ACCTG.

18 ACCOUNTING INFORMATION SYSTEMS:

A STUDY OF THE DISBURSEMENT CYCLE OF
PRECISION MACHINIST CORPORATION (PREMACOR)

Group Members:
Bacolod, Maria Aime V.
Bagto, Novelina C.
Caaveral, Jean Yvon P.
Cortes, Jannine B.
Dupay, Johanna Marie A.
Duyag, Rosalyn C.

Class Schedule:
MWF 1:00 2:00 pm

4.1 Executive Summary

Our team consisted of the following individuals: Maria Aime V.
Bacolod, Novelina C. Bagto, Jean Yvon P. Caaveral, Jannine B.
Cortes, Johanna Marie A. Dupay, and Rosalyn C. Duyag. We were
assigned to analyze and study the Cash Disbursement Cycle of Precision
Machinist Corporation (PREMACOR). The company provides quality metal
products to beverage, shipping and mining industries. The assigned task
includes the study of the chosen companys Payroll, Loan Repayments, and
Internal Disbursements. For the assignment, our team conducted a visit to
the main branch located at 1053 M.J. Cuenco Avenue, Cebu City. Our team
provided questionnaires as well as asked numerous questions that we had
regarding their cash disbursement flow, what was the system used, how it
works, problems encountered with the system and what were the controls of
the system.
This report describes our finding and recommendations in order to help
our team gain an understanding of the companys Cash Disbursement cycle,
and more importantly, to give the company an analysis of the overall
effectiveness and efficiency of the system used. The recommendations made
by our team were based on our observations during the visit. We aim to help
the company, with the recommendations we feel would best help the
company reach their system goals as well as its organizational goals.
The results of our work are explained in our analysis of the systems
controls. With the data gathered, we found out that most of the companys
present controls are helpful in the attainment and achievement of the
systems goals. The suitability of the system used and the internal controls
imposed by the personnel assigned brings aptness to the system. We
developed flow charts, depicting the steps of certain activities and flow of
the system. A control matrix was also produced by the team for better
formulation of recommendations that would surely be beneficial to the
company.
Our overall impression of the companys system is that it is effective in
a way that it accomplishes the systems goals. Thus, the system is very
suitable for the company. We havent found any weakness with regards to
the system used, since there have been no major problems encountered as
they have used such systems. Still, we do believe that improvements in
some areas must be done for smooth development. Their strength lies with
the existing policies implemented and the managements level of familiarity
towards the systems used.
Our recommendations were more focused on the improvement or
betterment of some of the existing strategies of the company. As what we
have observed, the computer units used by accounting and payroll
departments are out-dated and we recommend for acquisition of

new units that would addressed the current needs of the company. In
addition, we also recommend the implementation of Bio-metrics system
in monitoring the attendance of the employees. We believe that they
dont need new system, but in the near future it would be wise to strategize
a plan of looking for newer and updated system.

4.2 Revised Documentation

Please see attach Revise narrative and flowchart

4.3 Control Matrix

Pertinent Controls Needed

the Business Process

in

1. Transactions are properly authorized

Accountability, authorization and approval of
Payroll
Accountability, authorization and approval of
Purchases
Accountability, authorization and approval of
Loans
2. Matching of Supporting Documents
Match payroll register to supporting documents
Surprise review of petty cash fund
Review and reconciliation of accounts payable
and utilities bill
Review and reconciliation of loans payable
3. Separation of Duties
Payroll
Petty Cash
Accounts Payable
Payment of Loans
4. Security of Valuable Assets
Restrict access to records of Payroll
Keep the fund physically secured at all times

Are
these
controls present
YES

NO

/
/
/

/
/

/
/
/

/
/

5. Transactions are pre-numbered

Pre-numbered petty cash voucher
Petty
cash
receipts
cancellation
reimbursement

/
upon

Analysis of Missing Controls:

