Strategic Information Systems Assignment:Role of Accounting Systems in Business

Question

Task: The questions to be answered in the strategic information systems assignment are: Week 1: What is the relationship between data, information and an information system?

Week 2: A council health inspector threatens to close down a restaurant by issuing a fake health violation notice if the owner does not make a financial payment to him. If the restaurant owner does not cooperate, the restaurant cannot be opened for business and the negative publicity will drive customers away. Faced with the potential economic loss, the owner makes the payment.

Required:
a) What type of fraud is this?
b) What controls can be implemented to prevent or detect the fraud?
Week 3: How is a credit check in the advanced technology system fundamentally different from a credit check in the basic technology system?

Week 4: The following is the description of cash disbursements system of Two Symbols Limited: Upon receipt of the documents from accounts payable department, the cash disbursements clerk files the documents until their payment due date. On the due date, the clerk prepares a cheque for the invoiced amount, which is sent to the treasurer who signs it and mails back to the supplier.

The cash disbursement clerk then updates the cheque register, accounts payable ledger, and accounts payable control account from the clerk’s terminal. Finally, the clerk files the invoice and copy of purchase order, receiving report, cheque in the department.

Required:
Describe the internal control weakness in Two Symbols’ cash disbursements system and discuss the risk associated with the weakness.

Week 5: Leon Jones worked in the warehouse of a large building supply company. One day he unexpected left for Fiji, never to return. His supervisor seized the opportunity to continue submit time cards for Leon to the payroll department. Each week, as part of his normal duties, the supervisor received the employee pay cheques from payroll and distribute them to the workers on his shift. As Leon was not present to collect his pay cheque, the supervisor forged Leon’s name and cashed it.

Required:
Describe two control techniques to prevent or detect this fraud scheme.

Answer

Week 1
Relationship between Data, Information and Information System discussed in this Strategic Information Systems Assignment The data, information and information system are relative concepts and these concepts cannot be defined in absolute terms. The data are the facts whether raw or unprocessed which are collected, stored, recorded and processed and translated by potential user into efficient and processed form by information system. Data can be of various types depending on nature around. In organizations data are about resources, events that happen and people who participate in the events being held (Smith and Wong, 2016).

Information is named after the data have been processed, organized and translated for the use of potential user and it is said that more information will lead to better decision making. An information system is the information that organization uses in order to support processes, operations and decision making in management (Ismail and Hussin, 2017).

The difference between these terms depends upon the user of data, information and information system. The relativity among the three depends upon the user of the data, information and information system (Yang et al., 2017). Also, the awareness of the users about the context and the ability to interpret the information make the distinction in these concepts. The potential user is the one who possess the knowledge in determining the data, information and information system according to need of the situation arise at a particular place (Azemi, Zaidi and Hussin, 2017). It is the characteristics of data or information which makes them useful for the user and relates with other concepts.

The relevance, reliability, completeness, timeliness, usefulness and accessibility of the information allow user to differentiate them according to the need at the time (Ismail and Hussin, 2017). The meaning, context and application of these concepts will differentiate the characteristics of each of them and the relativity among them. When a source or user is involved in these concepts then the relativity and difference in data, information and information system depends upon the usage and not in the absolute definitions of these concepts (Azemi, Zaidi and Hussin, 2017).

Week 2
Fraud type in the Case
In the given case study, where health inspector threatens restaurant owner to close it down and negative publicity for not making financial payments to him. This is a clear example of economic extortion fraud. An economic extortion is a kind of fraud under which employee demands for payment to influence a particular decision in their favor from owner. In this case study, the health inspector demands financial benefits from the owner of the restaurant to pass them in the favor of the owner (Purnomo and Khafid, 2017). If owner does not pay the health inspector then he may publicize of negative image in society. Even after facing with economic loss owner did make the payment as there was no evidence or records to save him. This type of fraud is difficult to detect and the reason behind is of the absence of records (Kranacher and Riley, 2019). It is to be advised that management and auditors are required to be of proactive approach in order to uncover such activity. Internal Controls to prevent Fraud Some of the techniques may be used as the health department should carry a publicized policy that are signed by health inspectors against any such abuses. An audit function should have been taking place which will investigates the accusations being made of extortion and this audit can be done independently. If any such economic extortion may take place and suspected by auditors in the company then with the help of sting operations many hard evidences can be obtained.

