Question 2

ABC Sdn Bhd specializes in the sale of computer in Shah Alam and currently employs 100 fulltime employees, including sales staff, sales representatives, and general office staff.

ABC Sdn Bhd has a legacy accounting system that employs a combination of manual procedures

supported by stand alone PCs in various departments. Recently they have experienced business

inefficiencies that have been linked to their antiquated accounting system. You have been retained

by ABC Sdn Bhd management to review their procedures for compliance with effective internal

control standards. The company's payroll and fixed asset systems are described in the following

paragraphs.

Payroll Procedures

Employees manually register their hours worked on timesheets. Each Friday afternoon they

submit the timesheets to their department supervisor for approval. The supervisor then forwards

the timesheets to the payroll clerk, who manually prepares cheque for each employee's approved

timesheet. The clerk, using a laptop computer, then posts to the digital employee records. The

clerk then mails the cheque to the employee and files a copy of the cheque in the department.

Finally the clerk prints two payroll summaries from his computer. He sends one of these to the AP

department and the other to the general ledger department.

The AP clerk receives the payroll summary, approves it, and writes a cheque to cover the entire

payroll. The clerk then sends the cheque to the bank where it is deposited into the payroll imprest

account.

The general ledger clerk receives the payroll summary and posts to the related accounts in the

digital general ledger, using the department PC.

Fixed Asset Procedures

User in individual departments verbally report their fixed asset requirements to their respective

managers. If the request is approved, the manager manually prepares a fixed asset request form

and submits it to the purchasing department. Upon receipt of the fixed asset request form, the

purchasing department clerk manually prepares two copies of a purchases order. The clerk sends

one copy to the supplier and files one in the purchasing department. Finally, the purchasing

department clerk manually prepares a hard-copy fixed asset change report and sends it to the

fixed asset department.

When fixed asset are received, the receiving clerk reconciles the goods with the packing slip and

invoice and then manually prepares a receiving report. The clerk sends the goods to the user

department and forwards the packing slip, invoice, and receiving report to the AP department.

The AP clerk reconciles the documents from receiving, manually writes a cheque to the supplier,

and manually prepares a journal voucher, which she subsequently sends to the general ledger

department. The general ledger clerk posts journal vouchers to the digital general ledger using

the department PC.

(a) Draw a data flow diagram of the current payroll and fixed asset systems

(b) Describe the uncontrolled risks associated with these systems as they are currently

designed.

(c) Describe the physical and IT controls needed to reduce the risks identified in "b" above.