General Manufacturing Inc.—Internal Controls Assessment The production process at General Manufacturing Inc., involves the planning, scheduling, and controlling of the physical products through the manufacturing process. General’s manufacturing process begins in the production planning and control department, where June determines the materials and operations requirements and combines information from various departments to assess inventory requirements needed to produce a product.

Marketing provides the sales forecast, engineering provides the engineering specifications, and the storeroom provides the RM inventory status. June reviews this information to prepare a purchase requisition document, which she sends to purchasing. June then reviews the BOM and route sheets and prepares the following documents: work orders, move tickets, and materials requisitions.

Three copies of each document are prepared.

One copy of the work order, move ticket, and materials requisitions documents is sent to cost accounting. The remaining two copies are sent to Mike, the supervisor in the work center.

Once Mike receives the production control documents, he initiates the production process. Mike sends a copy of the materials requisitions to the inventory storeroom in exchange for necessary RM. When additional RM is need for a job in process, they are obtained by calling Steve, the storeroom clerk.

Materials in excess of those needed for production are kept in the work center and used in the future. When the job passes through all production stages and is complete, Mike sends the finished product to the FG warehouse.

He files one copy each of the work order, move ticket, and materials requisition, and sends the remaining copies of the work order and move ticket to the cost accounting department. One of Mike’s duties is to review the job tickets and the employee timecards, which are sent to cost accounting and payroll, respectively.

Steve, in the inventory storeroom, accepts materials requisitions from the work center employees and releases the RM to the work centers. Steve files a copy of the materials requisitions and updates the RM inventory records. At the end of the day he creates a journal voucher that is sent to Ronica in the cost accounting department.

Ronica receives the following documents:

work orders, move tickets, and materials requisitions from the production planning department; job tickets, work orders, and move tickets from the work center; and journal vouchers from the inventory storeroom.

Ronica uses these to initiate a work-in-process

(WIP) account and to update the WIP as work progresses, to calculate variances, and to update the GL accounts. Ronica files all documents in the department.

Required:

a. Create a data flow diagram of the current system.

b. Create a document flowchart of the existing system.

c. Analyze the internal control weaknesses in the system. Model your response according to the six categories of physical control activities specified in SAS 78.

d. Prepare a system flowchart of a redesigned computer-based system that resolves the control weaknesses you identified.