1       Case study

1. Absolute Clean is a large wholesale company specialising in cosmetic

products . It manufactures a selection of cosmetic products ranging from

shampoo to body lotions and sells its products to businesses on credit. Since the end of 2019, the demand for most cosmetic products has significantly

dropped, but the company has seen a surge in the demand for hand sanitisers .

2. The production process is mainly automated, beginning with specially

designed mixers filled with ingredients . Most of the ingredients for making hand sanitisers are bought on credit from local suppliers . The common ingredients     include alcohol, purified water, aloe vera and Vitamin E skin care products . The ingredients are precisely measured and added to a solution in the mixer. Once  the solution is thoroughly mixed, it is sent for quality control.

3. Every Monday morning, the warehouse clerk checks the level of ingredients    left in the mixer and refills them as needed. He logs on to the system using his username and password. Once his password has been authenticated against  the password database, he updates the inventory system to indicate the

inventory issued to production. Orders for raw materials are made

automatically by the system whenever the ingredients have fallen below the reorder points from the preferred suppliers . These preferred suppliers are

selected from a competitive tender process managed by the purchasing

manager. The reorder quantity is decided by the purchasing manager, which is the quantity mentioned on the purchasing order, and he enters the quantity needed into the system .

4. The purchasing orders are sent to the supplier and the warehouse manager. When the ingredients arrive, the warehouse manager counts and inspects

them . The manager also compares the quantity counted against the quantities mentioned on the purchasing order and enters the quantity received into the     system . Once the quantity has been entered, the printed copy of the order is    shredded since it is no longer needed. The system updates the data, decides  the storage location, and sends robots to collect and move the ingredients for  storage.

5. Invoices for the ingredients are received after the ordered items have been delivered. The accounts payable clerk enters her password to access the  system . She then enters the invoice details into the system to update the    accounts payable record.

6. On the 20th of each month, the accounts payable clerk retrieves the invoice

details and creates a payment schedule. The payment schedule is sent and reviewed by the accounts manager, who has an approval limit of $10,000.

Once the payment schedule is approved, it is sent back to the accounts

payable clerk to proceed with payment and the direct transfer file is sent to the bank. Once the transfer is done, the system updates the accounts payable database with the payment information.

7. Absolute Clean has one central production plant where all the products are

manufactured. It employs about 800 people to work in different production lines of the factory. The company has a job rotation policy, so employees are switched around every three months and work in different parts of the factory.

8. The factory manager interviews and hires all applicants and dismisses poor- performing factory workers . Once applicants are hired, the factory manager

prepares the contracts , including hourly pay, personal details , and IRD number. The factory manager enters the information into the system to create the

employee record in the payroll master file. Similarly, if an employee leaves , the factory manager logs into the system and deletes them from the master file.

9. Factory workers are paid according to the hours they have worked. Blank time cards are kept in a box labelled “ blank time cards ” near the time clock. The

time clock is conveniently placed on the wall near the entrance to the factory. Each worker takes a time card on Monday morning and writes their name on it. During the week , the workers punch their time cards in the time clock as

they arrive and leave. Once punched, the workers hang their punched time

cards on the racks next to the time clock. At the end of each week , the

workers place their punched time cards in a separate box labelled “completed time cards ”. Anyone not busy collects the timecards from the box and takes    them to the office for the weekly payroll processing.

10. A surveillance camera is installed near the entrance of the factory. It is used to monitor the time cards and time clock 24 hours , seven days a week. The

video is stored in a cloud drive owned by the managerial team .

(a)    Question 1 (a)

Identify the paragraphs in the case that relate to the purchase and expenditure process? (Hint: List at least 4)

(b)    Question 1 (b)

Referring to the information in the case:

i. Identify FOUR important and adequate internal controls in the purchase and expenditure process of Absolute Clean.

ii. For each control, identify the risk being addressed and describe how the control minimises the risk.

