TVR CLASSICS (MANUAL AND STAND-ALONE COMPUTER PROCESSING)
TVR Classics specializes in the sale of original and reproduction restoration parts for classic sports cars and muscle cars of the 1960s and 1970s. The classic car industry has grown significantly in recent years as the baby boomers age, has become wealthier, and wants to relive fond memories.
Classic car sales and restoration is a multibillion dollar industry that employs more than 30,000 people in the United States. It is, however, a highly fragmented industry comprised of many small businesses. TVR is headquartered in Los Angeles, California and currently employs 95 full-time employees, including a sales staff, sales representatives, and general office staff.
TVR's primary customer base consists of small restoration shops and classic car dealers on the west coast. They source many of their parts from abroad, but a growing percentage of these are now being manufactured in the United States.
TVR has a legacy accounting system that employs a combination of manual procedures supported by standalone PCs in the various departments. Recently, they have experienced business inefficiencies that have been linked to their antiquated accounting system. You have been retained by
TVR management to review their procedures for compliance with effective internal control standards.
TVR's expenditure cycle procedures are presented in the following paragraphs.
Expenditure Cycle
When the quantity on hand of a particular product falls to a low level, the warehouse clerk selects a vendor and manually prepares two hard copies of a purchase order. The clerk sends one copy of the purchase order to the vendor and the other to the receiving department. When the goods arrive from the vendor, the receiving clerk matches the packing slip in the shipment to the purchase order that the warehouse clerk had previously sent. If everything is in order the receiving clerk signs the purchase order and sends it to the accounting department. The clerk then manually prepares a hard-copy receiving report, which he sends with the goods to the warehouse.
From his department PC, the warehouse clerk uses the receiving report to update the inventory subsidiary ledger to reflect the receipt of the goods.
Subsequently, the accounting department's accounts payable clerk receives the supplier's invoice, which she matches and reconciles to the previously
received purchase order from the receiving clerk. From her department PC, the accounts payable clerk then updates the digital accounts payable
subsidiary ledger to reflect the new liability and records the event in the digital purchases journal.
Cash Disbursements Procedures
The accounts payable clerk in the accounting department reviews the liabilities that are due by searching the accounts payable subsidiary ledger from the department PC. The clerk then prints out a hard-copy cash disbursement voucher for each item due for payment. The clerk then sends a cash disbursement voucher to the cash disbursements department for payment. At the end of the day, the clerk prints a hard-copy accounts payable summary from the department PC and sends it to the general ledger department.
From his department PC, the cash disbursements clerk uses the cash disbursement voucher to record the payment in the digital check register and then prints a three-part check. The clerk signs the negotiable portion of the check and sends it to the vendor. One check copy is filed in the department, and the clerk sends the second check copy, along with the original cash disbursement voucher, to the accounting department
accounts payable clerk. At the end of the day, the clerk prints a hard-copy summary of the check register and sends it to the general ledger department.
From the accounting department PC, the accounts payable clerk uses the check copy and cash disbursement voucher to record the payment
in the voucher register and to close out the liability in the accounts payable subsidiary ledger. The clerk then files the hard-copy cash disbursement voucher and check copy in the department. From the department PC, the general ledger clerk posts the summaries received from the accounting
and cash disbursement departments to the appropriate general ledger accounts. The clerk files the hardcopy summaries in the general ledger department.
a. Prepare an As-Is Data Flow Diagram and an As-Is System Flowchart.
b. Identify, circle and number it on the As-Is System Flowchart at where the exposure is.A maximum of 6 exposures is needed.
c. In tabular form, against each numbered exposure, describe ONE possible risk and suggestONE control procedure that can mitigate the exposure identified. (given: The company doesnot have the resources for any computerization or networking the stand-alone computers)
d. Prepare a To-Be System Flowchart that incorporate your recommendations in c above.