Internal Control Weaknesses: Platinum Manufacturing Group Report

This report presents a case study of Platinum Manufacturing Group, a medium-sized manufacturer, and its accounting information systems, particularly focusing on the raw material management process. The report identifies internal control weaknesses within the expenditure process, including i...Read More

Running Head: ACCOUNTING INFORMATION SYSTEMS
Accounting Information Systems
Name of the Student
Name of the University

1ACCOUNTING INFORMATION SYSTEMS
Executive Summary
Internal control weaknesses are often the reasons for various complicated issues arising even in
the regular operations. The issues that have been identified are resulting in financial losses for
the company as well as slowing down the overall operational processes that include purchase,
handling and movement of raw materials to and from the inventory. This report discusses about
the internal control measures and possible steps that can be taken to ensure the control
weaknesses are solved.

2ACCOUNTING INFORMATION SYSTEMS
Table of Contents
Introduction......................................................................................................................................3
Expenditure Process: Overview.......................................................................................................3
Data Flow Diagram..........................................................................................................................5
System Aspects Identification.........................................................................................................6
Conclusion.......................................................................................................................................9
References......................................................................................................................................11

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Introduction
This case study is based on a company named Platinum Manufacturing Group. The
company does business of electrical goods that are manufactured from raw materials in the
company’s factory itself. The scale of the company is significantly large and hence, in order to
fulfill the operational and business demands of the company, a huge amount of electrical goods
are being manufactured everyday that in turn requires handling and use of large volumes of raw
materials. It is evident that if such large volumes of raw materials are not handled in a systematic
manner, the company will soon lose track of the amount of raw materials in the inventory and
will start to encounter financial losses as well as negative impacts on the business. Hence, the
company has set up a particular system framework for the handling of raw materials like
receiving the materials from the vendor after purchase, storing the materials in the inventory,
extraction of certain quantity of raw materials from the inventory, make payments to the vendors
and others. Based on the system, the storeroom staffs have to follow a particular sequence of
specific activities regarding the movement of raw materials to and from the inventory. In spite of
a specific system being in place, there are a number of risks and issues identified that can have
some negative impact on the company’s business if not addressed quickly.
While the main focus of this report is the control weakness existing within the system, the
report identifies the risks that might have negative impact on the business of the company.
Expenditure Process: Overview
In the existing structure in the company, the expenditure process is mainly required for
the purchase of raw materials required for the manufacturing processes. For handling the

4ACCOUNTING INFORMATION SYSTEMS
purchase and expenditure process, a purchasing team has been deployed who take care of all the
payments after the goods are delivered by the supplier. When the supplier delivers the raw
materials to the storeroom staffs, an invoice is also sent to the purchasing team. The team
reviews the invoice and makes the payments within the due date specified by the supplier. The
invoices are then filed and the packing slips and purchase orders are reconciled at month end.
This overall system has its own faults that arise due to lack of control measures and hence, the
issues are to be identified and addressed.

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Data Flow Diagram
Figure 1: Data Flow Diagram
(Source: Created by Author)

6ACCOUNTING INFORMATION SYSTEMS
System Aspects Identification
Various system aspects that include the control weaknesses and suggested IT
developments that will be able to solve the control weaknesses are discussed in the following
table.
Internal Control
Weakness
Impact of the
weakness
Control to mitigate the
weakness
Latest IT
developments
The main control
weakness that can be
identified in the current
operational structure is
that there is no direct
coordination between
the storeroom staff and
the purchasing team. As
a result, there are often
errors in the number of
items delivered and the
payments made to the
vendor (Ji, Lu & Qu,
2015). The vendor can
also get the chance to
cheat the company by
listing different amounts
of products to the
storeroom staff and the
The main impact in the
weakness is that the
company often has to
spend additional
amounts for the supplies
they received. For
instance, let the
company needs to order
25 pieces of raw
materials. Accordingly,
the purchasing team
places order for 25
pieces. However, while
delivery, the supplier
provides only 20 pieces
of materials to the
storeroom staff and
prepares their invoice
showing 20 pieces only.
The main control that
can be implemented to
mitigate weakness is to
develop a suitable
communication system
between the storeroom
department and the
purchasing team (Evans
et al., 2015). It is clearly
identified that there is a
lack of coordination
between the two teams
and hence, the issues are
occurring at a
continuous basis. Once
a suitable
communication system
is developed along with
the assistance of
Recently Information
Technology has
progress a lot in terms
of new developments
that can be utilized by
users and organizations.
Information systems are
now sufficiently
developed to provide
the organizations
implement a wide range
of features like online
inventory system,
inventory tracker and
others that help to
establish certain
framework changes
within the
organization’s

