GENERATORS R US (MANUAL AND STAND-ALONE PC PROCEDURES) Generators R Us (GRU) is a manufacturer of portable electric generators used for emergency power supply in both civil and private disaster situations. GRU’s headquarters and manufacturing facilities are in Dallas, Texas, where they employ 125 manufacturing and clerical staff. Although much of the company’s accounting system employs advanced technology, its payroll and fixed asset systems are legacy systems that rely on manual processes supported by stand-alone PC’s. Recently, GRU has experienced operational problems with these processes and the management has hired your auditing firm to assess its operations and internal control procedures. Payroll System In the GRU production departments, each worker records the number of hours he or she has worked each day by clocking in and out on a time card machine. The supervisor oversees this process and each week sends the hard-copy time cards to the payroll department. Using a stand-alone PC, the payroll department clerk enters time card data and prepares hard-copy paychecks. This process automatically updates the digital employee payroll records. The clerk files the lime cards in the payroll department and sends the employee paychecks to the supervisor for review and distribution to the employees. The payroll clerk also prepares three copies of a payroll register. Copies one and two are sent to AP and the general ledger departments, respectively. The clerk files copy three in the payroll department. Upson receipt of the payroll register, the AP clerk manually prepares a check for the entire payroll, which she deposits in the payroll imprest account at the hank. A copy of the check is filed in the department, along with the payroll register. Using the payroll register and the department PC, the general ledger department clerk posts to the appropriate GL control accounts. The clerk then files the payroll register. Fixed Asset System Asset acquisition begins in the user deportment when the manager recognizes the need to obtain a new or replace an existing fixed asset. The user manually prepares two copies of a purchase requisition, filing one copy in the user department and sending one copy to the purchasing deportment. The purchasing department uses the purchase requisition to prepare three copses of a purchase order. One copy of the purchase order is sent to the supplier, one is sent to the AP deportment, and the last copy is filed in purchasing with the purchase requisition. The AP clerk receives the purchase order from purchasing, the asset invoice from the vendor, and a packing slip from the receiving dock after the assets arrive. The AP clerk reconciles the purchase order with the packing slip and invoice. Then, using a department PC, the clerk posts a liability to the AP subsidiary ledger and records the asset in the fixed asset inventory subsidiary ledger. The purchase order and packing slip are filed in the AP deportment. Next, the clerk prepares a cash disbursement voucher, which the sends along with the invoice to the cash disbursements clerk. At the end of the day, the clerk prints hard-copy summaries of the AP and freed asset inventory ledgers, which die sends to the general ledger department Upon receipt of the cash disbursement voucher and invoice, the cash disbursements clerk, using the department PC, prepares a check and posts the relevant data to the check register. The clerk then prints a hard copy of the check and sends it to vendor. The cash disbursement voucher and invoice are then sent to the general ledger department. User department managers handle the asset maintenance and disposal. They calculate depreciation and approve asset disposal for retired assets. Related to these actions, the managers prepare depreciation and asset disposal reports, which they send to the AP clerk, who updates the appropriate fixed asset inventory accounts. Finally, the general ledger department clerk receives and reconciles the vendor invoices, cash disbursement vouchers, and account summaries. Using the department PC, the clerk posts to the respective general ledger accounts and files the documents in the department. Required a. Prepare a data flow diagram of the current payroll and fixed asset systems. b. Prepare system flowcharts for the payroll and fixed asset systems. c. Describe the uncontrolled risks associated with these systems as they are currently designed. d. Describe the physical and IT controls needed to reduce the risks identified in “c” above.

BuyFind

Accounting Information Systems

10th Edition
Hall + 1 other
Publisher: Cengage Learning,
ISBN: 9781337619202
BuyFind

Accounting Information Systems

10th Edition
Hall + 1 other
Publisher: Cengage Learning,
ISBN: 9781337619202

Solutions

Chapter
Section
Chapter 6, Problem 4ICC
Textbook Problem

GENERATORS R US (MANUAL AND STAND-ALONE PC PROCEDURES)

Generators R Us (GRU) is a manufacturer of portable electric generators used for emergency power supply in both civil and private disaster situations. GRU’s headquarters and manufacturing facilities are in Dallas, Texas, where they employ 125 manufacturing and clerical staff.

Although much of the company’s accounting system employs advanced technology, its payroll and fixed asset systems are legacy systems that rely on manual processes supported by stand-alone PC’s. Recently, GRU has experienced operational problems with these processes and the management has hired your auditing firm to assess its operations and internal control procedures.

Payroll System

In the GRU production departments, each worker records the number of hours he or she has worked each day by clocking in and out on a time card machine. The supervisor oversees this process and each week sends the hard-copy time cards to the payroll department. Using a stand-alone PC, the payroll department clerk enters time card data and prepares hard-copy paychecks. This process automatically updates the digital employee payroll records. The clerk files the lime cards in the payroll department and sends the employee paychecks to the supervisor for review and distribution to the employees. The payroll clerk also prepares three copies of a payroll register. Copies one and two are sent to AP and the general ledger departments, respectively. The clerk files copy three in the payroll department. Upson receipt of the payroll register, the AP clerk manually prepares a check for the entire payroll, which she deposits in the payroll imprest account at the hank. A copy of the check is filed in the department, along with the payroll register. Using the payroll register and the department PC, the general ledger department clerk posts to the appropriate GL control accounts. The clerk then files the payroll register.

