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Spice is Right Imports (Standalone PC-based Accounting System)

Spice Is Right was established in 1990 in Boston, where it began importing exotic spices and cooking sauces from India and China. The company distributes these specialty foods to ethnic food shops, cafes, and restaurants across the country. In addition to its Boston headquarters and warehouse, the company has a distribution center in Elizabeth, New Jersey. Spice Is Right currently employs over 100 people, has dozens of suppliers, and trades in hundreds of ethnic and exotic foods from all over the world.
Recently, Spice Is Right has been receiving complaints from customers and suppliers about billing, shipping, and payment errors. Management believes that these complaints stem, in part, from an antiquated computer system. Spice’s current information system includes manual procedures supported by independent (nonnetworked) PCs in each department, which cannot communicate with each other. Document flows between the departments is entirely in hard-copy form. The following is a description of its expenditure cycle at the Boston headquarters office.

Purchasing Process

The purchasing agent monitors the inventory levels by reviewing the inventory subsidiary ledger from his department computer. He decides which items need to be replenished and selects a supplier. He then enters this information into the computer terminal to create a digital purchase order. The computer terminal generates three hard copies of the purchase order. The purchasing agent sends one copy to the supplier, one copy to the AP department, where it is filed temporarily, and files the third copy in the purchasing department.
When the goods are received, the receiving department inspects and verifies them using the packing slip, which is attached to the goods. The receiving clerk manually prepares two hard copies of a receiving report. One copy accompanies the goods to the warehouse for storage. The receiving clerk sends the second copy to the purchasing agent, who uses it to update the inventory subsidiary ledger and close the open purchase order. The purchase agent then files the receiving report in the department.

Accounts Payable and Cash Disbursements Procedures

The accounts payable clerk receives the supplier’s invoice and reconciles it with the purchase order in the temporary file. From her computer terminal, the clerk records the purchase in the purchases journal and records the liability by creating a cash disbursement voucher. The clerk then updates the inventory control and accounts payable control accounts in the general ledger. The purchases order and invoice are then filed in the department.
Each day, the clerk visually searches the cash disbursements voucher file from her terminal for open invoices that are due to be paid. From her computer terminal, the clerk prepares the check and records it in the check register. The negotiable portion of the check is mailed to the vendor, and a check copy is filed. The clerk then closes the voucher register and updates the accounts payable control and cash accounts in the general ledger.

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 the COSO internal control model.

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