Analysis of Cash Disbursement and Payroll System

Contents

Introduction

Data flow and System flowchart:

Internal control weakness and their associated risks

Conclusion

References

Introduction

Every organization requires sound communication system to ensure that everything runs smoothly. Most of the organizations with poor communication systems suffer a lot, especially when delivering an essential report from one department to another. Many types of research indicate that the transaction cycles, financial and management reporting systems of the company must be efficient to survive on the competitive market.  Efficient reporting system ensures that every activity in the organization runs smoothly eliminating any error that may hinder the success of the business. Also, a company with an efficient reporting system enjoy record tracking of every activity in an organization (Gorla et al. 2012). This implies that a company can trace where they made a mistake and even rectify the error.

From the case study, Bell Studio has good reporting. There is a need for the company even to improve their transaction, financial and management reporting system as they source their inventory from within the country and outside the nation; Australia, China, Japan and New Zealand. Making a mistake in any of the transaction will result in a massive loss to the organization. Foreign currency transaction also demands an accurate system that keep every financial transaction. The paper will describe and will categorically highlight the data flow diagrams and system flow charts of purchase, cash disbursement and payroll systems of the Bell Studio. Moreover, the paper will then describe the weaknesses and risks in each system along with potential solutions for facilitating the overall processes of the business. Overall, this report will be focused on analysing the current systems of the business of the Bell Studio in terms of its control system and risk associated with the same. Based on this overall analysis, the potential solutions will be provided that can help the Bell Studio to mitigate the identified risks for facilitating its business process and growth in the future.

Data flow and System flowchart:

Data flow diagram of purchases and cash disbursements systems

The purchases and cash disbursement information start from the purchasing department. The purchasing clerk must first check the inventory subsidiary ledger to check on what is needed. The management must first hold the meeting to decide on what is required. All the requirements are then indicated down in the inventory subsidiary ledger. The small document contains all the requirements and stipulated prices. All vendors are also indicated in the book. The specifications, price, and quality of the good is shown alongside the vendor’s name.

Using the specification of offered goods, the purchasing clerk will then select an appropriate vendor. The purchase must always put in mind the quality and price of goods when selecting the vendor. After selecting the vendor, the purchasing clerk will then prepare digital purchase orders which indicate all the specification and price of the product. The order is sent to the vendor through the email. Considering that the company imports some material abroad, the company will have to wait for some days especially when the vendor is located in China, Japan, and New Zealand.

The receiving clerk will then inspect the goods using the information on the digital purchase order. Once the quality, packaging, and condition is confirmed, they are then moved to the inventory house. However, the receiving clerk must prepare a receiving report before moving the goods to the inventory store. One receiving report is taken to the inventory house where the clerk uses the information in the paper to update products on the shelf. The data is also essential when updating the subsidiary ledger. Another copy of the receiving report is taken to account payable department. Here, the account payable clerk uses the information in the report to print digital purchase orders. The account payable clerk will then send the received invoice, reporting report and updated digital purchase order to cash disbursement department. The cash disbursement clerk in the department will then prepare cheque using information in the three documents received in the previous department. Cash is then deposited in the respective vendor account.

Data flow diagram of payroll system

Employees are the primary source of information in the payroll system. Payroll system is responsible for payment of the employee’s salaries. Every employee is required to record the daily working hours in the time cards. Employees are required to provide accurate information. It should be noted that every employee has a supervisor to report to every day. The supervisor is responsible for taking information recorded on the time cards to the payroll department. The data is usually submitted every week. The information in the time cards is them recorded in the computers is connected to the central payroll system. The information on the time cards is uploaded the computer system of the organization by the payroll manager.

The payroll clerk in the payroll department will then print hard copies of the paychecks and transcripts of payroll registers. It should be noted that copies of payroll registers are printed in duplicate. The clerk will then post information in the digital employee record before sending the employee payroll cheque to supervisor to confirm the information on the document.  The other copies are submitted respective departments of employees.