There are internal controls that can be implemented to prevent of detect fraud at an early stage or at least detect them at the required time. The internal control in a management carries three main functions namely prevent the fraud by controlling the problems before they arise (Kulikova and Satdarova, 2016). Detective controls to discover the problems as quick as they arise and Corrective controls which provide remedies and correct errors on the spot. It also prevents reoccurrences in the system as corrective controls modifies the whole system. There are two types of internal controls which can be implemented, general controls in the system must be the part to ensure well-managed environment (Rivera, 2019). The other internal control is application control which includes the above-mentioned functions of internal control.

Week 3
Credit Check different in Advance technology and Basic Technology system
Credit check is the process of examining the financial behavior of a customer with the help of credit information about a particular period and it is also named as credit search. A credit check is of two types, soft credit check and hard credit check. A soft credit check is the credit check of basic information of a customer to make sure of positive financial behavior that whether the past payments are done in a timely manner. A hard credit check impacts the whole credit score of a customer and credit report together with it (Shoag and Clifford, 2016).

The basic difference between credit check in advanced technology system and basic technology system is that the credit check is done by credit department manually in basic technology and with the help of software application in advanced technology. In manual underwriting someone is authorized in credit department to figure out individually the level of the risk involve while calculating the financial behavior of customer. In software application, credit check can be done by using algorithm that is already inserted and it decides the level of risk involve in a customer credit report. Before processing any order, the creditworthiness of a customer must be recognized (Hollis and Raupers).

The chances of making errors in credit check with basic technology are higher as compare to advanced technology system. Though the cost is a bit higher for setting up advance technologies in the department. Small scale companies go for basic technology system in the credit department as there are less customers and amount involved in the cases as compare to large scale companies. Advance technology of credit check holds many other advantages as of saving much time and energy of the staff involved in the department, accountability is on software application, chances of errors are lesser and more reliable results can be drawn out of it (Shoag and Clifford, 2016).

Week 4
Internal control weakness in the case study & Risk Associated with it
Disbursement of cash with prior approval of management,which is related to business only, where disbursements are recorded properlyis the main purpose of cash disbursements internal control (Khairunnisa and Sasongko, 2017).In the given case study of Two Symbols Limited, there is no segregation of duties which involves record keeping, custody of cheque register,preparing of cheque, reconcile the bank statement & accountability of all transactions in finance is managed by single person from top to bottom. Accountability here means that the security of the internal controls is being maintained and their ability to stand against any misappropriations and misuse. Voucher for cash disbursement which are to be made for every invoice must include the date of cheque, cheque number, figure mentioned in the cheque, expense classification (and constraining fund) to be levied, signature from authorized signatory, and along with all the receipts (Puspitasari and Djakman, 2019). Here cash disbursement clerk has access to the cheque register and he is able to enter any transaction in the accounting system. There is no approval for any expenses in advance by authorized persons. The treasurer did not review the cash disbursement voucher for the supporting documentation of expenses. The clerk is solely responsible for bank statements and cancelled cheques received and reconciled. The bank reconciliation statement must be prepared in the right time by a competent person, who is independent and integral in the process of cash disbursement system (Puspitasari and Djakman, 2019).Company needs to practicesignatures of two parties over cheques (generally above specified limit) as a further technique of internal control for cash disbursements. Further it needs to be followed whether signed checks mailed promptly.

Risk Associated
Risks associated in Two symbols Limited are, the cash disbursement clerk alone maintain all the registers of payable accounts, if settlements are timely recorded in the register then company may make double payment. File prepared for outstanding invoices are maintainedconsistentlyand systematically is also the concern. The advances received/paid from trader and/or any of the employees have been documented as receivables and must be recorded in a way that make sure, that they will get set off against bills or any voucher of expense. Do all the paid invoices specifythe date and amount of the cheque should also be looked into (SCHOLAR, 2019).

