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ACCT 4020 Case Study Guidelines 1. Your full name and case study number should appear on the first page (refer to case study exemplar posted on eCourseware). 2. Your typed answer sheet do not need to include the scenarios. 3. Number your answers correctly so your instructor can refer to them. 4. Type your answers single-spaced, with margins of standard width (usually 1 inch on the sides and bottom and 1 1/2 inch on the top). Use Times New Roman font size 12. 5. You must acknowledge the sources of all your information and any ideas or interpretations you have taken from other works. These references are usually placed into notes, with a bibliography at the end of the paper that lists all works used. 6. Plagiarism. This serious academic offense can take many forms, including using another writer’s phrase without putting it into quotation marks, not giving the source for a quotation, taking information from other works without acknowledgment, presenting other people’s ideas as if they were your own, or submitting content that you did not write. 7. You may not use content you wrote for one course to fill an assignment in another class. 8. Submit your case studies to the submission dropbox on eCourseware. You will be submitting the assignment to “OriginalityCheck” in order to check for plagiarism. “OriginalityCheck” will generate a report identifying the extent to which your paper matches with other sources. Some level of matching is inevitable, due to references, etc. If your paper matches other sources in excess of 30%, I will review the report and determine if plagiarism is present. If 50% matches and I find that no plagiarism has occurred, i.e., 50% of the paper is based on properly cited quotes, I will nonetheless reduce the grade on the premise that the majority of the thoughts represented in the paper are based on someone else’s work. Case Study 5 – Due 11/24 Scenario 1 Last year the Diamond Manufacturing Company purchased over $10 million worth of office equipment under its “special ordering” system, with individual orders ranging from $5,000 to $30,000. Special orders are for low-volume items that have been included in a department manager’s budget. The budget, which limits the types and dollar amounts of office equipment a department head can requisition, is approved at the beginning of the year by the board of directors. The special ordering system functions as follows. Purchasing A purchase requisition form is prepared and sent to the purchasing department. Upon receiving a purchase requisition, one of the five purchasing agents (buyers) verifies that the requester is indeed a department head. The buyer next selects the appropriate supplier by searching the various catalogs on file. The buyer then phones the supplier, requests a price quote, and places a verbal order. A prenumbered purchase order is processed, with the original sent to the supplier and copies to the department head, receiving, and accounts payable. One copy is also filed in the open requisition file. When the receiving department verbally informs the buyer that the item has been received, the purchase order is transferred from the open to the filled file. Once a month, the buyer reviews the unfilled file to follow up on open orders. Receiving The receiving department gets a copy of each purchase order. When equipment is received, that copy of the purchase order is stamped with the date, and, if applicable, any differences between the quantity ordered and the quantity received are noted in red ink. The receiving clerk then forwards the stamped purchase order and equipment to the requisitioning department head and verbally notifies the purchasing department that the goods were received. Accounts Payable Upon receipt of a purchase order, the accounts payable clerk files it in the open purchase order file. When a vendor invoice is received, it is matched with the applicable purchase order, and a payable is created by debiting the requisitioning department’s equipment account. Unpaid invoices are filed by due date. On the due date, a check is prepared and forwarded to the treasurer for signature. The invoice and purchase order are then filed by purchase order number in the paid-invoice file. Treasurer Checks received daily from the accounts payable department are sorted into two groups: those over and those under $10,000. Checks for less than $10,000 are machine signed. The cashier maintains the check signature machine’s key and signature plate and monitors its use. Both the cashier and the treasurer sign all checks over $10,000. (Explain your answers in detail. Your answer to each question should be at least 100 words.) 1. Describe the weaknesses relating to purchases and payments of “special orders” by the Diamond Manufacturing Company. 2. Recommend control procedures that must be added to overcome weaknesses identified in part a. 3. Describe how the control procedures you recommended in part b should be modified if Diamond reengineered its expenditure cycle activities to make maximum use of current IT (e.g., EDI, EFT, bar-code scanning, and electronic forms in place of paper documents). (CPA Examination, adapted) Scenario 2 The ABC Company performs its expenditure cycle activities using its integrated ERP system as follows: · Employees in any department can enter purchase requests for items they note as either out of stock or in small quantity. · The company maintains a perpetual inventory system. · Each day, employees in the purchasing department process all purchase requests from the prior day. To the extent possible, requests for items available from the same supplier are combined into one larger purchase order to obtain volume discounts. Purchasing agents use the Internet to compare prices in order to select suppliers. If an Internet search discovers a potential new supplier, the purchasing agent enters the relevant information in the system, thereby adding the supplier to the approved supplier list. Purchase orders above $10,000 must be approved by the purchasing department manager. EDI is used to transmit purchase orders to most suppliers, but paper purchase orders are printed and mailed to suppliers who are not EDI capable. · Receiving department employees have read-only access to outstanding purchase orders. Usually, they check the system to verify existence of a purchase order prior to accepting delivery, but sometimes during rush periods they unload trucks and place the items in a corner of the warehouse where they sit until there is time to use the system to retrieve the relevant purchase order. In such cases, if no purchase order is found, the receiving employee contacts the supplier to arrange for the goods to be returned. · Receiving department employees compare the quantity delivered to the quantity indicated on the purchase order. Whenever a discrepancy is greater than 5%, the receiving employee sends an e-mail to the purchasing department manager. The receiving employee uses an online terminal to enter the quantity received before moving the material to the inventory stores department. · Inventory is stored in a locked room. During normal business hours, an inventory employee allows any employee wearing an identification badge to enter the storeroom and remove needed items. The inventory storeroom employee counts the quantity removed and enters that information in an online terminal located in the storeroom. · Occasionally, special items are ordered that are not regularly kept as part of inventory from a specialty supplier who will not be used for any regular purchases. In these cases, an accounts payable clerk creates a one-time supplier record. · All supplier invoices (both regular and one-time) are routed to accounts payable for review and approval. The system is configured to perform an automatic three-way match of the supplier invoice with the corresponding purchase order and receiving report. · Each Friday, approved supplier invoices that are due within the next week are routed to the treasurer’s department for payment. The cashier and treasurer are the only employees authorized to disburse funds, either by EFT or by printing a check. Checks are printed on a dedicated printer located in the treasurer’s department, using special stock paper that is stored in a locked cabinet accessible only to the treasurer and cashier. The paper checks are sent to accounts payable to be mailed to suppliers. · Monthly, the treasurer reconciles the bank statements and investigates any discrepancies with recorded cash balances. (Explain your answers in detail. Your answer to each question should be at least 100 words.) 1. Identify weaknesses in ABC’s existing expenditure cycle procedures, explain the problem, and suggest a solution. Page 1 of 3