The other copies of the payroll register are then taken to account payment account. The account payment in the account payment department will then prepare disbursement vouchers of every employee. The disbursement vouchers and payroll register are then taken to the general ledger department.  The general ledger is responsible for preparing cheques for payroll then taken to the treasurer. The treasurer then deposits the money in respective account of employee. Cheques are then filed in the account payable account. Every transaction is then recorded in the general ledger.

System flowchart of purchases system

Inventory house

1. Subsidiary ledger is updated

2. Update goods in shelf

Receiving clerk

Preparation of receiving report

Purchasing clerk

1.checking inventory subsidiary ledger

2. select valid vendor

Account payable clerk

1.Printing digital purchase order.

2.updating vendor’s invoice

3.update receiving reports

There are four departments in the purchases system; purchasing departments, receiving departments, the store department, and account payable department. Each department depends on one another when operating. Information in the department is essential in the next department. The four departments rely on the purchasing department to make an order of the good from a valid vendor. Receiving department is crucial in checking the quality and condition of dispatched goods. The receiving account is then responsible for preparing receiving report which accompanies products in the inventory house. The employees in the inventory house recheck the products before storing on the shelf. Finally, account payable department is responsible for settling all the invoice of vendors. The account payable clerk can only pay these bills when he/she has received confirmation from the purchasing and receiving clerk that good is in good condition.   

System flowchart of cash disbursements system

1.Invoice

2.Receiving report

3.Digital purchase order

Account payable clerk

Cash disbursement clerk

Receiving clerk

Filing prepared photocopy of sent invoice, receiving report

And digital purchase order

Cheque of invoiced

Treasurer

Signing and mailing invoice to vender 

Although the cash disbursement system has the main department, all business in the department depends a lot on the previous departments.   Cash disbursement department is the central department of the cash disbursement system. However, the cash department system depends a lot on the account payable department, receiving department and purchasing department. This implies that when the other departments fail to feed cash department with the right information, there will be a mess in the organization. The cash disbursement department is responsible for preparing cheques and disbursement voucher. Also, the department has a treasurer and general ledger clerks essential in signing and emailing an invoice to vendor and employees.

System flowchart of payroll system

 Payroll clerk

Time cards

 Supervisor of Employee

Computer terminal

(data processing department)

Printed payroll cheques and

Payroll registers

employee

General ledger clerk

(deposit money into employee account)

Department of employee

Account payable clerk

Disbursement voucher

Payroll system is the most complicated part of the organization.  the system involves a lot of data entry. The payroll system is essential in the payment of employee salaries. Therefore, employees are the source of information. The information is recorded in the time cards before being taken to the payroll debarment by the employee’s supervisor. Payroll clerk then enters the information in the database of the organization. 

Also, the payroll clerk is essential in the preparation of Payroll cheques and payroll register which is them presented to the supervisor of the respective employee for review. These documents are also distributed to a different department of the employee. The payroll registers and cheques are then presented to the account payment department before reaching the general ledger department. The account payment clerk is responsible in the preparation of disbursement voucher which is them presented to the general ledger department to confirm ad deposit money into the employees’ account.

Internal control weakness and their associated risks

Purchase system

Although the Bell Studio organization has in place every measure to ensure that communication is well managed in the purchase system, there are some actions the company need to put in place to guarantee efficiency. First, the inspection of the purchased goods is only done once.  Inspection is only done by the receiving department, on the arrival of the good. Since the organization import goods from Australia and some parts of China, New Zealand, and Japan, they must do extra work in checking of goods. They imported products covers longer miles before reaching the destination. Therefore, some of the products can get damaged along the way. Bell Studio deals with a wide variety of goods, and therefore there is need of more than one inspection. Singe inspection cannot guarantee the safety of the products. This may result in a massive loss when the company realizes that most of the goods which had been passed earlier are default.

Also, there is a lot of paperwork in the purchase system. It is indicated that the purchasing and receiving department rely a lot on paper when recording information about the goods. Preparation of the receiving report is usually done manually. Also, the company uses the same technique when updating products on the shelf in inventory house. Overreliance on the paper is always risky as lost data cannot be retrieved back (Scheuren, 2016).

