QUESTION 1 (60 MARKS)

Feast E-Mart Sdn. Bhd. is an online grocery store that offers home delivery of groceries to customers around Changlun, Jitra, and Alor Setar. Feast E-Mart purchases their supplies of grocery products from suppliers in Kedah, Perlis and Penang. The shop is located at the new Kedah SME Industrial area beside the Kedah River. Installation of surveillance camera at entrance area is expected to be completed in two months. Due to a limited building space, a warehouse is built in a separate area behind the store. This warehouse consists of two large room with one main entrance. One room is rented by Feast E-mart, while another room is rented by other business selling electrical parts. Each room has a modern touch surrounded with glass windows and installed with glass door and air conditioner. There are two security guards hired to scout the area. Each of them work on a 12-hour shift basis.

The following paragraphs present the purchasing procedures of Feast E-Mart. Currently, the business adopts basic technology in its purchasing system with an independent system maintain in each department.

Inventory Control Procedures

Inventory status are retrieved from the Sales Management System. The inventory records include a quantity on hand and a desired quantity on hand for all grocery types in the inventory database. Each day, the inventory control clerk monitors the balance of inventories in the database, showing those items that have reached their reorder points. Then, the clerk prints a purchase requisition (PR) from the system and approves the reordering of inventory by signing the PR. Then, the clerk forwards the approved PR to the Purchasing Department.

Purchasing Procedures

Upon receiving the approved PR, the purchasing clerk keys in purchasing data to prepare purchase order (PO), selects a supplier from the registered supplier file in the purchase database, update the PO file and creates a purchase order on the purchasing system. Once the purchase order is saved, the completed purchase order is printed in four copies. PO1 is sent to the supplier, PO2 is sent to the Inventory Control Department, PO3 (blind copy) is sent to the Receiving Department and PO4 is sent to the Accounts Payable Department. The approved PR is filed. In certain situation, if the chosen supplier is unable to fulfill the order, urgent order request will be made to any other supplier available in Alor Setar area. No purchase requisition is issued in this situation.

Receiving Procedures

When the inventory arrives at the Receiving Department from the supplier, the receiving employees are expected to check and count the inventory, and compares the actual quantity to the quantity stated in the attached packing slip and PO3. This process is, however, unmonitored and based on trust to the employees. Then, the employee keys in the PO number and records the actual quantity of inventory received in the receiving database to create receiving report (RR). Four copies of RR are printed from the database. The receiving clerk keeps PO3 and PS in a file. RR1 is sent to the Inventory Control department to update the inventory balances in the inventory database. RR1 is then filed in the Inventory Control Department. RR2 is sent to the Purchasing Department to be filed. RR3 is sent together with the inventory to the Warehouse.Finally, RR4 is sent to the Accounts Payable Department.

Accounts Payable Procedures

Earlier on, Accounts Payable Department received PO4 and RR4. Both documents are filed temporarily. When invoice arrived from the supplier, Accounts Payable clerk performs three-way match of PO4, RR4 and Supplier Invoice. After verifying the accuracy of invoice, the clerk keys in the invoice data into the Accounts Payable (AP) database to update purchase journal and AP subsidiary ledger. The three documents of PO4, RR4 and Supplier Invoice are filed. A journal voucher is printed and sent to the General Ledger Department.

REQUIRED:

A.Prepare the following diagrams to represent the purchasing process at Feast E-Mart Sdn. Bhd.

(a)A context diagram. (5 Marks)

(b)A logical data flow diagram. (14.5 Marks)

(c)A system flowchart. (32.5 Marks)

B. Due to an expansion of the business and to overcome problems of errors, back orders and late payment involving its suppliers, the owner of Feast E- Mart is considering the use of an advanced and integrated purchasing and cash disbursement system in a near future. As a Business Systems Consultant, provide suggestion of a potential modern purchasing system to be adopted by Feast E-Mart Sdn. Bhd.

Your suggestion should contain the description of ONE (1) proposed modern purchasing system and ONE (1) benefit of the modern purchasing system. Please list the relevant references to support the discussion for this questions. (4 Marks)

C. Discuss TWO (2) importance of system documentation to accountants. Please list the relevant references to support the discussion for this questions. (4 Marks)

QUESTION 2 (40 MARKS)

A.The followings are a list of system control goals.

(a) To ensure all sales orders are processed and delivered to customers on time.

(b)To ensure shipment of correct items and quantity to customers.

(c)To ensure that sales are made only to credit-worthy customers.

