Classic Restorations specializes in the sale of originaland reproduction restoration parts for classic sportscars and muscle cars of the 1960s and 1970s. ClassicRestorations is headquartered in Los Angeles,California, and currently employs 95 full-timeemployees, including sales staff, sales representatives,and general office staff.Classic Restorations has a legacy accounting systemthat employs a combination of manual proceduressupported by stand-alone PCs in variousdepartments. Recently, they have experienced businessinefficiencies that have been linked to their antiquatedaccounting system. You have been retained byClassic Restorations management to review their proceduresfor compliance with effective internal controlstandards. The company’s payroll and fixed asset systemsare described in the following paragraphs.Payroll ProceduresEmployees manually register their hours worked ontimesheets. Each Friday afternoon they submit thetimesheets to their department supervisor forapproval. The supervisor then forwards the timesheetsto the payroll clerk, who manually prepares checksfor each employee’s approved timesheet. The clerk,using a laptop computer, then posts to the digitalemployee records. The clerk then mails the check tothe employee and files a copy of the check in thedepartment. Finally the clerk prints two payroll summariesfrom his computer. He sends one of these tothe AP department, and the other to the general ledgerdepartment.The AP clerk receives the payroll summary,approves it, and writes a check to cover the entirepayroll. The clerk then sends the check to the bankwhere it is deposited into the payroll imprest account.The general ledger clerk receives the payroll summaryand posts to the related accounts in the digitalgeneral ledger, using the department PC.Fixed Asset ProceduresUsers in individual departments verbally report theirfixed asset requirements to their respective managers.If the request is approved, the manager manuallyprepares a fixed asset request form and submits itto the purchasing department. Upon receipt of thefixed asset request form, the purchasing departmentclerk manually prepares two copies of a purchaseorder. The clerk sends one copy to the supplier andfiles one in the purchasing department. Finally, thepurchasing department clerk manually prepares ahard-copy fixed asset change report and sends it tothe fixed asset department.When fixed assets are received, the receiving clerkreconciles the goods with the packing slip andinvoice and then manually prepares a receivingreport. The clerk sends the goods to the user departmentand forwards the packing slip, invoice, andreceiving report to the AP department.The AP clerk reconciles the documents fromreceiving, manually writes a check to the supplier,and manually prepares a journal voucher, which shesubsequently sends to the general ledger department.The general ledger clerk posts journal vouchers to thedigital general ledger using the department PC.Requireda. Prepare a data flow diagram of the current payrolland fixed asset systems.b. Prepare system flowcharts for the payroll andfixed asset systems.c. Describe the uncontrolled risks associated withthese systems as they are currently designed.d. Describe the physical and IT controls needed toreduce the risks identified in “c” above.

Classic Restorations specializes in the sale of originaland reproduction restoration parts for classic sportscars and muscle cars of the 1960s and 1970s. ClassicRestorations is headquartered in Los Angeles,California, and currently employs 95 full-timeemployees, including sales staff, sales representatives,and general office staff.Classic Restorations has a legacy accounting systemthat employs a combination of manual proceduressupported by stand-alone PCs in variousdepartments. Recently, they have experienced businessinefficiencies that have been linked to their antiquatedaccounting system. You have been retained byClassic Restorations management to review their proceduresfor compliance with effective internal controlstandards. The company’s payroll and fixed asset systemsare described in the following paragraphs.Payroll ProceduresEmployees manually register their hours worked ontimesheets. Each Friday afternoon they submit thetimesheets to their department supervisor forapproval. The supervisor then forwards the timesheetsto the payroll clerk, who manually prepares checksfor each employee’s approved timesheet. The clerk,using a laptop computer, then posts to the digitalemployee records. The clerk then mails the check tothe employee and files a copy of the check in thedepartment. Finally the clerk prints two payroll summariesfrom his computer. He sends one of these tothe AP department, and the other to the general ledgerdepartment.The AP clerk receives the payroll summary,approves it, and writes a check to cover the entirepayroll. The clerk then sends the check to the bankwhere it is deposited into the payroll imprest account.The general ledger clerk receives the payroll summaryand posts to the related accounts in the digitalgeneral ledger, using the department PC.Fixed Asset ProceduresUsers in individual departments verbally report theirfixed asset requirements to their respective managers.If the request is approved, the manager manuallyprepares a fixed asset request form and submits itto the purchasing department. Upon receipt of thefixed asset request form, the purchasing departmentclerk manually prepares two copies of a purchaseorder. The clerk sends one copy to the supplier andfiles one in the purchasing department. Finally, thepurchasing department clerk manually prepares ahard-copy fixed asset change report and sends it tothe fixed asset department.When fixed assets are received, the receiving clerkreconciles the goods with the packing slip andinvoice and then manually prepares a receivingreport. The clerk sends the goods to the user departmentand forwards the packing slip, invoice, andreceiving report to the AP department.The AP clerk reconciles the documents fromreceiving, manually writes a check to the supplier,and manually prepares a journal voucher, which shesubsequently sends to the general ledger department.The general ledger clerk posts journal vouchers to thedigital general ledger using the department PC.Requireda. Prepare a data flow diagram of the current payrolland fixed asset systems.b. Prepare system flowcharts for the payroll andfixed asset systems.c. Describe the uncontrolled risks associated withthese systems as they are currently designed.d. Describe the physical and IT controls needed toreduce the risks identified in “c” above.

Database System Concepts

7th Edition

ISBN:9780078022159

Author:Abraham Silberschatz Professor, Henry F. Korth, S. Sudarshan

Publisher:Abraham Silberschatz Professor, Henry F. Korth, S. Sudarshan

Chapter1: Introduction

Section: Chapter Questions

Problem 1PE

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Classic Restorations specializes in the sale of original
and reproduction restoration parts for classic sports
cars and muscle cars of the 1960s and 1970s. Classic
Restorations is headquartered in Los Angeles,
California, and currently employs 95 full-time
employees, including sales staff, sales representatives,
and general office staff.
Classic Restorations 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
Classic Restorations 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 checks
for each employee’s approved timesheet. The clerk,
using a laptop computer, then posts to the digital
employee records. The clerk then mails the check to
the employee and files a copy of the check 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 check to cover the entire
payroll. The clerk then sends the check 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
Users 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 purchase
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 assets 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 check 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.
Required
a. Prepare a data flow diagram of the current payroll
and fixed asset systems.
b. Prepare system flowcharts for the payroll and
fixed asset systems.
c. Describe the uncontrolled risks associated with
these systems as they are currently designed.
d. Describe the physical and IT controls needed to
reduce the risks identified in “c” above.

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