(c)    Question 1 (c)

Referring to the information in the case:

i. Discuss FIVE weaknesses in the current purchase and expenditure process of Absolute Clean.

ii. Provide suggestions on how Absolute Clean can improve its internal controls .    Include FIVE internal control techniques and explain how each of these controls helps reduce risks .

2       Case study

1. Absolute Clean is a large wholesale company specialising in cosmetic

products . It manufactures a selection of cosmetic products ranging from

shampoo to body lotions and sells its products to businesses on credit. Since the end of 2019, the demand for most cosmetic products has significantly

dropped, but the company has seen a surge in the demand for hand sanitisers .

2. The production process is mainly automated, beginning with specially

designed mixers filled with ingredients . Most of the ingredients for making hand sanitisers are bought on credit from local suppliers . The common ingredients     include alcohol, purified water, aloe vera and Vitamin E skin care products . The ingredients are precisely measured and added to a solution in the mixer. Once  the solution is thoroughly mixed, it is sent for quality control.

3. Every Monday morning, the warehouse clerk checks the level of ingredients    left in the mixer and refills them as needed. He logs on to the system using his username and password. Once his password has been authenticated against  the password database, he updates the inventory system to indicate the

inventory issued to production. Orders for raw materials are made

automatically by the system whenever the ingredients have fallen below the reorder points from the preferred suppliers . These preferred suppliers are

selected from a competitive tender process managed by the purchasing

manager. The reorder quantity is decided by the purchasing manager, which is the quantity mentioned on the purchasing order, and he enters the quantity needed into the system .

4. The purchasing orders are sent to the supplier and the warehouse manager. When the ingredients arrive, the warehouse manager counts and inspects

them . The manager also compares the quantity counted against the quantities mentioned on the purchasing order and enters the quantity received into the     system . Once the quantity has been entered, the printed copy of the order is    shredded since it is no longer needed. The system updates the data, decides  the storage location, and sends robots to collect and move the ingredients for  storage.

5. Invoices for the ingredients are received after the ordered items have been delivered. The accounts payable clerk enters her password to access the  system . She then enters the invoice details into the system to update the    accounts payable record.

6. On the 20th of each month, the accounts payable clerk retrieves the invoice

details and creates a payment schedule. The payment schedule is sent and reviewed by the accounts manager, who has an approval limit of $10,000.

Once the payment schedule is approved, it is sent back to the accounts

payable clerk to proceed with payment and the direct transfer file is sent to the bank. Once the transfer is done, the system updates the accounts payable database with the payment information.

7. Absolute Clean has one central production plant where all the products are

manufactured. It employs about 800 people to work in different production lines of the factory. The company has a job rotation policy, so employees are

switched around every three months and work in different parts of the factory.

8. The factory manager interviews and hires all applicants and dismisses poor- performing factory workers . Once applicants are hired, the factory manager

prepares the contracts , including hourly pay, personal details , and IRD number. The factory manager enters the information into the system to create the

employee record in the payroll master file. Similarly, if an employee leaves , the factory manager logs into the system and deletes them from the master file.

9. Factory workers are paid according to the hours they have worked. Blank time cards are kept in a box labelled “ blank time cards ” near the time clock. The

time clock is conveniently placed on the wall near the entrance to the factory. Each worker takes a time card on Monday morning and writes their name on it. During the week , the workers punch their time cards in the time clock as

they arrive and leave. Once punched, the workers hang their punched time

cards on the racks next to the time clock. At the end of each week , the

workers place their punched time cards in a separate box labelled “completed time cards ”. Anyone not busy collects the timecards from the box and takes    them to the office for the weekly payroll processing.

10. A surveillance camera is installed near the entrance of the factory. It is used to monitor the time cards and time clock 24 hours , seven days a week. The

video is stored in a cloud drive owned by the managerial team .

(a)    Question 2 (a)

Prepare a system flowchart to depict paragraph (3) and paragraph (4) from the Absolute Clean Case.