Week 5
Control techniques to prevent & detect fraud in Payroll Schemes

Payroll fraud is a theft of company's funds by way of payrollsystem. It is mostly carried out by senior managerial personal and employees at senior level of the payroll department who have all the access to the company's payroll system through which employees are paid (Wood, Brown and Howe, 2013). In the given case study, supervisor of Leon in large building supply company is responsible for submitting time cards to the payroll department and the supervisor himself distribute employee pay cheques to the workers. Through which supervisor cashed payments of Leon who has left the company, diverting the pay to himself.

The controls that can be instigated to mitigate these threats are: -
1. Consider allthe features during functioning and the software or technology used in payroll and fixed assets system through which company may find any limitations and risk associated in payroll internal control and recognize the ways to reduce these risks (Ann McGee and Ralph Byington, 2015). Automation of time collection, data entry controls, unauthorized changes to master file,reconciliation of job cards and time cards, physical access controls & passwords can be used for the documentation, journals, and preparation of accounts which helps historical records to be maintained properly, and assist in internal decision making of the company and provide audit trails for conducting periodic payroll audits (Wood, Brown and Howe, 2013).

2. Require direct mailing of checks or Direct deposit (EFT) of employee pay needs to be motivated. Segregation of duties from collection of pay cheques to distribution to workers or involve management to distribute pay cheques to employees directly (Griffin, 2017). Further employees with payroll responsibilities must be given mandatory vacations with another employee performing this function in their absence which gives the company a chance to review the work done.

References
Ann McGee, J. and Ralph Byington, J., 2015. Corporate identity theft: A growing risk. Journal of Corporate Accounting & Finance, 26(5), pp.37-40.

Azemi, N.A., Zaidi, H. and Hussin, N., 2017. Information Quality in Organization for Better Decision-Making. International Journal of Academic Research in Business and Social Sciences, 7(12), pp.429-437.

Griffin, N., 2017. Effectiveness of internal controls: Payroll fraud (Doctoral dissertation, Utica College).

Hollis, C. and Raupers, G.D., Accenture Global Services GmbH, 2009. Systems, applications and products in data processing for credit check. U.S. Patent 7,599,883.

Ismail, M. and Hussin, N., 2017.Fundamentals of Information Management in Organization Academic Writing. International Journal of Academic Research in Business and Social Sciences, 7(12), pp.394-404.

Khairunnisa, H. and Sasongko, C., 2017, July. Analysis of Internal Control System on Cash Disbursement Cycle: Case from Non Formal Education Institution (Unit A). In International Accounting Conference. Kranacher, M.J. and Riley, R., 2019. Forensic accounting and fraud examination.John Wiley & Sons.

Kulikova, L.I. and Satdarova, D.R., 2016. Internal control and compliance-control as effective methods of management, detection and prevention of financial statement fraud. Strategic information systems assignmentAcademy of Strategic Management Journal, 15, p.92.

Purnomo, Y.D. and Khafid, M., 2017. Analysis of Factors Affecting The Tendency of Accounting Fraud with The Mediation of Ethical Behavior. Accounting Analysis Journal, 6(2), pp.229-241.

Puspitasari, N.F.D. and Djakman, C.D., 2019, July. Evaluation of Internal Control System in Cash Disbursement Cycle: Case Study of Construction Company PT XYZ. In Asia Pacific Business and Economics Conference (APBEC 2018).Atlantis Press.

Rivera, E., 2019. DETECT FRAUD, IMPROVE INTERNAL CONTROL USING POPULAR STRATEGY, PERFORMANCE TOOL. International Journal of Government Auditing, 46(2), pp.27-28.

SCHOLAR, P., 2019.A STUDY ON CASH MANAGEMENT. Complexity International, 23(2).

Shoag, D. and Clifford, R., 2016. 'No More Credit Score': Employer Credit Check Bans and Signal Substitution.

Smith, L.C. and Wong, M.A. eds., 2016. Reference and Information Services: An Introduction: An Introduction. ABC-CLIO.

Wood, J., Brown, W. and Howe, H., 2013. IT Auditing and Application Controls for Small and Mid-Sized Enterprises: Revenue, Expenditure, Inventory, Payroll, and More (Vol. 573). John Wiley & Sons.

Yang, Y.Y., Chen, Y.T. and Yang, J.C., 2017, March. Development of the cross-linked integrated information system.In 2017 IEEE International Conference on Industrial Technology (ICIT) (pp. 1147-1152).IEEE.