Prepare a system flowchart of a redesigned computer-based system

  • USA Cycle Company is one of the fastest-growing bicycle distributors in the United States, with headquarters in Chicago, Illinois. Their primary business is the distribution of bicycles assembled in China, but they also have a smaller, custom-order business for which they build bicycles from parts purchased from various suppliers. Their product line includes mountain, road, and comfort bikes as well as a juvenile line with up to 24-inch frames. They also distribute BMX bicycles as well
    as tricycles and trailer bikes. In addition, they distribute various bicycle accessories such as helmets, clothing,lights, and spare parts for all of the models they carry.Established in 1985, the company’s first warehouses were in Illinois and Wisconsin and supplied retail bicycle outlets primarily in the Midwest. One year ago, the USA
    Cycle Company expanded, adding two additional facilities in Sacramento, California, and Redmond, Washington, to meet the growing demand for their bicycles. They now also sell customized bicycles direct to retailers
    through the Internet as well as by conventional means.The company’s expansion to the West Coast was coupled with a planned increase in reliance on suppliers
    in China. Even though this resulted in decreased costs,some problems regarding inventory levels arose because of unexpected delays in shipping, primarily attributable to miscommunication and shipping conditions. Because
    the company does not want to carry excess inventory,they are sometimes forced to seek local suppliers at an increased cost.Initially, USA Cycle Company was a family-owned business. In need of capital, however, the company went public when they added the two facilities on theWest Coast. The number of employees rose from 100 to200 during the expansion.USA Cycle Company uses limited computer technology to process business transactions and record accounting data. Each of its facilities is similarly configured:The various departments in the facility employ manual procedures that are supported by non-networked PCs.Because this type of configuration does not permit departments to share data digitally, most interdepartmental communication is accomplished via hard-copy documents.Since the expansion, USA Cycle has been plagued by inefficiency and accounting errors. You have been hired to evaluate their processes and internal controls
    for compliance with the Sarbanes-Oxley Act. The revenue cycle of one of its facilities is described in the following paragraphs.

    Description of Sales Order Procedures

    The USA Cycle Company sales order process begins when a sales representative takes an order from the customer over the phone or fax (for established customers)and prepares the customer order. The sales clerk uses aPCs to input the customer order into one of two differentdata files, either the custom-design order file or the regular order file. The system manager in the sales department periodically checks the Web server for orders thatcome in through the Internet and prints these orders forthe sales clerk to enter as sales orders.At the end of the day, the sales clerk updates the customer file from the regular sales order file and the custom design sales order file and prints three copies of the salesorders, including a factory order for each custom-designorder. The clerk forwards the sales orders to the warehouse, where goods are retrieved from inventory and
    shipped to the customer. The clerk also sends the factoryorders for custom design bicycles to the factory for assembly. One copy of the sales order is filed in the opencustomer order file for use in answering customerinquires. The last copy of the sales order is sent to the billing department for preparation of the sales invoice.Once the warehouse receives a sales order, a warehouse worker retrieves the goods and accesses the warehouse department PC to update the inventory subsidiaryledger using an inventory-management application program. Another worker packs the goods and prepares twocopies of the bill of lading as well as a packing slip. Thepacking slip is attached to the shipping container, and the
    two copies of the bill of lading are sent to the shippingcompany along with the goods. The worker also preparesa shipping notice that is sent to the billing departmentalong with a bill of lading, sales order, and a factoryorder (if the goods were for a custom-designed bicycle).When the factory receives a factory order for a custom-designed bicycle from the sales department, a factory worker prepares a material-release form and sendsit to the warehouse for the materials. After the workerassembles the product according to the order specifications, the factory order and the finished product are sentto the warehouse, where the shipping documents areprepared, and the goods are shipped to the customer inthe same way as other sales orders.After receiving the sales order from the sales department, the billing/accounts receivable department clerkfiles it in a temporary file until the shipping notice, thebill of lading, and the sales order or factory order havearrived from the warehouse. Once the shipping noticeand other documents have arrived, the clerk reviewsthese documents along with the sales order from thetemporary file and prepares two copies of the salesinvoice using the billing/accounts receivable departmentPC, which automatically records the sale in the salesjournal and updates the accounts receivable subsidiaryledger and the general ledger. One copy of the salesinvoice is mailed to the customer and the other is forwarded to the sales department, which closes the opencustomer order file. After closing the open customerorder file, all documents in the file are sent to the billing/accounts receivable department. These documents
    are then filed in the accounts receivable pending file along with other documents the billing/accounts receivable department receives to await customer payment.

    Description of Sales Return Procedures

    When goods are returned to the receiving department,the receiving clerk counts and inspects the returnedgoods and then prepares two returned-goods slips. Following this, the manager in the receiving departmentevaluates the circumstances of the return and decideswhether to grant credit and stamps the slips accordingly.Afterward, the goods are sent to the warehouse with
    one of the stamped return slips.In the warehouse, a warehouse employee enters theinformation on the warehouse department PC, whichupdates the inventory subsidiary ledger records. Thesecond stamped slip is sent to the billing/accounts receivable department, where the sales journal, accountsreceivable subsidiary ledger, and general ledger areautomatically updated by crediting the customer
    account. Both return slips are filed by billing/accountsreceivable in the returned goods file for future businessevaluation.

    Description of Cash Receipts Procedures

    All of USA Cycle’s mail arrives in the mail room in thecash receipts department. A cash receipts clerk in themail room opens all the mail, separates the checks and
    remittance advices, and endorses all the checks ‘‘ForDeposit Only.’’ Afterward, the clerk records each checkon a remittance list and sends one copy of the remittance list to the billing/accounts receivable departmentalong with the remittance advices. Then the clerk prepares a bank deposit slip and updates the cash receipts
    journal on the cash receipts department’s PC. Later thatday, the cash receipts manager deposits the checks inthe bank. In the billing/accounts receivable department,a clerk updates customer accounts on the department’sPC with the information from the remittance advices,which automatically updates the accounts receivablesubsidiary and general ledger control accounts. The billing/accounts receivable clerk also closes the accountsreceivable pending file for invoices that have been paidin full. Finally, the clerk files all source documents

    along with the remittance list and remittance advices in the sales history file.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 thesystem. Model your response according to the sixcategories of physical control activities specified inSAS 78/COSO.
  • d. Prepare a system flowchart of a redesignedcomputer-based system that resolves the control weaknesses you identified. Explain your solution.

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