Classic Restorations specializes in the sale of original and reproduction restoration parts for classic sports cars and muscle cars of the 1960s and 1970s. Classic Restorations is headquartered in Los Angeles, California, and currently employs 95 full-time employees, including sales staff, sales representatives, and general office staff. Classic Restorations has a legacy accounting system that employs a combination of manual procedures supported by stand-alone PCs in various departments. Recently, they have experienced business inefficiencies that have been linked to their antiquated accounting system. 

You have been retained by Classic Restorations management to review their procedures for compliance with effective internal control standards. The company’s payroll and fixed asset systems are described in the following paragraphs. Payroll Procedure Employees manually register their hours worked on timesheets. Each Friday afternoon they submit the timesheets to their department supervisor for approval. The supervisor then forwards the time sheets to the payroll clerk, who manually prepares checks for each employee’s approved timesheet. The clerk, using a laptop computer, then posts to the digital employee records. The clerk then mails the check to the employee and files a copy of the check in the department. Finally the clerk prints two payroll summaries from his computer. He sends one of these to the AP department, and the other to the general ledger department. The AP clerk receives the payroll summary, approves it, and writes a check to cover the entire payroll. The clerk then sends the check to the bank where it is deposited into the payroll imprest account. 

The general ledger clerk receives the payroll summary and posts to the related accounts in the digital general ledger, using the department PC Users in individual departments verbally report their fixed asset requirements to their respective managers. If the request is approved, the manager manually prepares a fixed asset request form and submits it to the purchasing department. Upon receipt of the fixed asset request form, the purchasing department clerk manually prepares two copies of a purchase order. The clerk sends one copy to the supplier and files one in the purchasing department. Finally, the purchasing department clerk manually prepares a hard-copy fixed asset change report and sends it to the fixed asset department. When fixed assets are received, the receiving clerk reconciles the goods with the packing slip and invoice and then manually prepares a receiving report. The clerk sends the goods to the user department and forwards the packing slip, invoice, and receiving report to the AP department. The AP clerk reconciles the documents from receiving, manually writes a check to the supplier, and manually prepares a journal voucher, which she subsequently sends to the general ledger department. The general ledger clerk posts journal vouchers to the digital general ledger using the department PC.

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.