BFA504 Accounting Systems and Processes

Student ID No: ___________________

Pages:11

Questions:5

UNIVERSITY OF TASMANIA

EXAMINATIONS FOR DEGREES AND DIPLOMAS

October/November 2020

BFA504 Accounting Systems and Processes

Examiner: Dr HeinrichOosthuizen

Time Allowed: FOUR (4) HOURS

Reading Time: FIFTEEN (15) minutes

Instructions:

• This examination consists of one section.
• The exam consists of FIVE (5) compulsory questions worth a total of 100 marks. The mark allocation is indicated on each page. All questions must be answered
• This examination has a total of 100 marks which accounts for 60% of the final marks for this unit.
• This is an open book exam. You can only access your lecture slides, tutorial notes and textbook (you cannot use online sources).
• Work independently, and you must not collaborate with any other person in order to complete this exam. Plagiarism is strictly prohibited.

The questions are to be answered using the spaces/tables following each question.

Question 1

Sunny Beaches Pty Ltd is a family owned business selling a range of sunscreen products with a low alcohol content suitable for children. The high quality and low alcohol content of the products are very important to Sunny Beaches customers. Their customers are mostly small pharmaciesin regional Australia. Products are purchased from approved suppliers.

The purchase department at Sunny Beachesis staffed by Andy and Sam. Andy prepares manual purchase requisitions from the previous week’s daily sales records to ensure ample stock is kept in Sunny Beaches warehouse in Melbourne. Sam processes computerised purchase orders from the requisitions generated by Andy. The owners of the family business trust Andy and Sam completely, and do not authorise any requisitions or orders. Similarly, no reviews and reconciliations are done.The owners of the business have recently read a newsletter from their auditors cautioning against fraud in the COVID-19 era and approached you for advice on their inventory order systems.

Required

a) Using Table 1 below, explain in your own words, how the purchase requisition in this case plays an important role in the ordering of inventory.Reference your Parkes et al. text.

[5 marks]

b) Using Table 2below, analyse how Andy and Sam prepare/usepurchase requisitions and identify what risks are involved with this process.

[5 marks]

c) Using Table 2 belowExplain what controls should be in place to reduce the risks identified in (b).

[5 marks]

d) Using Table 2 belowAnalyse how Sam processespurchase orders and identify what risks are involved with this process.

[5 marks]

e) Using Table 2 belowExplain what controls should be in place to reduce the risks identified in (d).

[5 marks]

[Total for question 1: 25 marks]

(One (1) meaningful, relevant statement equals one (1) mark).

Table 1(Any 5 meaningful answers = 1 mark each x 5 answers = 5 marks)

Purchase requisition is an important part in the inventory management system. Purchase requisition is made after identification of the need of the goods or service. To fulfil the business requirements, Andy has to review the historical data of sales and make predictive analysis to keep the inventory stocked. Purchase requisition is the first step to give the supplier an idea about how much quantity of item the company needs. On the basis of purchase requisition, the orders are placed to the suppliers. Purchase requisition is a critical for the inventory ordering. Andy and Sam are two trustful employees in the business but the business owners should track and monitor manual process of purchase requisition in order to make sure that purchase requisition has been made as per the need of the business. Therefore, it can be said that purchase requisition is an important document in the inventory ordering process.

Table 2 (Any 5 meaningful answers per part = 1 mark each x 5 answers = 5 marks)

Part b. answer	Part c. answer
Andy has adopted a manual process to place purchase requests. Andy manually assesses the need of the items and materials and prepares a purchase requisitions. Sam receives the purchase requests from Andy and prepares purchase orders. One of the main features of this process is that it is partially automatic which makes it a bit time consuming. Also, they have adopted a labour intensive and complex to order inventory. There are many risks associated with the manual purchase requisition process adopted by Andy and Sam. Some of the risks are: Inaccurate and erroneous purchase requisition High cost of purchase ordering Lack of transparency in the process Prone to risks and fraud	The company can implement requisition management software within the system in order to remain transparency in the process and avoid human errors. The software can give a consistency to the process. Apart from this, an approval process should be there within the system. Each purchase requisition should be passed for approval from the owner or higher management in order to avoid any fraud. Document review after each preparation will ensure the no human error exists.
Part d. answer	Part e. answer
Sam makes use of a computerised system to process the purchase orders. Sam receives purchase requisition from Andy and uses that to generate purchase orders. In the whole process, no involvement of higher authority or approval process is there which means that there is a risk of fraudulent activity. Since Sam’s process is dependent on the Andy’s manual work, there is risk of incorrect purchase order generated by the company which can hamper the inventory procurement process negatively. Dependency on the manual process can delay the purchase order. Sam does not know about whether the purchase requisition is authorised or not.	An approval process should be implemented in order to ensure that every purchase order is checked and approved by the relevant authorities. Regular tracking of the purchase orders and recording suppliers’ invoices are also the ways to reduce the risks of any fraud act. The purchase requisition and purchase order system should be made computerized so that the risk associated with human error can be avoided.

