 2011. Accounting information systems. USA:
Cengage learning.
Grabski, S.V., Leech, S.A. and Schmidt, P.J., 2011. A review of ERP research: A future
agenda for accounting information systems. Journal of information systems, 25(1), pp.37-78.
Hall, J.A., 2012. Accounting information systems. USA: Cengage Learning.
Huebscher, M.C. and McCann, J.A., 2008. A survey of autonomic computing—degrees,
models, and applications. ACM Computing Surveys (CSUR), 40(3), p.7.
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system selection. Expert systems with Applications, 36(1), pp.660-667.
Kassem, R. and Higson, A., 2012. The new fraud triangle model. Journal of Emerging
Trends in Economics and Management Sciences, 3(3), pp.191-195.
Putra, A. and Suryaputra, A., 2014. Implementation of Accurate Accounting Information
Systems To Mid-Scale Wholesale Company. IC-ITECHS, 1(1), pp.164-168.
Ricci, F., Rokach, L. and Shapira, B., 2011. Introduction to recommender systems handbook.
In Recommender systems handbook (pp. 1-35). MA: Springer, Boston.
Rimal, B.P., Jukan, A., Katsaros, D. and Goeleven, Y., 2011. Architectural requirements for
cloud computing systems: an enterprise cloud approach. Journal of Grid Computing, 9(1),
pp.3-26.