Accounting Information System

1. Weakness: Segregation of duties is violated here because the accounts payable clerk had the ability to confirm the realistic of invoice and to prepare the payment to the PO Box. Moreover, it needs more employee to segregation the duties in approving the invoice and payment. This issue allowed the accounts payable clerk to both commit and conceal the fraud.  The accounts payable clerk ignored the authorization process or had the authority to authorize/confirm the payment.  

   Suggestion: These three functions should be segregated. One person should authorize payments, another should record the payments, a third should prepare the check/invoice, and a fourth should sign it.

b.

Weakness: 1) Reconciliations and independent reviews 2) Performance reviews.

In this scenario, reconciliation of accounts is not being done on a timely basis and also, review of clearing and suspense accounts is not timely because the manager kept each terminated employee on the payroll for one pay period beyond the termination date. What’s more, the employee could not detect the additional amount included in their W-2 reporting at the end of the year.

Suggestion: Terminated employees need to be removed from the information system immediately. The company could also discontinue paper checks, opting instead for electronic payments and direct deposit. Regular bank reconciliations would also be helpful.

c. 

Weakness:1) Unauthorized access to inventory records. 2) Segregation of duties is inadequate.

Explain: The employees produced small electronics took some inventory their own personal use after recording these items as scrap without being authorized.

        Suggestion: Require all inventory scrap to be supported by proper supporting documents such as receiving reports signed by authorized personnel.

        d.

Weakness: easy to make fraud

An audit committee is an operating committee of a company's board of directors that is in charge of overseeing financial reporting and disclosure. All U.S. publicly-traded companies must maintain a qualified audit committee in order to be listed on a stock exchange. Committee members must be made up of independent outside directors. However, the CFO herein is not qualified as an independent outside director.

        Suggestion: Change management controls. Change the audit committee’s members, only consists of independent outside directors.

e.

        Weakness: The accounts payable clerk didn’t investigate whether those original documents were missing or lost. Moreover, the clerk failure to check pre-numbered documents. Hence, fraud was perpetrated, original copies of the documents were destroyed, and they were replaced by photocopies.

        Suggestion: Inspecting pre-numbered documents to facilitate the control and identification of documents. Investigating all instances where originals are missing and photocopies are used.