Reference no: EM132728595
Question - Premier Sports Memorabilia (Networks Computer System with Manual Procedures) Premier Sports Memorabilia is a medium-sized, rapidly growing online and catalogue-based retailer centered in Brooklyn, New York. The company was founded in 1990 and specializes in providing its customers with authentic yet affordable sports memorabilia from their favorite players and teams, past and present. Traditionally the company's customers were located in the northeast region of the United States. Recently, however, Premier launched a successful ad campaign to expand its customer base. This has increased sales, which has in turn placed a strain on the organization's operational resources. The company currently employs 205 employees who are spread out among its three warehouses and two offices in the tri-state area.
The firm purchases from a large number of manufacturers and memorabilia dealers around the country and is always looking for additional contacts who have new or rare items to offer.
The company has a computer network installed, which, until recently, has served it well. The firm is now, however, experiencing operational inefficiencies and accounting errors. Your firm has been hired to evaluate Premier's business processes and internal controls. The expenditure cycle is described in the following paragraphs.
Purchase System Procedures Premier's purchase transactions are initiated when its inventory levels for a certain item falls below the designated reorder point. This is electronically monitored through Premier's inventory requisition system that is directly linked to the inventory file. Once an item falls below the reorder point, an open requisition record is automatically created. A valid vendor file is used both to retrieve stored vendor information and to check that items are being ordered through a preapproved vendor with which the company has done business in the past. Digital purchase requisitions are made available to the clerks in the inventory control department and the purchasing department via the computer terminal.
When the purchasing department clerk views the digital requisition, she prepares and prints five hard copies of the purchase order. One copy is filed in the department. A second copy is sent to the receiving department. A third copy is sent to the accounts payable department. A fourth copy is sent to the inventory control department. A final copy is sent to the vendor as placement of the order.
Upon receiving the purchase order, the inventory control clerk uses a terminal to access the open requisition file and closes the record. In addition, the program automatically creates a digital pending open purchase record.
Shortly after receiving the purchase order, the vendor will send out both the goods and a packing slip to Premier's receiving department. After the receiving clerk has both the purchase order and the packing slip, he physically inspects the condition of the goods and checks that both the type and quantity received are correct. Upon completion of the inspection, the clerk manually creates three hard copies of a receiving report. One copy is filed in the department. The second copy is sent to accounts payable for reconciliation. The third copy is sent to the inventory control department.
When the inventory control department obtains the receiving report, the clerk uses the purchase update program to access the pending open purchase record and closes it out. In addition, the clerk updates the inventory file by posting the amounts received to the various inventory records affected.
When the accounts payable department clerk receives the invoice from the supplier, he matches it to the supporting purchase order and receiving report received from the purchasing and receiving departments, respectively. The clerk manually reconciles all three documents and prepares an accounts payable record from the department terminal.
Finally, at the end of each day, the inventory control department and the accounts payable department create a hard-copy inventory summary and accounts payable journal voucher, respectively, reflecting the effects of all of the day's transactions. These documents are sent to the general ledger department, where they are reconciled and posted to their specific control accounts within the general ledger file.
Required -
1. Create a system flowchart of the existing system.
2. Analyze the internal control weaknesses in the system. Model your response according to the six categories of physical control activities specified in COSO.