(b)    Question 2 (b)

Create a Data Flow Diagram at the context level for this process .

3       Case study

1. Absolute Clean is a large wholesale company specialising in cosmetic

products . It manufactures a selection of cosmetic products ranging from

shampoo to body lotions and sells its products to businesses on credit. Since the end of 2019, the demand for most cosmetic products has significantly

dropped, but the company has seen a surge in the demand for hand sanitisers .

2. The production process is mainly automated, beginning with specially

designed mixers filled with ingredients . Most of the ingredients for making hand sanitisers are bought on credit from local suppliers . The common ingredients     include alcohol, purified water, aloe vera and Vitamin E skin care products . The ingredients are precisely measured and added to a solution in the mixer. Once  the solution is thoroughly mixed, it is sent for quality control.

3. Every Monday morning, the warehouse clerk checks the level of ingredients    left in the mixer and refills them as needed. He logs on to the system using his username and password. Once his password has been authenticated against  the password database, he updates the inventory system to indicate the

inventory issued to production. Orders for raw materials are made

automatically by the system whenever the ingredients have fallen below the reorder points from the preferred suppliers . These preferred suppliers are

selected from a competitive tender process managed by the purchasing

manager. The reorder quantity is decided by the purchasing manager, which is the quantity mentioned on the purchasing order, and he enters the quantity needed into the system .

4. The purchasing orders are sent to the supplier and the warehouse manager. When the ingredients arrive, the warehouse manager counts and inspects

them . The manager also compares the quantity counted against the quantities mentioned on the purchasing order and enters the quantity received into the     system . Once the quantity has been entered, the printed copy of the order is    shredded since it is no longer needed. The system updates the data, decides  the storage location, and sends robots to collect and move the ingredients for  storage.

5. Invoices for the ingredients are received after the ordered items have been delivered. The accounts payable clerk enters her password to access the  system . She then enters the invoice details into the system to update the    accounts payable record.

6. On the 20th of each month, the accounts payable clerk retrieves the invoice

details and creates a payment schedule. The payment schedule is sent and reviewed by the accounts manager, who has an approval limit of $10,000.

Once the payment schedule is approved, it is sent back to the accounts

payable clerk to proceed with payment and the direct transfer file is sent to the bank. Once the transfer is done, the system updates the accounts payable database with the payment information.

7. Absolute Clean has one central production plant where all the products are

manufactured. It employs about 800 people to work in different production lines of the factory. The company has a job rotation policy, so employees are switched around every three months and work in different parts of the factory.

8. The factory manager interviews and hires all applicants and dismisses poor- performing factory workers . Once applicants are hired, the factory manager

prepares the contracts , including hourly pay, personal details , and IRD number. The factory manager enters the information into the system to create the

employee record in the payroll master file. Similarly, if an employee leaves , the factory manager logs into the system and deletes them from the master file.

9. Factory workers are paid according to the hours they have worked. Blank time cards are kept in a box labelled “ blank time cards ” near the time clock. The

time clock is conveniently placed on the wall near the entrance to the factory. Each worker takes a time card on Monday morning and writes their name on it. During the week , the workers punch their time cards in the time clock as

they arrive and leave. Once punched, the workers hang their punched time

cards on the racks next to the time clock. At the end of each week , the

workers place their punched time cards in a separate box labelled “completed time cards ”. Anyone not busy collects the timecards from the box and takes    them to the office for the weekly payroll processing.

10. A surveillance camera is installed near the entrance of the factory. It is used to monitor the time cards and time clock 24 hours , seven days a week. The

video is stored in a cloud drive owned by the managerial team .

(a)    Question 3 (a)

Referring to the information in the case:

i. Identify and describe FOUR major weaknesses in the current payroll process of Absolute Clean.

ii. Suggest FOUR potential internal control techniques to improve these weaknesses and explain how they can reduce risks .