7ACCOUNTING INFORMATION SYSTEMS
purchasing team. The storeroom staffs
count 20 pieces and
store them in the
inventory. On the other
hand, the purchasing
team is provided with
another invoice showing
25 pieces of materials
for which, they make
payments. As a result,
the company has to pay
for 5 pieces of materials
extra.
information system for
keeping track of
purchases, the
highlighted issue can be
easily solved and
addressed.
operational strategies. In
addition to keeping
track of the raw
materials received and
the amount paid, the
information system can
also be used to
determine whether the
errors are occurring on
accident or on a
continuous basis. Based
on the reports, the
company can change the
vendor if necessary.
One major internal
control weakness related
to the process is that the
invoices used by the
seller and stored by the
purchasing team are all
paper documents and
the orders are placed
through phone calls.
Paper documents and
invoices can easily be
tampered, lost or
There are several
impacts of this
weakness that are listed
as follows (Benaroch &
Chernobai 2015).
Paper documents can be
easily tampered by
anyone.
Paper documents can be
easily destroyed, thus
some invoices can be
The main control that
can be identified for this
case is the use of online
documents for the entire
purchase process
replacing the paper
document system. This
will not only speed up
the process but also
provide the organization
with certain benefits.
The suggested process
A cloud based ERP
system is an effective
solution to this
particular control
weakness. This ERP
system will help the
company to develop a
better and more
effective operational
framework and business
strategy regarding the
handling of purchases.

8ACCOUNTING INFORMATION SYSTEMS
destroyed and hence,
these are not reliable
versions of purchase
documentations. In
addition, paper
documents also take up
huge amount of physical
space and for analyzing
the documents, manual
labor is required that
consumes huge amount
of time.
destroyed or lost.
Paper documents like
invoices are stored in
files. This not only takes
up space but also when
there are multiple
numbers of files, it
becomes a very time
consuming effort to find
out one particular piece
of document.
With the use of paper
documents, the records
of purchases need to
kept entered into the
database manually one
by one, which is also
very much time
consuming and error
prone.
includes ordering the
materials online directly
to the seller, filling up
online form by the seller
regarding the supply of
requested materials,
online update by the
storeroom staffs upon
receiving the materials
from the seller,
verification of the
delivered items by the
purchasing team,
generation of online
invoice, making online
payments and others.
The ERP system will
also help to integrate all
the processes into one
common system.
The final control
weakness determined in
the system is the lack of
sufficient
communication between
the departments during
There are a number of
various impacts of this
particular control
weakness of the system.
These impacts are the
summaries of the
The initial suggested
control measure that
needs to be taken is to
develop an effective and
communication system
so that the different
Implementation of
communication devices
like telephone, online
chatting system and
others can be done such
that a personnel from

9ACCOUNTING INFORMATION SYSTEMS
the entire purchasing
and material delivery
process. The
departments work on
their own and report to
the management
separately.
previous impacts
described and
effectively involve lack
of coordination between
teams, receiving
inappropriate amount of
materials from the
supplier but paying for
more, no tracking
system for new and old
orders as well as the
inventory and others.
departments will be able
to communicate with
each other during their
needs and maintain
continuity in the
operations.
one department can
communicate with one
from another
stakeholder group.
Conclusion
This report mainly discusses about the control weaknesses that are existing within the
current operational structure for purchasing and management of raw materials. The current
process involves ordering of raw materials by the purchasing team, delivery of the materials to
the storeroom staff and finalizing payments for the materials by the purchasing team. Although
each of the processes has its own systematic framework, they are not really connected with each
other resulting in some serious gaps in communication as well as operations. Moreover, the
departments are controlled by different personnel who are not used to communication between
each other during the operations. As a result of this, several issues are starting to appear with
more to possibly arise if not addressed on urgent basis. The issues that have been identified are

10ACCOUNTING INFORMATION SYSTEMS
resulting in financial losses for the company as well as slowing down the overall operational
processes that include purchase, handling and movement of raw materials to and from the
inventory. Hence, the recommended solution involves the implementation of modern information
technology solutions that will not only link up the separately working departments but also make
the overall system much more efficient and faster.

11ACCOUNTING INFORMATION SYSTEMS
References
Benaroch, M., & Chernobai, A. (2015). Linking Operational IT Failures to IT Control
Weaknesses. In AMCIS.
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Collier, P. M. (2015). Accounting for managers: Interpreting accounting information for
decision making. John Wiley & Sons.
Evans, I., Long, F., Otgonbaatar, U., Shrobe, H., Rinard, M., Okhravi, H., & Sidiroglou-
Douskos, S. (2015, October). Control jujutsu: On the weaknesses of fine-grained control
flow integrity. In Proceedings of the 22nd ACM SIGSAC Conference on Computer and
Communications Security (pp. 901-913). ACM.
Hassan, H., Nasir, M. H. M., & Khairudin, N. (2017). Accounting Information Systems. In SHS
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Huang, P., Guo, J., Ma, T., & Zhang, Y. (2015). Does the value of cash holdings deteriorate or
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Banking & Finance, 54, 30-45.
Ismail, N. A., & King, M. (2014). Factors influencing the alignment of accounting information
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Information Systems and Small Business, 1(1-2), 1-20.

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Ji, X. D., Lu, W., & Qu, W. (2015). Determinants and economic consequences of voluntary
disclosure of internal control weaknesses in China. Journal of Contemporary Accounting
& Economics, 11(1), 1-17.
Komala, A. R. (2017). Cause and effect of accounting information system: A study in national
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Laudon, K. C., & Laudon, J. P. (2016). Management information system. Pearson Education
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