1. Missing Control 1 - Petty cash receipts are canceled upon
reimbursement. The company must cancel or mutilate petty cash
receipts after they have been submitted for reimbursement, so that
they cannot be used to secure second reimbursement.
Suggested Compensating Control - Voucher must be stamped
paid or reimbursed to
prevent its reuse.
2. Missing Control 2 - Surprise review of petty cash fund. A superior in
the petty cash custodian makes surprise counts of the fund from time
to time to determine that a satisfactory accounting of fund has
occurred.
Suggested Compensating Control - Create and maintain accurate
records of active and
closed petty cash funds.
Explanation of Control Matrix
1. Transactions are properly authorized (Preventive). Authorization
is the basis by which the authority to complete the various stages of a
transaction is delegated. All transactions and activities should be
carried out and approved by employees acting within their range of
knowledge and proper span of control.
o Accountability, authorization and approval of Payroll. When you
authorize, review, and ensure that payroll entries and personnel
actions follow policy, you are adhering to accountability
principles. Maintain data confidentiality by giving payroll and
personnel access only to authorized individuals.
o Accountability, authorization and approval of purchase.
Accountability ensures that you authorize, review, and approve
invoices for payment based on signed agreements, contract
terms, and purchase orders.
o Accountability,
authorization
and
approval
of
loans.
Accountability ensures that you authorize, review, and approve

loans for payment based on signed agreements and contract

terms.
2. Matching of supporting document (Detective). Reconciliation is
the process of comparing transactions and activity to supporting
documentation. Further, reconciliation involves resolving any
discrepancies that may have been discovered. The process of
reconciliation ensures the accuracy and validity of financial
information.
o Review and reconciliation of payroll. On average, payroll costs
will represent the largest cost component of your department
budget. Monthly reconciliation activities ensure that you're
paying the right people at the correct rates.
o Surprise review of petty cash fund. Periodically (e.g., monthly),
an independent designated employee should conduct a surprise
review of petty cash on hand by comparing the physical cash and
vouchers against the total imprest balance. This procedure
ensures the sum of both totals is equal to the total petty cash
that was initially disbursed.

o Review and reconciliation of accounts payable and utilities bill.

Your reconciliation activities confirm that you're paying for
approved purchases and are being billed correctly. Perform
monthly ledger reconciliations to catch improper charges and
validate transactions.
o Review and reconciliation of loans payable. Your reconciliation
activities confirm and ensure that youre paying for the approved
loans and interest are computed correctly.
3. Separation of Duties (Preventive). All organizations should
separate functional responsibilities. The separation of duties assures
that mistakes, intentional or unintentional, cannot be made without
being discovered by another person
o Payroll. Have one person prepare the payroll, another authorizes
it, and another creates payments, thereby reducing the risk of
fraud unless multiple people collude in doing so.
o Petty Cash. Only one individual should have access and
responsibility for the fund, with a backup designated on an as
needed basis.

o Accounts Payable. Ensure that payment documents are

processed correctly by having different people involved in the
payment process.
o Payments of Loans. To prevent fraud, ensure that payment
documents are processed correctly by having different people
involved in paying the loans.
4. Security of Valuable Assets (Preventive and Detective). Assets
and records should be kept secure at all times to prevent unauthorized
access, loss or damage. The security of assets and records is essential
for on-going operations; accuracy of information, privacy of personal
information included in some records and in many cases is a state or
federal law.
o Restrict access to records of payroll. Lock up employee files and
payroll records at all times when they are not in use, to prevent
unauthorized access. Use password protection if these records
are stored on line. This precaution is not just to keep someone
from accessing the records of another employee, but also to
prevent unauthorized changes to records (such as a pay rate).
o Keep the petty cash fund physically secured at all times. The
petty cash, and its supporting documents and vouchers, should
be kept in a secure environment under limited access by
designated employees.
5. Transactions are pre-numbered (Preventive). Pre-numbering of
source documents helps to verify that all transactions have been
recorded since the numerical sequence serves as a control, source
data automation was used to capture data, documents have been used
in order, and, company policies were followed.
o Pre-numbered petty cash voucher. The preparer of the petty cash
voucher should maintain sequentially numbered vouchers and a
journal that reflects the amount of cash currently held by the
petty cash custodian.

