Lehigh Wholesale General Supply An ACL Case Study Lehigh is a wholesale general supply company that ships to business customers throughout North and South Carolina. Lehigh has developed a competitive edge by offering a wide variety of quality products at competitive prices. The companys products range from paint to watering cans. Lehigh is a publicly owned company, whose board of directors has retained your firm to conduct the annual audit. You are the in-charge auditor who is currently examining Lehighs revenue and expenditures procedures and related accounts. Lehighs main offices are in its Charlotte, NC. The following describes your clients system configuration and business procedures. System Overview and Background Lehighs information system is a recently purchased application that runs on a client- server network configuration. James Walker, a systems designer in Lehighs IT department, played a central role in implementing and modifying the system to meet Lehighs specific needs. Because of Walkers familiarity with the system, he was asked by top management to temporarily oversee the initial running of the new system to ensure a smooth transition from the old legacy system. After several months, James Walker was offered a promotion to Warehouse Manager and given permanent responsibility for product purchasing. Purchasing/Payment Procedures The flowchart in Figure 1 and the conceptual view of the files diagram in Figure 2 illustrate the purchasing/payment procedures at the central warehouse. Warehouse Each morning Walker reviews an automatically generated inventory status report from his office terminal. He determines the items that need replenishing and selects suppliers from the Vendor file. Walker then adds a record to the purchase order file. The system assigns each new record a unique number (PO Number) as the primary key. Walker manually enters the date, the product to be ordered, order quantity, expected unit cost (the extended cost is automatically calculated by the system), and the ID number of the selected vendor. The purchase orders are then printed on Walkers terminal, signed by him, and mailed by his secretary to the respective suppliers. Receiving When the products are received at the receiving dock, a receiving clerk counts and inspects them. The clerk adds a record to the Receiving Report file from the terminal in the receiving area. The system assigns a unique key (RR Num) to each record. The clerk manually enters the purchase order number, product number(s), quantity received, vendor ID number, and the date of receipt. The receiving system is not particularly user friendly. If errors are made during data entry, the clerk must void the receiving report and begin over with a new receiving report record. The voided record is then automatically purged

from the Receiving Report file and the system assigns the next RR Number in sequence to the revised receiving report. As a result, sequence gaps exist in the receiving report file indicating the missing records. The products are then sent to the warehouse where they are secured. At the end of the work shift, the receiving clerk prints a hard copy of the receiving report listing of the days receipts (including any voided receiving reports), which is sent to James Walkers office for his review. Warehouse After Mr. Walker has reviewed the receipts he manually adds the system-assigned RR Number to the corresponding Purchase Order record to indicate that the product has been received. The system automatically updates the Quantity on Hand field in the Inventory file from the Quantity field in the Purchase Order record. Accounts Payable Sybil Johnson, the Accounts Payable clerk, receives the vendors invoices. Using the PO number from the invoice as a search key, she matches the invoice with the corresponding purchase order/payment record. She verifies that the items invoiced have been received by observing that a RR Number has been placed in the Purchase Order record. She then adds a record to the Voucher Payable file. The system assigns a unique key (Voucher Number) to each record. Sybil enters manually the following data directly from the suppliers invoice: purchase order number, vendor number, supplier invoice number, full amount due, discounted amount due, and due date. The due date is selected to take advantage of purchase discounts. Finally, Sybil files the vendors invoice in her office filing cabinet. Cash Disbursements Each day, Sean OConnell in the Cash Disbursements department reviews the Voucher Payable file for items due to be paid that day. For each item due, he adds a record to the Check Register file. The system assigns it a unique key (Chk Number) and Sean manually adds the following data to the Check Register record: voucher number, vendor number, amount of payment, and date. The system automatically places the check number in the appropriate Voucher Payable record to indicate that payment has been made. The checks are printed in Seans office and then reviewed and signed by Irving Stern, the department manager. Inventory & COGS As noted above, Inventory records are updated perpetually. However, Cost of Goods Sold (COGS) is only updated periodically when financial statements are created. So, Lehigh has a mix of perpetual and periodic inventory methods. Inventory is usually valued at the end of each fiscal year based on current market prices and a physical count of the quantity on hand (although occasionally products have additional valuations throughout the year for the marketing team to assess product performance). Lehigh considers the value of Inventory at fiscal year beginning, the value of Inventory at the fiscal year end,and the purchases to determine Cost of Goods Sold.