Cumulative Problem

This problem is based on Big Marker, a videoconferencing service based in Chicago, IL. Their web site is www.bigmarker.com. The narrative is divided into the following sections: company description, internal controls, and business processes.

Company Description

Big Marker was started in 2010 by Mr. Zhu-Song Mei. Zhu was inspired to start the company by the need to communicate with his mother during a period of illness. The company was initially financed by a group of angel investors and Zhu-Song; over time, it has attracted additional investors. Big Marker is organized as a limited liability company, and has 11 employees. Its organizational structure is fairly flat, as shown in the organizational chart below:

Zhu-Song handles the financial recordkeeping using QuickBooks, and McGladrey (CPAs) (www.mcgladrey.com) does an annual compilation and review for Big Marker. Big Marker uses the standard service company chart of accounts built into QuickBooks for its transaction processing (the chart of accounts is block coded).

Big Marker is organized into a collection of communities, which are based on common interests/goals. Each community has at least one organizer. Additionally, one organizer can participate in/create multiple communities. Communities host meetings and webinars at the organizers discretion; meetings are designated for collaboration, while webinars are typically structured as interactive presentations. As of early 2014, Big Marker had between 5,000 and 10,000 communities, and hosted 1,000 2,000 meetings/webinars monthly.

Internal Controls

Big Marker employs several internal controls to safeguard its assets, ensure reliable financial reporting, promote operating efficiency and encourage compliance with management directives. Here are some controls Big Marker employs, presented in alphabetical order:

1. Asset tracking. If a Big Marker employee wants to remove an asset from the office temporarily, one of the C-suite officers must authorize it. Additionally, approved assets must be signed out with the buildings security staff. (Big Marker is one office in a large office building.) Finally, all assets are logged in both QuickBooks and a locally maintained spreadsheet.
2. Cash handling. Big Marker employs several internal controls to help safeguard cash. For example, the office handles no actual cash; everything from cash collections to payroll is handled electronically. Big Marker maintains two separate cash accounts: one for payroll at Chase Bank and one for the operating expenses as Bank of America.
3. Employee expense reimbursements. Zhu-Song personally reviews all requests for employee expense reimbursements; common requests include office supplies, party supplies, laptop accessories, and travel and entertainment costs. Approved reimbursements are processed as part of the payroll with ADP; employees log into the system and enter the data. (See payroll processing later in the list for details).
4. Employee manual. All new hires get an employee manual. The manual lays out a few common sense, minimal policies, but the overall atmosphere at Big Marker is very friendly and casual. Employees are very passionate about the work they and the company do.
5. Information technology. Big Marker uses state of the art computer servers for its operations. It uses both colocation and cloud computing for its servers.
6. Payroll processing. In addition to maintaining the dedicated payroll account at Chase. Big Marker promotes strong internal control over the payroll process by outsourcing to ADP. Individual employees log into ADPs system to submit their hours and other information. ADP processes the payroll on a monthly basis, and all Big Marker employees are required to have checks direct deposited in their bank accounts. No paper checks change hands for payroll. The company offers a standard benefits package, including health insurance.
7. Staff meetings. Big Marker holds weekly staff meetings to discuss issues and priorities facing the company.

Youll find additional elements of internal control in Big Markers terms of use at www.bigmarker.com/terms.

Business Processes

In addition to the payroll process described above, common business processes at Big marker include purchasing servers, starting communities, monitoring communities, and paying company bills (such as advertising and rent).

When Big Marker wants to purchase a new server, employees first develop their requirement specifications (e.g. processing speed, available memory). They use those specifications to choose a server from a vendor such as Dell. Big Marker orders the server online and accepts delivery when the server is ready.

When an organizer starts a new community, Big Marker sends an automatically generated email with details about how to host events and related matters. Each community is assigned a community hero a Big Marker employee available to answer questions and guide the organizer in relevant tasks. All new communities receive a free 14-day trial of Big Marker, after which their credit card (submitted during the community creation process) is billed for a nominal monthly fee of $20. Big Marker then attempts to charge the credit card each month for the fee. If billing fails, Big Marker sends another automatically generated email stating that they will try to bill the credit card every three days for 15 days; if billing still fails, the community is suspended. Community organizers have the option of selling tickets to their events; if they do, Big Marker retains 10% of the total ticket revenue. Similarly, community organizers may charge community dues to members; Big Marker also retains 10% of that revenue. Big Marker also will attempt to find corporate sponsors for communities; a corporate sponsor would contribute funds to maintain and help run the community, and all those funds go directly to the community itself.

Big Marker also monitors each communitys activity. If a community hosts no events for two months, the organizer(s) receive an email offering assistance. Big Marker queries its database to determine which communities fall into that category. The average member of Big Marker belongs to three or four communities; communities have no upper limit to membership. Similarly, each ember may join as many communities as he/she wishes. Although each community has just one community hero, the same community hero may serve in that capacity for multiple communities.

All bill-paying activity at Big Marker happens electronically in one of the three ways: via the companys credit card, via automatic debit from the Bank of America operating account, or via electronic check from the Bank of America operating account.

Part 1 Questions

1. Big marker uses the standard chart of accounts in QuickBooks to maintain its financial records.
   1. Suggest specific account titles and account numbers for at least three accounts in each of the following categories: current assets, plant assets, current liabilities, long-term liabilities, equity, revenue and expense
   2. Use the account titles and account numbers from (a) to suggest at least 10 transactions Big Marker would commonly process. Indicate, using the account names and numbers, how Big Marker would record each transaction you suggest.
2. Use the relevant COSO frameworks to develop internal control and enterprise risk management plans for Big Marker. For both plans, suggest control activities that are not mentioned in the narrative.
3. Create a risk/control matrix for Big Marker using some combination of the internal controls discussed in the narrative and any you create in the previous question.
4. How would you describe Big Markers business process using the Capability Maturity Model? Explain your classification.