Generators R Us $($Centralized System with Distributed Terminals$)$

Generators R Us $($GRU$)$ is a leading manufacturer of partible electric generators used for emergency power supply in both civil and private disaster situations. GRU's primary customers are disaster recovery companies that assist home owners following flooding and other natural disasters. GRU also sells to building contractors, municipalities, and rental companies. The company purchases its raw materials including bearings, copper wire, and insulating materials inventory directly from the manufactures. GRU's headquarters and manufacturing facilities are in Dallas, Texas, where they employ $125$ manufacturing and clerical staff.

GRU uses a centralized computer system with distributed terminals in its various departments. Recently they have experienced operational problems with their system and GRU management has hired your auditing firm to assess its operations and internal control procedures.

Purchasing System:

When an inventory item falls to the reorder point, a purchase requisition is automatically created and printed on the terminal in the purchasing department. The clerk in the department selects suppliers and prepares a purchase order. A copy of the PO is sent to the vendor, and a copy is sent to the receiving department. Then, the clerk adds a record to the open$/$closed purchase order file through an update program in the data processing department.

When the receiving clerk receives the inventories, he reconciles the goods with the packing slip and the purchase order. After the reconciliation, the receiving clerk prepares a hard$-$copy receiving report recording the quantity and quality of the goods received. A copy of the receiving report accompanies the goods to the warehouse, and a copy is filed in the receiving department. Using the department terminal, the receiving clerk adds a record to the digital receiving report file. The system then automatically closes the purchase order. Upon receiving

the inventories, the warehouse clerk updates the inventory subsidiary ledger through the terminal in the warehouse.

When the supplier's invoice arrives, the AP clerk adds a record to the supplier invoice file, which triggers the system to automatically set up a liability in the AP subsidiary ledger based on the financial information contained in the invoice. The system then automatically updates all affected GL accounts.

Cash Disbursements System:

Each day, the system scans the AP ledger for items due to be paid and prints the checks. The check is sent to the vendor, and a copy is sent to cash disbursements, where it is filed. Next, the system adds a record to the check register file and removes the liability in the AP subsidiary ledger. Finally, the system automatically updates the GL accounts.

Required:

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

b$.$ Create a system flowchart of the existing system.

c$.$ Analyze the physical internal control weaknesses in the system.

d$.$ Describe the IT controls that should be in place in this system.