Strategic Information Systems Assignment: Impact of Accounting Information Systems on Business
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.
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.
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.
Describe two control techniques to prevent or detect this fraud scheme.
Role of accounting information system
According to the research onstrategic information systems assignment it is stated that an accounting information system is a very important concept in any business environment, as it guides key managerial personnel to take decisions effectively. It is a process of collecting, storing and managing data (financial or non- financial) that can be used by various relevant seeker which may include- management, shareholders, investors, customers, government authorities and regulators etc. that helps in decision making.
Relationship between data, information and an information system Data is an unprocessed raw fact whether qualitative or quantitative in nature collected in a way which makes it efficient to use for a person who is extracting it. While information is a processed and accurate data which provides knowledge about certain things to the person, basically information is a set of structured data that gives meaning and understanding that ensures reliability to person retrieving it.On the other hand, the whole process of collection, storing, processing and providing/ communicating the refined data or information in a manner that provides knowledge to an individual in an effective way that induces him to take appropriate decision on the basis of processed information. Information system is a process to convert data to more meaningful information that enables person to take effective decisions (Azemi, Zaidiand Hussin, 2017).
Data, information and information system are very much related to each other. Information systems is a process of collecting, storing, organizing, managing and communicating data to its users in a meaningful manner through which it can help users in decision making. Users can be both internal and external, internal users are the people in an organization who makes goals and objectives on the basis of information while external users can be investors, shareholders, customers or authorities who wants to know information of the performance of the organization.
Therefore, it can be said that- data is meaningless until it is not processed and becomes an information, and without providing proper structure to information through information system it cannot be relevant to the users retrieving it. The whole information system is necessary to interpret and analyze data that become significant to usersin order to provide relevance, reliability, completeness and usefulness of the information and helpsin decision making process of the organization(Bellatreche, Valduriezand Morzy, 2018).
Fraud and control techniques to prevent and detect the fraud In the given case study of council health inspector to close a restaurant by fraud is the case of economic extortion. Economic extortion is a kind of fraud where a person demand for financial payment in order to make a favor in a particular case.In other words, it is a wrongful act of a person in which he threatens another individual for some economic benefits and threats in a way which can harm the innocent person if the demands are not met. Here in the case, the health inspector demands financial benefits from the owner of the restaurant by issuing fake notice and if owner does not pay the health inspector then restaurant may not open and he may publicize negative image of the restaurant in the society which will ultimately result in economic loss. That is the reason people generally take these threats and fulfill demands which results in the growth of these corruption fraud schemes(Sylwester, 2016).
As per Balletta and Lavezzi(2019), To prevent and detect thekind of fraud, it is necessary to spread high level of awareness so that no one can take advantage. There must be a platform where innocent people can put their complaints or suspicions anonymously which helps in providing remedies and correction at the time of fraud only. To conduct periodical surveys and audit can also help to mitigate these frauds. The main reason of these frauds is lack of evidences, so it is required that proper documentation is present to use it as a proof against these unlawful practices. Proper internal control measures or techniques are required in the area of documentation to help in creating well managed environment. The most important factor that can prevent these types of fraud is communication, it is very much necessary to communicate it with government authorities so that proper strategy can be implemented to prevent and detect the fraud at the time of happening. Further it is also important to communicate to the people in the society so that they can become aware of the threat and be ready with corrective measures that can provide safety against the fraud (Purnomoand Khafid, 2017).
Credit check in Advance and basic technology system
Credit check is basically an examination of customer’s credit information. It is a way to measure customer’s credit pattern for certain period. It is done to determine whether payments are done within time by customer and is generally relevant to financial institutions while providing loans or credit facilities. Credit check includes analysis of both personal information and the pattern of paying credit amount which enable to create credit score for an individual. Credit score represents scores of individuals, high score means good behavior of paying credit while low score represents delay in payments. There are two types of credit check: - Soft Credit Check and Hard Credit Check. Forbes (2020), Hard credit check in more crucial than soft credit check as hard credit has a direct impact upon credit score of an individual, soft credit have no impact on credit score. Soft credit provides basic information and offers of credit history that whether payments are done in time,while hard credit check is done when an individual applies for any type of loan or credit(Black, 2020).
