DURAPLAST Company Ltd., opened its doors in 1979 as a
wholesale supplier of plumbing equipment, tools, and parts to
hardware stores, home-improvement centers, and professional
plumbers in the Accra-Tema Metropolitan area. Over the years they
have expanded their operations to serve customers across the nation
and now employ over 200 people as technical representatives,
buyers, warehouse workers, and sales and office staff. Most
recently DURAPLAST has experienced fierce competition from the
large online discount stores such as Qualiplast and Interplast. In
addition, the company is suffering from operational inefficiencies
related to its archaic information system. DURAPLAST’s revenue
cycle procedures are described in the following paragraphs.
Revenue Cycle
DURAPLAST’s sales department consists of 17 full-time and
part-time employees. They receive orders via traditional mail,
e-mail, telephone, and the occasional walk-in. Because DURAPLAST is
a wholesaler, the vast majority of its business is conducted on a
credit basis. The process begins in the sales department, where the
sales clerk enters the customer’s order into the centralized
computer sales order system. The computer and file server are
housed in DURAPLAST’s small data processing department. If the
customer has done business with DURAPLAST in the past his or her
data are already on file. If the customer is a first-time buyer,
however, the clerk creates a new record in the customer file. The
system then creates a record of the transaction in the open sales
order file. When the order is entered, an electronic copy of it is
sent to the customer’s e-mail address as confirmation.
A clerk in the warehouse department periodically reviews the
open sales order file from a terminal and prints two copies of a
stock release document for each new sale, which he uses to pick the
items sold from the shelves. The warehouse clerk sends one copy of
the stock release to the sales department and the second copy,
along with the goods, to the shipping department.
The warehouse clerk then updates the inventory subsidiary file
to reflect the items and quantities shipped. Upon receipt of the
stock release document, the sales clerk accesses the open sales
order file from a terminal, closes the sales order, and files the
stock release document in the sales department. The sales order
system automatically posts these transactions to the sales,
inventory control, and cost-of-goods sold accounts in the general
ledger file.
Upon receipt of the goods and the stock release, the shipping
department clerk prepares the goods for shipment to the customer.
The clerk prepares three copies of the bill of lading. Two of these
go with the goods to the carrier and the third, along with the
stock release document, is filed in the shipping department. The
billing department clerk reviews the closed sales orders from a
terminal and prepares two copies of the sales invoice. One copy is
mailed to the customer and the other is filed in the billing
department. The clerk then creates a new record in the account
receivable subsidiary file. The sales order system automatically
updates the account receivable control account in the general
ledger file.
DURAPLAST has hired you to review its sales order procedures
for internal control compliance and to make recommendations for
changes.
You are required to:
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 the system. ; and
d. Prepare a system flowchart of a redesigned computer-based
system that resolves the control weaknesses that you identified.
Explain your solution.