ENTRALIZED SYSTEM WITH DISTRIBUTED TERMINALS) Performance Water Pumps (PWP) is a leading man- ufacturer of water pumps with high capacity capabil- ity. These pumps are used in both civil and private disaster situations. PWP's primary market is disaster recovery companies that assist home owners follow- ing basement flooding. They also sell to building contractors, municipalities, and rental companies. The company publishes an industry catalog o

PERFORMANCE WATER PUMPS

(CENTRALIZED SYSTEM WITH

DISTRIBUTED TERMINALS)

Performance Water Pumps (PWP) is a leading man-

ufacturer of water pumps with high capacity capabil-

ity. These pumps are used in both civil and private

disaster situations. PWP's primary market is disaster

recovery companies that assist home owners follow-

ing basement flooding. They also sell to building

contractors, municipalities, and rental companies.

The company publishes an industry catalog of

pumps and other auxiliary equipment, which it dis-

tributes to customers and prospective customers.

PWP's headquarters and manufacturing facilities

are in Leesville, Louisiana where they employ 125

manufacturing and clerical staff.

PWP employs a centralized computer system with

distributed terminals in the departments. Recently

they have been having operational problems with

1. PWP has hired your auditing firm to assess its

operations and internal control procedures.

Purchasing System

When an inventory item falls to the reorder point, a

purchase requisition is automatically created and

printed on the terminal in the purchasing depart-

ment. The clerk in the department selects suppliers

and prepares a purchase order. A copy of the PO is

sent to the vendor, and a copy is sent to the receiving

department. Then, the clerk adds a record to the

open/closed purchase order file through an update

program in the data processing department.

When the receiving clerk receives the inventories,

he reconciles the goods with the packing slip and the

purchase order. After the reconciliation, the receiv-

ing clerk prepares a hard-copy receiving report

recording the quantity and quality of the goods

received. A copy of the receiving report accompanies

the goods to the warehouse, and a copy is filed in the

receiving department. Using the department termi-

nal, the receiving clerk adds a record to the digital

receiving report file. The system then automatically

closes the purchase order. Upon receiving the inven-

tories, the warehouse clerk updates the inventory

subsidiary ledger through the terminal in the

warehouse.

When the supplier's invoice arrives, the accounts

payable clerk adds a record to the supplier invoice

file, which triggers the system to automatically set

up a liability in the AP subsidiary ledger based on

the financial information contained in the invoice.

The system then automatically updates all affected

general ledger accounts.

Cash Disbursements System

Each day the system scans the AP ledger for items

due to be paid and prints the checks. The check is

sent to the vendor, and a copy is sent to cash disbur-

sements, where it is filed. Next, the system adds a

record to the check register file and removes the lia-

bility in the AP subsidiary ledger. Finally, the system

automatically updates the general ledger accounts.

Required

a. Create a data flow diagram of the current system.

b. Create a system flowchart of the existing system.

c. Analyze the physical internal control weaknesses

in the system.

d. Describe the IT controls that should be in place in

this system.

1. (Optional) Prepare a system flowchart of a rede-

signed computer-based system that resolves the

control weaknesses that you identified. Explain

your solution.