(d)To ensure input accuracy by providing interactive dialogue with the data entry person.

(e)To prevent the personnel clerk from accidently keys in 400 years for employee's age.

(f)To prevent unauthorized shipments to customer.

(g)To ensure the physical inventories are safe from any risks of stolen and damages.

(h)To ensure the correctness of posting from journal voucher to general ledger.

(i)To ensure that the report only can be read by an authorised user.

(j)To reduce the number of data to be entered into the systems from source documents.

REQUIRED:

Identify internal control procedure for each of the control goals listed above. (10 Marks)

B. A purchasing manager for Weibo Hardware Berhad has sole discretion in selecting vendors for the parts and supplies sold by the company. The manager directs a disproportionate number of purchase orders to a supply company owned by the manager's brother in law which charges above market prices for its products. The manager's relationship with the vendor is unknown to his employer.

REQUIRED:

(a)Explain the type of fraud in the situation above. (3 Marks)

(b)Discuss the control procedures that can be implemented to prevent the fraud. (7 Marks)

C. The following activities describe revenue and cash receipt systems of Kiara Outdoor Berhad.

Kiara Outdoor Berhad is a Sintok based wholesaler of rafting and camping equipment that serves outdoor sports camping retailers throughout the northern area of peninsular Malaysia. You have been hired by Kiara Outdoor Berhad to evaluate their processes, risks and internal controls. Below is the revenue cycle procedures of Kiara Outdoor Berhad.

Sales Order Procedures

Customer orders are mailed or emailed to the sales department. The sales clerk checks the customer's creditworthiness from a computer terminal by running a validation application. The credit check program determines if the customer's account is up to date regarding payments and the customer has not exceeded his or her credit limit. Computer controls in the application prevent further processing of any transactions that fails the credit check. The credit manager may override the validation control.

The clerk then records the sales order through his/her computer terminal after the customer's credit is verified. A digital copy of the order is distributed to the warehouse and shipping department for further processing. Thesalesclerk records the sales in the sales journal. Finally, the clerk files the hard copy of the customer order in the sales department.

The warehouse manager is prompted by receipt of the digital sales order on the warehouse terminal. The manager prints out two copies of order, the stock release and a shipping notice. A warehouse clerk uses the stock release to pick the selected items from the shelves and sends them to the shipping department along with stock release and the shipping notice. The warehouse manager then updates the inventory subsidiary ledger and the general ledger control account from his/her computer terminal.

The shipping clerk will match the goods, stock release and shipping notice to the corresponding digital sales order displayed on his terminal. The shipping clerk will print out three copies of the bill of lading and a packing slip if goods and all documents are match. Two copies of bill of lading and the packing slip are sent along with the goods to the transporter. The stock release copy and shipping notice are sent to the accounts receivable (AR) department. The third bill of lading copy is filed in the shipping department.

Upon receipt of the stock release and shipping notice, the AR clerk manually creates a hard copy invoice which is immediately mailed to the customer. The clerk then uses information on the stock release to update the AR subsidiary ledger and general ledger (GL) from his computer terminal. The clerk files the stock release and shipping notice in the AR department.

Cash Receipt Procedures

Customer payments come directly to the general mail room along with other mail items. The mail clerk sorts the mail, opens the customer payment envelope, removes the customer's cheque and remittance advice (RA) and reconciles the two documents. The clerk manually prepares two hard copies of remittance list to control the cheques and RA. One copy will be sent to the AR department along with the corresponding RAs. The other copy of remittance list accompanies the cheques to the cash receipts department.

Once the cheques and remittance list arrive in the cash receipt department, the accounts clerk reconciles the documents, endorses the cheques and manually prepares three hardcopies of deposit slip. The clerk then updates the cash receipts journal and the GL from his computer terminal. Then he sendsthe cheques and two copiesof deposit slip to the bank.

Finally, he files the third copy of the deposit slip and the remittance in the department.

The AR clerk reconciles the remittance list and RAs then updates the AR subsidiary ledger and GL. Finally, the remittance list and RAs are filed in the department.

REQUIRED:

(a)Identify FIVE (5) internal control weaknesses of revenue systems at Kiara Outdoor Berhad. (5 Marks)

(b)Identify ONE (1) risk involves for EACH internal control weaknesses identified in (a). (5 Marks)

(c)Suggest ONE (1) physical control procedure for EACH internal control weakness identified in (a). (5 Marks)

(d)Suggest ONE (1) information technology (IT) control procedure for EACH internal control weakness identified in (a). (5 Marks)