Internal Control The following is a description of manufacturing company’s purchasing procedures. All computers in the company are networked to a centralized accounting system so that each terminal has full access to a common database.

The inventory control clerk periodically checks inventory levels from a computer terminal to identify items that need to be ordered.

Once the clerk feels inventory is too low, he chooses a supplier and creates a PO from the terminal by adding a record to the purchase order file. The clerk prints a hard copy of the PO and mails it to the vendor. An electronic notification is also sent to AP and receiving, giving the clerks of each department access to the PO from their respective terminals.

When the raw materials arrive at the unloading dock, a receiving clerk prints a copy of the PO from his terminal and reconciles it to the packing slip. The clerk then creates a receiving report on a computer system.

An electronic notification is sent to AP and inventory control, giving the respective clerks access to the receiving report. The inventory control clerk then updates the inventory records.

When the AP clerk receives a hard copy invoice from the vendor, she reconciles the invoice with the digital PO and receiving report and prepares a paper cash disbursements voucher. The cash disbursement voucher and invoice are placed in the open AP file in a filing cabinet until the due date.

The clerk also updates the AP subsidiary ledger and records the liability amount in the purchase journal from the department computer terminal. The AP clerk periodically reviews the cash disbursement file for items due and, when they are identified, prepares a check for the amount due. Finally, using the department terminal, the clerk removes the liability from the AP subsidiary file and posts the disbursement to the cash account.

Required:

a. Create a document flowchart of the system.

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