Reference no: EM13900877

Music Source, Inc., is a manufacturer of stereo equipment with six sales offices nationwide and one manufacturing plant in Pennsylvania. Currently, employment is at approximately 200 employees. Music Source focuses on the production of high-quality stereo equipment for resale by retailers. Its larger competitors include Sony, Panasonic, and Aiwa. Payroll System The payrolls of all six sales offices and the manufacturing plant are processed centrally from the main office. On Thursday, every two weeks, employees enter their hours-worked data from their personally maintained time cards into computer terminals located in each sales office and work area. The computer system validates the employee by checking his or her identification number against the employee history file, which is located in the main plant IT department.

This task must be completed by noon on the designated day. At the end of the validation process, the work area (sales office or manufacturing) supervisor prints a personnel action form from the validation terminal and forwards it, along with the employee time cards, to the payroll clerk in the main office payroll department. Upon receipt of the time cards and personnel action forms, the payroll clerk manually updates the employee records and then prepares 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 cash disbursements department. These are signed by the cash disbursements clerk, who then distributes 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, 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 disbursements 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 disbursements voucher from accounts payable and manually prepares a check, which he sends to the vendor. The clerk then manually records the check in the check register. At the end of the day, the clerk sends a hardcopy journal voucher 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 fixed asset inventory record. The general ledger department clerk reconciles the journal voucher, the accounts payable summary, and the inventory summary that it has received from accounts payable and cash disbursements. These figures are then posted to the general ledger, and the account summaries and journal vouchers are filed in the documents.

Required

a. Create a data flow diagram of the current system.

b. Create a system flowchart of the existing system.

c. Analyze the internal control weaknesses in the system. Model your response according to the six categories of physical control activities specified in SAS 78/COSO.

d. Prepare a system flowchart of a redesigned computer based system that resolves the control weaknesses that you identified. Explain your solution.