Fixed Asset System

Asset acquisition begins in the user deportment when the manager recognizes the need to obtain a new or replace an existing fixed asset. The user manually prepares two copies of a purchase requisition, filing one copy in the user department and sending one copy to the purchasing deportment. The purchasing department uses the purchase requisition to prepare three copses of a purchase order. One copy of the purchase order is sent to the supplier, one is sent to the AP deportment, and the last copy is filed in purchasing with the purchase requisition.

The AP clerk receives the purchase order from purchasing, the asset invoice from the vendor, and a packing slip from the receiving dock after the assets arrive. The AP clerk reconciles the purchase order with the packing slip and invoice. Then, using a department PC, the clerk posts a liability to the AP subsidiary ledger and records the asset in the fixed asset inventory subsidiary ledger. The purchase order and packing slip are filed in the AP deportment. Next, the clerk prepares a cash disbursement voucher, which the sends along with the invoice to the cash disbursements clerk. At the end of the day, the clerk prints hard-copy summaries of the AP and freed asset inventory ledgers, which die sends to the general ledger department Upon receipt of the cash disbursement voucher and invoice, the cash disbursements clerk, using the department PC, prepares a check and posts the relevant data to the check register. The clerk then prints a hard copy of the check and sends it to vendor. The cash disbursement voucher and invoice are then sent to the general ledger department.

User department managers handle the asset maintenance and disposal. They calculate depreciation and approve asset disposal for retired assets. Related to these actions, the managers prepare depreciation and asset disposal reports, which they send to the AP clerk, who updates the appropriate fixed asset inventory accounts. Finally, the general ledger department clerk receives and reconciles the vendor invoices, cash disbursement vouchers, and account summaries. Using the department PC, the clerk posts to the respective general ledger accounts and files the documents in the department.

Required

  1. a. Prepare a data flow diagram of the current payroll and fixed asset systems.
  2. b. Prepare system flowcharts for the payroll and fixed asset systems.
  3. c. Describe the uncontrolled risks associated with these systems as they are currently designed.
  4. d. Describe the physical and IT controls needed to reduce the risks identified in “c” above.

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Chapter 6 Solutions

Accounting Information Systems
Ch. 6 - What are the objectives of a fixed asset system?Ch. 6 - How do fixed asset systems differ from purchases...Ch. 6 - What are three tasks of the fixed asset system?Ch. 6 - What information is found on the depreciation...Ch. 6 - Why is it crucial to the integrity of the...Ch. 6 - What is the auditors role with respect to the...Ch. 6 - Which department performs the formal recordkeeping...Ch. 6 - What document shows when fixed assets are fully...Ch. 6 - Who should authorize disposal of fixed assets?Ch. 6 - Assets used for production are secured in a...Ch. 6 - What is the importance of the job ticket?...Ch. 6 - Are any time lags in recording economic events...Ch. 6 - The management of an organization with a remote...Ch. 6 - Discuss the main advantages of payroll...Ch. 6 - Discuss some specific examples in which...Ch. 6 - Discuss some service industries that may require...Ch. 6 - What are the risks associated with payroll...Ch. 6 - If an asset that is not fully depreciated is sold...Ch. 6 - Discuss the fundamental risk and control issues...Ch. 6 - Describe an internal control that would prevent an...Ch. 6 - Describe an internal control that would prevent...Ch. 6 - Describe an internal control that would prevent...Ch. 6 - Describe an internal control that would prevent...Ch. 6 - What negative consequences result when fixed asset...Ch. 6 - Which one of the following functions is...Ch. 6 - Which of the following is not a payroll system...Ch. 6 - An independent verification control in the payroll...Ch. 6 - Who below is most likely to distribute paychecks?...Ch. 6 - Which one of the following documents captures the...Ch. 6 - Which of the following are not fixed asset system...Ch. 6 - All of the following controls are likely to apply...Ch. 6 - All of the following data items are likely to be...Ch. 6 - The following are all transactions processed in...Ch. 6 - Which one of the following documents captures the...Ch. 6 - PAYROLL FRAUD John Smith worked in the stockyard...Ch. 6 - PAYROLL CONTROLS Refer to the flowchart for...Ch. 6 - PAYROLLRISKS AND CONTROLS Sherman Company employs...Ch. 6 - FLOWCHART ANALYSIS Discuss any control weaknesses...Ch. 6 - SEPARATION OF DUTIES Human resource management...Ch. 6 - PAYROLL FLOWCHART ANALYSIS Discuss the risks...Ch. 6 - COMPREHENSIVE FLOWCHART ANALYSIS Discuss the...Ch. 6 - FIXED ASSET SYSTEM-RISKS AND CONTROLS The fixed...Ch. 6 - FIXED ASSET SYSTEM-FRAUD POTENTIAL Holder Co....Ch. 6 - FIXED ASSET FLOWCHART ANALYSIS Discuss the risks...Ch. 6 - PAYROLL PROCEDURES The following describes the...Ch. 6 - PAYROLL FLOWCHART ANALYSIS Discuss the risks...Ch. 6 - HOLLY COMPANYPAYROLL SYSTEMS (SMALL COMPANY USES...Ch. 6 - GREEN POND NURSERY (STANDALONE PC-BASED ACCOUNTING...Ch. 6 - TURNER PATIO FURNITURE (MANUAL AND STAND-ALONE PC...Ch. 6 - GENERATORS R US (MANUAL AND STAND-ALONE PC...Ch. 6 - OUTDOOR ADVENTURE: WHITE WATER AND CAMPING...Ch. 6 - CLASSIC RESTORATIONS (MANUAL AND STAND-ALONE...

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