Credit check is done in two types of technology Advanced and basic technology. In basic technology credit check is done manuallyby individuals in credit department. In this type of technology there is a higher risk of errors as compared to using advanced technology because it involves manual entries in the system which may result in certain errors and inaccuracy. While on the other hand credit check through advanced technology provides actual and accurate credit score as it involves use of better innovative techniques.Further credit check through advanced technology requires less time and efforts where in basic technology data entry is done manually which involves more time to evaluate which is the reason advanced technology is better as compared to basic technology. However advanced technology method is more expensive as it requires certain techniques and software which is not present in basic technology still because of accuracy and efficiency this method is more appropriate to adopt as compared to basic technology (Stiff, Bell,Tandon, 2019).
Cash disbursement system and Risk associated
Cash disbursement is a process of cash outflow in an organization which can be between different departments of an organization or paymentto outside payables of an organization. Cash disbursement system manages the payments of an organization properly and effectively which ensures that payment to vendors are done in timely manner and payable accounts are managed and recorded efficiently.
In the given case of Two Symbols, there is a clear indication of weak internal control system for cash disbursement process. As there in no segregation of duties in the company, Cash disbursement clerk himself manages all the financial transactions from beginning to end which may results in misappropriation and misuse of the authority. Cash disbursement clerk is responsible for recording the transaction, maintaining of accounts, preparation of cheque and its custody and reconciliation of bank statements. Other weaknesses observed in this case are, there is single authorized signatory in the company, cheque is sent to treasurer who signs it and send to suppliers directly without verifying the invoice and respective accounts payable which may result in mismanagement in the process. Therefore, it is required to have multiple authorized signatoriesfrom the management level so that this weakness can be mitigated properly (ECLKS.,2016).
To verify that supporting documents are attached with the invoice with amount paid, cheque number, any previous expenses made, date of payment, any further amount dueand must indicate that there is proper compliance made.
With complete responsibility of any financial transaction with the clerk, it may involve certain risks as there is a chance that he may initiate fraud by making cheques for some other party because there is no approval at end of signing authority. Further, there may be a chance of paying more to creditors as the single person is involved in recording, maintaining accounts and preparation of cheque so there is a chance that expenses made earlier may get missed which results in unsettling of accounts(RozzaniMohamed and Yusuf, 2016)
Internal control techniques in payroll department and prevention and detection of fraud in the scheme.
Fraud in payroll department is basically a method or a process of stealing company’s fund with the use of payroll schemes in an organization. It is mostly practiced in big organization where there is large number of workers or employees and it is done by the person with authorities or senior level personnel who have access to the system of payroll. In the case given, supervisor of Leon in large building supply company is responsible for submitting job card 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 (Raju and Reddy, 2020). Prevention and detection of fraud in payroll department: -
1. The most important factor that can mitigate the fraud is paying the employees directly through direct deposits or EFT’s. With paying directly to employees it will help to eliminate the middle- man through which fraud can be done.
2. It is necessary to understand the technique and software used in the payroll services and to find if there is any limitation in the software which can helps to conduct fraud. There must be a technique where there is automatic collection of workers time record with proper password entry(Mahajan,Shukla and Soni,2015).
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.
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.
Balletta.L, Lavezzi.A.M., (2019). The economic extortion. Retrieved from. https://iris.unipa.it/retrieve/handle/10447/375535/761486/balletta_lavezzi_DP242.pdf Bellatreche.L, Valduriez.P, andMorzy.E.(2018). Advances in databases and information systems. Inf Syst Front. Vol20,1-6. Black.M.(2020). What’s the difference between a hard and soft credit Forbes.com. Retrieved from. https://www.forbes.com/advisor/credit-cards/whats-the-difference-between-a-hard-and-soft-credit-check/
ECLKS. (2016). What internal control are needed for cash disbursement Retrieved from. https://eclkc.ohs.acf.hhs.gov/fiscal-management/article/what-internal-controls-are-needed-cash-disbursement Mahajan.K, Shukla.S, Soni.N.(2015). A Review of Computerized Payroll System.Strategic information systems assignment International Journal. Adv. Commun. 4(1),67-70.
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.
Raju.C.H., Reddy.S.G.(2020). Critical analysis of payroll system with respect to satisfaction of employees.UGC Care Journal.Vol31(21).617-643.
Rozzani.N, Mohamed.I. S, Yusuf.S.N.(2016). Technology for Islamic microfinance’s disbursement and repayment system. International Journal of Social Economics.Vol43(12),1271-1283.
Stiff.C, Bell.R. L, Tandon.S. (2019). Credit based scores and the cost to consumers. Journal of Accounting and Finance. Vol19(8) 143-148.
Sylwester.K.(2016). Extortion or cost reduction – Why do firms pay bribes. Journal of applied economics. Vol22(1) 86-102.