Question 2

As a result of the Covid-19 pandemic, the Tasmanian tourism industry has suffered a massive reduction in visitors. The Tasmanian government has decided to support the industry by awarding redeemable e-vouchers to Tasmanians who are planning to spend a minimum of 2 nights, during weekdays only, at approved businesses. There are 200 pre-approved Short-Stay establishmentsqualifying for inclusion in the scheme, which includesa number ofAirbnb’s.A requirement of the scheme is that the Short-Stay businesses must be regional and members of Tourism-Tasmania. Claimants must be Tasmanian residents.

To participate in the scheme, visitors intending to stay at a Short-Stay establishment must register on the Tourism-Tasmania website. Upon registration a ‘once-off’voucher for $100 per person (2 nights at $50 per night) is recorded. Holders of the vouchers can claim the money back after visiting, and paying the approved establishments. The claims are submitted to the same Tourism-Tasmania website by capturing the name of the establishment and date of stay. The claims are paid directly into the claimant’s bank account, the details of which was captured during the registration process.

Assume the Tasmanian government has become aware of e-Vouchers being sold for a profit on online-retail stores such as Gumtree and eBay. This is against the rules of the scheme. The government is also concerned about other fraudulent actions that may occur in both the online registration and claim processes. You have now been approached to assist the government with implementing application and general controls to reduce the risk of fraudulent behaviour by claimants and approved businesses. The government is particularly concerned about collusion between business owners and claimants to share refunds for visits that never took place.

Required(As a guide, one (1) meaningful, relevant statement equals one (1) mark).

a) Using Table 3 below, explain in your own words the difference between application controls and general controlsby using examples from this case. Reference Parkes et al.

[5 marks]

b) Using Table 4 below, analyse how the risk of fraudulent registrationsby potential claimants ORShort-Stay businesses may result in fraudulent claims and refunds.

[5 marks]

c) Using Table 4 belowExplain what applicationcontrols should be in place to reduce the risks identified in (b).

[5 marks]

d) Using Table 4 belowAnalyse how fraudulent claimsmay be made and identify what risks are involved with this application. Consider collusion between claimants and businesses.

[5 marks]

e) Using Table 4 belowExplain what application controls should be in place to reduce the risks identified in (d).

[5 marks]

[Total for question 2: 25 marks]

Table 3 (Any 5 meaningful answers = 1 mark each x 5 answers = 5 marks)

General control is all about governing security, design and utilisation of computer program while the application control is dedicated to control a unique software or application based activity. In this case, general controls will include assessing whether the visitors are being provided with the proposed stay facility. On the other hand, the example of application control is restricting the website from registering any non-Tasmanian residential. Application control ensures authentication and input controls.

Table 4 (Any 5 meaningful answers per part = 1 mark each x 5 answers = 5 marks)

Part b. answer	Part c. answer
In the fraudulent registrations, the business owners may allow non-authorised person to get the scheme. For example, the business owners may authorise their own people to get $100. With fake registration on the website, the business owners will enable any fraud claimant to make claim to government and they get some share of the refund.	Application control involves controlling authorization and verification through a software or application. In this case, the company should implement an automatic verification check for each participant within the website only. The business owners’ authorization must be checked by government IT team.
Part d. answer	Part e. answer
Fake identities can be used to get entered into the scheme and claim with the support of fraud business owners. Application control can control the fake registrations but if business owners and claimants join each other to conduct a fake claim then it will be hard to track the fraud activity.	To avoid this risk, the government should ask the businesses to provide the full details of the stay of the visitors during and after the visit via website. It will eliminate risk of fake claims. The businesses will have to provide full details about the stay package on the registration website only so that any government personal can track.

