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A. Data Flow Diagram: Internal Control Case 6. Outdoor Adventure: White Water and Camping Supplies

This document outlines 5 internal control weaknesses and risks in the purchasing, receiving, inventory, and accounts payable processes of an outdoor adventure supplies company. It notes that purchasing, receiving, inventory, and accounts payable clerks having inappropriate access to subsidiary ledgers and general ledger accounts could enable fraudulent activities like inventory theft, vendor kickbacks, and fake payables. Stronger segregation of duties is needed between ordering, receiving, record keeping, and payment authorization functions.

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Shi Gianan
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184 views4 pages

A. Data Flow Diagram: Internal Control Case 6. Outdoor Adventure: White Water and Camping Supplies

This document outlines 5 internal control weaknesses and risks in the purchasing, receiving, inventory, and accounts payable processes of an outdoor adventure supplies company. It notes that purchasing, receiving, inventory, and accounts payable clerks having inappropriate access to subsidiary ledgers and general ledger accounts could enable fraudulent activities like inventory theft, vendor kickbacks, and fake payables. Stronger segregation of duties is needed between ordering, receiving, record keeping, and payment authorization functions.

Uploaded by

Shi Gianan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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INTERNAL CONTROL CASE

6. OUTDOOR ADVENTURE: WHITE WATER AND CAMPING SUPPLIES

a. Data Flow Diagram


b. System Flow Diagram
c. Internal Control Weaknesses and Risks

1) Purchasing clerk should not be authorized in checking the inventory levels using the inventory
subsidiary ledger. This is an inventory control function.

Risk. Purchasing clerk could purchase items not needed that could lead to inefficient inventory
management. Another threat is that it could be fraudulent because there can be an instance
where there is a kick-back from vendors who are unloading items.

2) The receiving department clerk should receive a ‘blind copy’ of the purchase order from the
purchasing department and should not have access to the packing slip.

Risk: This situation would authorize the receiving clerk to complete a receiving report without
actually counting and inspecting the items.

3) Warehouse clerk should not have updated the inventory subsidiary ledger. It is the inventory
clerk’s job.

Risk: This is a segregation of duties issue – asset custody and recordkeeping should be
separated. Clerk could steal inventory and adjust inventory records to conceal the theft.

4) The AP Clerk should not update the general ledger AP Control account. The only authorized
function in updating it is the general ledger function.

Risk: With access to both the subsidiary ledger and control account, discrepancies caused by
errors and fraud cannot be traced.

5) Cash Disbursement clerk should not update the AP subsidiary ledger or the AP Control account
in the General Ledger.

Risk: Clerk prepares check and updates the AP subsidiary and GL accounts. The clerk could set
up a fraudulent AP and pay it (vendor fraud). The clerk may also record an accounts payable as
paid but not actually disbursing money to the vendor.

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