b. Create a c. Analyze the physical internal contrôl weaknesses in the system. d. Describe the risks associated with these control ted in chasing weaknesses. e. (Optional) Prepare a system flowchart of a rede- entory ntory plen- One signed computer-based system that resolves the control weaknesses that you identified. Explain your solution. E the the 5. GENERATORS R US (CENTRALIZED SYSTEM WITH DISTRIBUTED use TERMINALS) om les Generators R Us (GRU) is a leading manufacturer he of partible electric generators used for emergency CHAPTER S The Expenditure Cycle Part I Purchases and Cash Disbursements Procedures power supply in both civil and private disaster situa- tions. GRU's primary customers are disaster recov- ery companies that assist home owners following flooding and other natural disasters. GRU also 247 sent to the vendor, and a copy is sent to cash disbur- sements, where it is filed. Next, the system adds a record to the check register file and removes the lia- bility in the AP subsidiary ledger. Finally, the system automatically updates the GL accounts. building contractors, municipalities, and rental companies. The company purchases its raw materials including bearings, copper wire, and insu- lating materials inventory directly from the manufac- tures. GRU's headquarters and manufacturing facilities are in Dallas, Texas, where they employ, 125 manufacturing and clerical staff. GRU uses a centralized computer system with distributed terminals in its various departments. Recently they have experienced operational pro- blems with their system and GRU management has hired your auditing firm to assess its operations and internal control procedures. Required a. Create a data flow diagram of the current system. b. Create a system flowchart of the existing system. C. Analyze the physical internal control weaknesses in the system. d. Describe the IT controls that should be in place in this system. e. (Optional) Prepare a system flowchart of a rede- signed computer-based system that resolves the control weaknesses that you identified. Explain your solution. Purchasing System When an inventory item falls to the reorder point, a purchase requisition is automatically created and printed on the terminal in the purchasing depart- ment. The clerk in the department selects suppliers and prepares a purchase order. A copy of the PO is sent to the vendor, and a copy is sent to the receiving department. Then, the clerk adds a record to the open/closed purchase order file through an update program in the data processing department. When the receiving clerk receives the inventories, he reconciles the goods with the packing slip and the purchase order. After the reconciliation, the receiv- ture's expenditure cycle procedures. ing clerk prepares a hard-copy receiving report recording the quantity and quality of the goods Purchases System received. A copy of the receiving report accompanies the goods to the warehouse, and a copy is filed in the receiving department. Using the department termi- nal, the receiving clerk adds a record to the digital receiving report file. The system then automatically vendor file and prepares a digital purchase order, closes the purchase order. Upon receiving the inven- tories, the warehouse clerk updates the inventory subsidiary ledger through the terminal in the warehouse. 6. OUTDOOR ADVENTURE: WHITE WATER AND CAMPING SUPPLIES (NETWORKED COMPUTER SYSTEM AND MANUAL PROCEDURES) Outdoor Adventure is a Montana-based wholesaler of rafting and camping equipment that serves out- door sports camping retailers throughout the north- west. You have been hired by Outdoor Adventure to evaluate its processes, risks, and internal controls. The following paragraphs describe Outdoor Adven- The process begins when the purchasing clerk checks the inventory subsidiary ledger on his computer ter- minal each morning. When an item is deemed to be too low, the clerk selects a vendor from the valid The clerk prints two hard copies: one copy is sent to the vendor, and the other is filed in the depart- ment. Digital purchase order record is added to the PO File. When the supplier's invoice arrives, the AP clerk adds a record to the supplier invoice file, which trig- gers the system to automatically set up a liability in the AP subsidiary ledger based on the financial infor- mation contained in the invoice. The system then automatically updates all affected GL accounts. When the goods arrive in the receiving depart- ment, the receiving clerk inspects them and recon- ciles the items against the information in the digita. PO and the packing slip. The clerk then manuall prepares two hard copies of the receiving repor One of these accompanies the goods to the inventon warehouse, where the clerk shelves the goods an updates the inventory subsidiary ledger from his to minal. The clerk then files the receiving report in t Cash Disbursements System Cach day, the system scans the AP ledger for items due to be paid and prints the checks. The check is department. The other copy of the receiving repor