GREEN PRODUCTSGARDEN SUPPLY (STAND-ALONE PC-BASED ACCOUNTING SYSTEM)

Green Products Garden (GPG) Supply sells and distributes a wide range of garden products and equipment including organic fertilizers, premium flower and grass seeds, organic pesticides, and garden spreaders. GPG’s headquarters and warehouse is located in Hopewell, Virginia.

GPG’s current information system includes manual procedures supported by independent (non-networked) PCs in each department. Communications between departments is entirely through hard-copy documents. You have been hired to assess GPG’s procedures and internal controls. The following is a description of GPG’s payroll and fixed asset systems.

Payroll System

On Thursday, every two weeks, employees submit their hours-worked data from their personally maintained time cards to their department supervisors who review and send the time card to the payroll department. The supervisors also provide payroll with personnel action forms that record any employee changes in employee status such as new hires, terminated employees, or changes in pay rate.

Upon receipt of the time cards and personnel action forms, the payroll clerk updates the digital employee records from the department PC and prints the payroll register. A copy of the payroll register, along with the time cards, and the personnel action form are filed in the payroll department. A second copy of the payroll register is sent to general ledger clerk, who posts to the general cash account and wages expense for the full amount of the payroll. Next, the payroll clerk prepares the paychecks and sends them to the employee’s respective supervisors, who distribute the checks to the employees.

Fixed Asset System

Asset acquisition begins when the user department manager recognizes the need to obtain new or replace an existing fixed asset. The manager manually prepares two copies of a purchase requisition; one copy is filed temporarily in the department, and one is sent to the purchasing department. From the purchase requisition, the purchasing department clerk manually prepares three copies of a purchase order. One copy is sent to the supplier, another copy is sent to the accounts payable department, and the third copy is filed in the purchasing department. When the asset arrives, the user department receives it along with the packing slip. The packing slip and goods are reconciled with the purchase requisition on file, and then the packing slip and requisition are filed permanently in the user department

The accounts payable clerk receives the purchase order from the purchasing department and files it temporarily. Upon receipt of the invoice from the vendor, the accounts payable clerk reconciles it with the purchase order on file. Using the department PC, the accounts payable clerk then sets up an account payable and records the asset in the fixed asset inventory ledger. The clerk then prints a cash disbursement voucher and sends it to the cash disbursements department. At the end of the day, the clerk prints account summaries for accounts payable and fixed asset inventory, which she sends to the general ledger department. The purchase order and invoice are permanently filed in the department.

The cash disbursements clerk receives the cash disbursement voucher from accounts payable and posts the payment to the check register from the department PC. The clerk then prints a check, which he sends to the vendor. At the end of the day, the clerk prints a hardcopy journal voucher from the PC and sends it to the general ledger department.

When an asset has reached the end of its useful life, the user department manager prepares a disposal report and sends it to the accounts payable clerk, who adjusts the fixed asset inventory record.

The general ledger department clerk reconciles the journal voucher, the accounts payable summary, and the inventory summary received from accounts payable and cash disbursements. These figures are then posted to the general ledger from the department PC, and the account summaries and journal vouchers are filed in the department.

Required

a. Prepare a data flow diagram of the current payroll and fixed asset systems.

b. Prepare system flowcharts for the payroll and fixed asset systems.

c. Describe the uncontrolled risks associated with these systems as they are currently designed.

d. Describe the physical and IT controls needed to reduce the risks identified in “C” above.