ACC 624 PROJECT II

ACC 624 SUMMER 2013

PROJECT II (15 POINTS TOWARDS THE FINAL GRADE)

Assume that the following flow chart was prepared by a team member in your audit assignment for an ERP system. As you would notice the figure represents the purchasing and payment activities in a computerized environment. The internal departments that take part in these activities are listed at the top of the document (i.e. End-User, Purchasing Department, Receiving Department, Computer denoted by ERP, Accounts Payable and Treasury Department). Though there is no column header, “Vendor” and “Our-Bank” occupy the first column on the left.

Assume that you are at a brain storm session to discuss the internal control system and risk factors for this organization with other audit team members.

Required:

1. Describe the purchasing and payment activities as shown in this diagram (you may describe the process with bullets),

2. List some of the risk factors in this environment. What are internal control processes you would like to see in this computerized system to minimize those risk factors?,

3. You have noticed that the purchasing agent knows the password for the receiving department. What are possible consequences of this finding? What are some of the fraudulent activities that could take place based on this finding?

End User

Purchasing

Department

Receiving

Dept.

Prepare and

Ship Goods

Vendor's

Invoice

Accounts

Payable

Prepare Receiving

Report (RR)

Prepare and

Mail Check

Prepare

Purchase Order

(PO)

Need for Material

Prepare Purchase

Requisition (PR)

Prepare Goods in

Receipt (GR)

Receive Goods

Quantity Check

Receive and Enter

Invoice Receipt (IR)

ERP

Transmit (PO)

Shipping Document and Goods

Approved Purchase Requisition (PR)

Display PR

Display PO and PR

(w/o quantity & price)

Quantity

Check?

Quality Check?

Prepare Voucher

Payable (VP)

Inform End User

Enter (IR)

PR, PO, RR, GR, IR

Mail Check

Cancelled

Check

Enter GR

Update

Inventory

Our

Bank

Treasury

Dept

Update

Bank

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Display PR

Prepare Purchase Requisition (PR)

Display PO and PR (w/o quantity & price)

Approved Purchase Requisition (PR)

Quantity Check?

Quality Check?

End User

Purchasing Department

Shipping Document and Goods

Receiving Dept.

Prepare and Ship Goods

Transmit (PO)

Vendor's Invoice

Prepare Receiving Report (RR)

PR, PO, RR, GR, IR

Update Inventory

Prepare Goods in Receipt (GR)

Receive Goods Quantity Check

Prepare Voucher Payable (VP)

Inform End User

Prepare Purchase Order (PO)

Enter (IR)

Accounts Payable

Prepare and Mail Check

Need for Material

Enter GR

Receive and Enter Invoice Receipt (IR)

Mail Check

Cancelled Check

ERP

Our Bank

Treasury Dept

Update Bank