Question 3

The accounts payable process of William’s World Pty Ltd (WW) is depicted in the document flowchart (Figure 1) that follows.

Narrative of WW’s Payments Process

The accounts clerk of WW captures supplier invoice details in an accounts payable application. The application prompts the accounts clerk to enter an order number. Once payment invoice details have been entered, the computer application performs a reasonableness and completeness check to search the open orderfor itemsmatched against receiving reports, but not yet matched against an invoice. The accounts clerk confirms the invoice details by matching the open order, line item by line item, against the invoice details previously captured. Adjustments to orderand receiving report details can be made to facilitate unit pricechanges as a result ofnew price lists.

The application then prepares cheques for the invoice items that are due.If necessary, the application prompts the accounts payable clerk to update master data required to process cheques before printing them out.The invoice, purchase order and receiving report are then forwarded to the Accounts Manager, who cross-checks their details with the amount and payee names on the cheques that the computer prepared. The cheques are then signed and forwarded, along with the remittance advice, to the supplier. The invoice, purchase order and receiving report are then given to the Accounts Clerk who files the documents alphabetically in the Closed Orders file.

Figure 1. Flowchart of William’s World Pty Ltd’s Accounts Payable Process

Required(As a guide, one (1) meaningful, relevant statement equals one (1) mark).

1. Using Table 5 below, explain in your own words the importance of segregation of duties as an internal control in the context of this case. Reference Parkes et al.

[5 marks]

b) Using Table 6 below, analyse the case study for weaknesses in the payments process that increases the risk of fraudulent and/or incorrect payments.

[5 marks]

c) Using Table 6 belowrecommend controls that should be in place to reduce the risks identified in (b).

[5 marks]

[Total for question 3: 15 marks]

Table 5 (Any 5 meaningful answers = 1 mark each x 5 answers = 5 marks per part)

One of the main concepts in implementing internal control over an asset or process is segregation of duties. In this case, the invoice settlement or bill clearing process is done by different employees with different duties. It is critical to have a separate individual for each process – capturing invoice details, crosschecking the bills against the acquired items and signing cheques. These duties are conducted by different individuals. It has multiple advantages including elimination of the risk of any fraud activity, review of the process to identify errors and identification of theft if any.

Table 6 (Any 5 meaningful answers per part = 1 mark each x 5 answers = 5 marks per part)

Part b. answer

Part c. answer

The case study has several weaknesses in the payments process that increases the risk of fraudulent and/or incorrect payments. No control to stop collusion- Account manager has the full payment control so he/she may collude with supplier in order to steal money. Limited supervision – Account clerk may fill the incorrect data in the billing and if the account manager passes the bill then the company may face financial loss. Human error- Account clerk can make any error while entering the details of the invoice which can also lead to financial loss of the company.

There are several ways to control these risks: Application control through smart card – The company can start paying the suppliers using procurement cards instead of manual invoice process. Audit trail- It is one of the most effective general control to supervise and review the payment process. Approval- Every bill or invoice should go for approval by any higher authority in order to avoid any fraudulent activity.

Question 4

You are working as a senior accountant for Tasmania e-Cycles Pty Ltd. The company buys and sells electric bicycles and accessories from a shop situated in Sandy Bay, Hobart. As a result of the increased popularity of cycling, the business has experienced exponential growth. This resulted in increased administrative processes and increased the risk of errors and fraud in the accounting information system.

You have been instructed by the CEO and owner Jack Danielsto take on the additional role of internal auditing. Jack is particularly concerned about the vulnerability of the online ordering system to cyber hacking and fraud. Jack suggest that your department assume line responsibility for the security of the online ordering system.

Jack requests you make recommendations during system development, assist in the installation,and approve the online ordering system after making a final review. You are concerned about your objectivity and independence in your dual roles as senior accountant and manager of the audit division.

Required(As a guide, one (1) meaningful, relevant statement equals one (1) mark).

1. Using Table 7 below, in business-memo style, respond to John’s suggestion that your department be responsible for the security of the online sales ordering system.Reference your Parkes et al. text in considering your objectivity and independence.

