Case 1

GENERAL MANUFACTURING INC.—INTERNAL CONTROLS ASSESSMENT (MANUAL SYSTEM WITH

STAND ALONE PC SUPPORT)

The production process at General Manufacturing, Inc., involves the planning, scheduling, and
controlling of the physical products through the manufacturing process. General’s manufacturing
process begins in the production planning and control department, where the clerk determines the
materials and operations requirements based on the marketing department sales forecast and the
inventory status report from the storeroom.

The clerk reviews this information and prepares a hardcopy purchase requisition, which she sends to
the purchasing department. From her department PC the clerk then accesses the bill of materials and
route sheets files and prints the following hard copy documents: work orders, move tickets, and
materials requisitions. Three copies of each document are prepared. One copy of the work order,
move ticket, and materials requisitions document are sent to cost accounting. The remaining copies
are sent to the work center supervisor.

Upon receipt of the production control documents, the work center supervisor initiates the
production process. The production employees submit a copy of the materials requisitions to the
inventory storeroom in exchange for necessary raw material. When additional raw material is needed
for a job in process, the storeroom clerk provides them on request. Materials in excess of those
needed for production are kept in the work center and used for future production. When the job
passes through all production stages and is complete, the work center supervisor sends the finished
product to the finished goods warehouse. He files one copy each of the work order, move ticket, and
materials requisition and sends the remaining copies of the work order and move ticket to the cost
accounting department. The supervisor reviews the job tickets and the employee time cards, which
he sends to cost accounting and payroll, respectively.

The inventory storeroom clerk accepts materials requisitions from the work center employees and
releases the raw material to the work centers. He updates the raw material inventory records from
the PC and files the materials requisitions in the storeroom. At the end of the day, he creates a journal
voucher and sends it to the general ledger department.

The cost accounting clerk receives the following documents: work orders, move tickets, and materials
requisitions from the production planning department; job tickets, work orders, and move tickets from
the work center. The clerk uses these to initiate a WIP account and to update the WIP as work
progresses. At the day’s end, the cost accounting clerk prepares a journal voucher reflecting the WIP
status and files all documents in the department. The general ledger clerk receives the journal
vouchers, posts to the appropriate GL accounts and files the journal vouchers in the department.

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

Case 2

As the internal auditor for No-Wear Products, you have been asked to document the company's
payroll processing system. Based on your documentation, No-Wear hopes to develop a plan for
revising the current system to eliminate unnecessary delays in paycheck processing. The head
payroll clerk explained the system:

The payroll processing system at No-Wear Products is fairly simple. Time data are recorded in each
department using time cards and clocks. It is annoying, however, when people forget to punch out
at night, and we have to record their time by hand. At the end of the period, our payroll clerks enter
the time card data into a payroll file for processing. Our clerks are pretty good-though I've had to
make my share of corrections when they mess up the data entry.

Before the payroll file is processed for the current period, human resources sends us personnel
changes, such as increases in pay rates and new employees. Our clerks enter this information into
the payroll file. Usually, when mistakes get back to us, it's because human resources is recording the
wrong pay rate or an employee has left and the department forgets to remove the record.

The data are processed and individual employee paychecks are generated. Several reports are
generated for management-though I don't know what they do with them. In addition, the
government requires regular federal and state with-holding reports for tax purposes. Currently, the
system generates these reports automatically, which is nice.

Required

a. Prepare a context diagram and level 0 DFD to document the payroll processing system at
No-Wear Products.
b. Prepare a document flowchart to document the payroll processing system at No-Wear
Products.