Solution

The company should employee quality control and assurance body to facilitate inspection of purchased goods. The company can even introduce quality control and assurance as a new department. It has been found that quality control, as well as, assurance departments tend to educate and train the receiving departments on how to carry out the standardized inspection of the purchased goods(Ann 2013). Therefore, the introduction of the two departments within the company will be responsible for carrying out a standardized inspection of the purchased products. Also, the company should install more computers in every department and ensure that every activity is included in the database of the organization as it can facilitate the process through automation of the systems (Scheuren, 2016).

Cash disbursement system  

First, it is clearly indicated that most of the transaction in the cash disbursement department is usually done by subordinates. To make the matter worse, confirmation of these transactions is also done by the assistants. In many larger organizations like Coca-Cola company, Apple Inc., Ford company, the top managers of such firms are the only required person to confirm huge transactions like payment of vendors. When senior managers are left out financial transactions decisions, junior staff in charge of signing off the cash tend to misuse the company money. Also, the top manager cannot have an idea of what is going on the company. This will lead to poor decisions which may result in closeup of the organization (Brigham 2015). Many companies have failed to operate due to mismanagement of the company’s fund.

Additionally, despite the company dealing with foreign transactions, they are still using cheques in payment of vendors. Some cheques especially open cheques are usually insecure when dealing with big money transactions. Also, many cheques need a long time to mature. No wonder many companies prefer online transactions.

Solution

The company should open online payment accounts like PayPal, Google Wallet, WePay., Checkout, Skrill, Intuit, Propay among others to perform online transactions. Most of the online transaction is usually cheap. There is no time wasted when changing the currency as online money can be changed to any currency (Samet 2016). The company will require to deposit the funds in the account online. Also, most of this account works in hand with banks; this makes the online transaction affordable and straightforward. Finally, the top managers of the company should be involved when signing financial transactions. This will eliminate cases of financial mismanagement in the organization.

Payroll system

The main limitation in the payroll system is that the companies in the present times are still inspecting their employees manually. In this particular case study also, Bell Studio requires every employee to record the number of hours worked in a day on time cards. This is a mere paper and can get lost any time of the day. Also, an unhappy employee may decide to walk away with the timecards to punish the employer and fellow employees. Also, some workers may sweet-talk their supervisors to write many hours worked even if they didn’t work. This will eventually lead to financial loss to the company especially when the payment depends on the working hours (Nanavati et al. 2012).

Possible solution

The company must install Employee Computer Monitoring Software like biometric. This will reduce manual inspections which is always inaccurate. Most paperwork inspections are usually unreliable as many employees tend to sign for one another. Biometric will automatically record the time the employee enters the organization and exact time he/she leaves the organization(Nanavati et al. 2012). The total time is then automatically transferred to the account payment department. Most of these computer software accounts of employees where personal information is tracked. This software is safer than paperwork as lost data can be tracked when lost.

Conclusion

As analysed from the case study, the purchase, cash disbursement and payroll system of the Bell Studio is efficient. However, the company should try to put into practice the changes discussed above for overcoming certain limitations present in each of its system. Since, almost every company have an online payment account to perform a transaction in different countries. However, the company should select the most active account like PayPal which has more than one hundred and seventy-nine million active users worldwide. Organizations should formulate Bell studio system, which in turn will result in the efficient communication pathways in all the different departments of the organization.

References

• Ann, K. (2013) . Delivery inspection record for dry goods. Manufacturing Industries, 76.
• Brigham, E. F. (2015). Financial Management: Theory and Practice. Atlantic Publishers  and Distri.
• Gorla, N., Somers, T. M. and Wong, B. (2012). Organizational impact of system quality, information quality, and service quality. The Journal of Strategic Information Systems, 19(3), 207-228.
• Nanavati, S., Thieme, M. and Nanavati, R. (2012). Biometrics: identity verification in a networked world. Hoboken, NJ: Wiley.
• Samet, O. (2016). Introduction to Online Payments Risk Management. O’Reilly Media.
• Scheuren, F. (2016). Statistics and the Paperwork Reduction Act: An FTC Case Study. SSRN Electronic Journal.