[5 marks]

2. Using Table 8 below, in business-memo style, respond to John’s suggestion that you be responsible for making suggestions during system development. Reference your Parkes et al. text in considering your objectivity and independence.

[5 marks]

c. Using Table 9 below, in business-memo style, respond to John’s request that you assist in the installation of the system and approve the system after making a final review.Reference your Parkes et al. text in considering your objectivity and independence.

[5 marks]

[Total for question 4: 15 marks]

Table 7 (Structure and reference 2 marks, any 3 meaningful answers of 1 mark each = 5 marks)

To: Jack From: Senior Accountant Date: 02-11-2020 Re: Responsibility Acknowledgement It is a privilege to the serve the company in various roles. In the same context, you have given the account department with the responsibility of monitoring the security of the proposed online ordering system. The team is fully dedicated to adhere on the expectations. The department will be happy if the staff is provided with a training session on the same. Also, anti-threat applications should be installed in our systems so that we can aware of any malicious or unauthorised access. If you have anything to discuss please feel free to contact me.

Table 8 (Structure and reference 2 marks, any 3 meaningful answers of 1 mark each = 5 marks)

To: Jack From: Senior Accountant Date: 02-11-2020 Re: Suggestions for online ordering system It is motivating to hear that you have asked me to provide suggestions in the development of the proposed online ordering system. I would want to provide some points regarding the development of the online ordering system: The system’s access should be granted via biometric process. User’s identity should be inserted while conducting any work in the online system Every transaction should be passed for approval before final close off in the system. For further discussion, i would like to have sessions with you. .

Table 9 (Structure and reference = 2 marks, any 3 meaningful answersof1 mark each = 5 marks)

To: Jack From: Senior Accountant Date: 02-11-2020 Re: Installation and final review of the online ordering system As planned, the team has successfully designed the prototype of the proposed online ordering system. The accounts team has provided its valuable support in reviewing the system. The training need to effectively operate the system has been identified. Policies and procedures of using the system have also been proposed. The compatibility of the suppliers’ system has also been checked. I have personally reviewed several functions of the system including biometric lock, card verification for accessing accounts, algorithm of approval and final signoff. From my end, the system is all set to be implemented. I am excited to inform you that the system is ready to be installed. Please provide your feedback as well.

Question 5

The CEO of Tasmania e-Cycles Pty Ltd, Jack Daniels, has requested a follow-up meeting with you to discuss the implementation of the proposed online sales order system in Question 4 above.During your meeting, he informs you that he accepted your comments and recommendations and that he will engage the services of a consultant to develop and implement the application. In your response you highlight the importance of documentation during the design, development, and installation phases of the proposed application.

Although Jack is most impressed by the knowledge you gained from your studies in BFA504 at UTAS, he is confused by some of the terminology you used during the meeting. Subsequent to the meeting, he requests you to clarify (a) the nature and purpose of the documentation you referred to in the meeting, (b) who will be responsible for creating it, and (c) at which stage(s) of project development it should be prepared.

Required

Using Table 10 below, respond to John’s questions regarding the following systems documentation. Reference your Parkes et al. text in explaining the purpose of the documentation.

1. Process map

.

[4 marks]

2. Context diagram

[4 marks]

3. Physical data flow diagram

[4 marks]

4. Logical data flow diagram

[4 marks]

5. Systems flowchart

[4 marks]

[Total for question 5: 20 marks]

(One (1) meaningful, relevant statement equals one (1) mark)

Table 10

	Part a. answer[2 marks each]	Part b. answer [1 mark each]	Part c. answer [1 mark each]
i. Process map	This document will be created to show the flow of the process. It focuses on the work instead of job titles.	The account’s team will be responsible for it.	Planning
ii. Context diagram	It will be used to show how the online process will interact and operate logically.	The account manager will be responsible for it.	Planning
iii. Physical data flow diagram	This document will show how the hardware, computer system, network and people would be involved in the flow of process.	Information technology team will take of this document.	Execution
iv. Logical data flow diagram	This document will ensure that the activities within the system are aligned with the business events.	Operation manager will be responsible for this document.	Monitoring
v. Systems flowchart	This document will display how the information will be flowed in system and how all the decisions will be made to have control over business events.	Account manager and operation manager will be responsible.	Execution

________________________________________

End of Examination