SAGA Fly Fishing, Inc.—Internal Controls Assessment SAGA Fly Fishing, Inc., is a manufacturer of high-quality fly fishing equipment that includes rods, reels, fly lines, nets, drift boats, waders, and other equipment. It also produces lowend and moderately priced spinning rods and saltwater fishing equipment, which it sells under a different brand name to protect the high-quality image associated with its Fly Fishing division. Its home office/fly fishing production plant is located near Manchester, New Hampshire. The spinning and saltwater manufacturing plants are in upstate New York. In total, SAGA employs 1,500 workers.

SAGA distributes its products worldwide through three distribution centers. Sales are currently $200 million per year and growing.

Although equipped with up-to-date production and shop floor machinery, SAGA’s Manchester plant’s inventory management, production planning, and control procedures employ little computer technology.

The process begins in the storekeeping department, where Mr. Holt controls the inventory and maintains the inventory records. He checks daily on the inventory control files to assess the RM inventory needs and sends an inventory status report to production planning and control.

The production planning and control department is led by Mr. Brackenbury. Once the inventory status report is received, as well as the sales forecasts from marketing, Mr. Brackenbury takes a copy of the BOM and route sheet and assesses the inventory requirements. If the inventory amounts are adequate, Mr. Brackenbury prepares a production schedule, work order, move tickets, and materials requisitions, which he sends to the work centers. Mr. Brackenbury then sends a purchase requisition to the purchasing and storekeeping departments.

Mr. Brackenbury also heads the various work centers, and the supervisors of the different work centers report to him. These supervisors, upon receipt of the aforementioned documents, send the materials requisitions to the storekeeping department, and Mr. Holt sends the necessary materials to the work center.

He then files a copy of the materials requisition and updates the RM inventory ledger.

At the end of each day, he sends a copy of the materials requisitions to the cost accounting department. He also sends a journal voucher for the use of materials and a journal voucher for FG to the GL department.

In the work centers, the managers of each center collect the employees’ time cards and send them to cost accounting, along with a copy to payroll. They also send the job and move tickets, which outline the various costs that have been incurred, to cost accounting.

Ms. Kay, who heads the cost accounting department, collects all of the data, determines the overall cost, compares it to the standard costs, and determines the variances.

Only the total variances are compared; the information is then used to evaluate managers and supervisors of the various departments.

Ms. Kay updates the WIP files and FG inventory files. She then creates a journal voucher and sends it to the GL department.

In the GL department, the information from the journal vouchers is entered in the GL computer program, where the files are updated.

The journal vouchers are filed.

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.