4.4 Control Analysis

In every organization, an implementation of significant internal controls
is important so as to achieve the entitys goal in ascertaining that it meets
the objectives behind implementing these controls. In order to ascertain

such, a careful examination of the controls was done. With this, we could
certainly say that the entity have set fairly enough sufficient controls which
is quite reasonable in itself to achieve its objectives.
Authorization of Transactions
This ensures that pertinent transactions have undergone certain
approval by the personnel in charge. With this, a clear flow of the
transactions could easily be traced and that authorized personnel acting
within their control has the responsibility regarding these transactions.
Reconciliation of Documents
In order to ascertain that the records of the entity have really shown
the actual transactions that have transpired a reconciliation of base and
supporting documents is done. This would help the entity in establishing the
validity of the amounts reflected in its records.
Segregation of Duties
To ensure the authenticity of each transaction, segregation of duties is
done. It is also one way of identifying the responsibilities of each person
assigned in a specific task. This can be viewed on the entitys departments
and sub-groups in each department. Particularly in the disbursements
department where the duties related to payroll, handling of petty cash,
payables, and other disbursements are separately done by different
individuals.
Security of Valuable Assets
To ensure the safety of the entitys valuable assets, files, and or
important documents, certain controls are done to restrict direct access to
these relevant information. In here, the entity in itself restricts direct access
to records of payroll from unauthorized personnel. This is done not only to
prevent unauthorized access, but also to avoid significant changes to these
records. Another is the security of the petty cash fund of the entity, including
its supporting documents and vouchers. This is done through limiting of
direct access to this fund by unauthorized personnel.
Pre-numbering of Transactions
This is done to verify the authenticity and order of the transactions. It
directly relates to the principle of completeness. This help the entity in
ensuring that all pertinent transactions that transpired have been recorded
and that alteration of information can be avoided. The entity itself practices

this through their pre-numbered vouchers and that this is then reflected to
the journals of the entity.

4.5 Managerial Recommendations

Managerial ability is clearly an important ingredient in the success of a
business. It is motivated by three considerations. First, managerial ability is
one of the most important intangible assets that a firm has (Gaines-Ross,
2003). Second, it captures the dimension of managerial human capital
(Francis, Huang, Rajgopal and Zang 2008). Lastly, according to BursonMarstellers survey in 1999, almost half of a firms reputation is based upon
the image of its management team. Thus this managers characteristic
potentially can have a physical impact on corporate economic benefits.
The researchers primary recommendation is to have a biometric
system in monitoring the attendance of their employees. Biometrics have
offered an accessible solution to business owners who are now empowered
to circumvent issues like undocumented access, ID swapping, manual badge
checks, credential replacements and more. There have been many
developments in the field of biometrics, which means things are more
reliable and costs are down. Biometrics offer high level identification
management security operations that have several advantages over
traditional means and now they are available to you at lower costs. This
provides a convenient and low-cost additional level of security. It is hard-toforge technology thus reduce fraud. This also offers significant cost savings
or increasing ROI in areas such as Loss Prevention or Time and Attendance.
The good thing about using biometrics for identification is that modern
systems are built and designed to be easy and safe to use. Biometrics
technology gives you accurate results as a simple scan or a photograph is
usually all thats required. Moreover the software and hardware can be easily
used and you can have them installed without the need for excessive
training.
In addition, the proponents suggest that the existing computer units of
the company must be replaced with advanced and enhanced one. The
competitive nature of business has created demands spurring continuous
advancements in computer technology and system design. Meanwhile, it
may increase the expenses of the company but as the current status of the
company in terms of income, it is believed that they can afford such
investment. The suggested brands for the brand new computer sets are
those brands with more than 1.8 GHz processor and not least 2 GB RAM.
Furthermore, as suggested by the maker of Peachtree, the current
accounting system of the company, 1 GB of free disk space, internet explorer
6.0 and at least Windows 2000 SP3. With this, in return the companys

disbursement cycle would be more improved and processes would be

smoother.

4.6 Clients Response

The Precision Machinist Corporation is honoured to be the chosen client
for this project proposal. For the past years, we welcome students to
observe, conduct study and discern our companys premises since we

believe in the minds and ideas of the youths as today. We also believe that
innovation comes from little observations from the minds with great
imaginations. With that, we are grateful for the recommendations given by
the proponents. For the first recommendation which is the biometric system,
we are sad to say that it is not applicable to the company. Way back years
ago, we have deliberation with regards this matter. However, due to the
nature of our business process, we cannot implement biometric system. To
address this problem, we ask assistance from our security guard to help
monitor the attendance of the employees.
For the second recommendation which is the acquisition of new
computer units, it is willingly accepted. This coming first quarter of next year,
we will have an annual deliberation and this recommendation will be raise
though it was already been discussed and in a pending status.

Wa nako kahibaw sa sumpay mamee. hahahah