james born the current ceo of new born candy company took control of the family run 638163

New Born Candy Company is the manufacturer and marketer of a premier line of candies. James Born, the current CEO of New Born Candy Company, took control of the family run business in the 1970s, although New Born Candy Company has been in existence since the mid 1930s. The company has grown to two plants on the East Coast and 209 employees across the country. As of the fiscal year ended 2008, New Born Candy Company experienced gross sales of almost $100 million. In spite of its success, the CEO and management team are concerned about recent cost overruns and production problems. For example, the rate of increase in cost of goods sold has been disproportionate with growth in sales. Additionally, they have experienced raw material stock outs that have occasionally shut down production lines or prevented them from producing to capacity. To get to the bottom of these issues James Born and his management team have hired GMD Consulting Group to review New Born’s business processes and accounting system. The following describes the relevant business cycles under review. Revenue Cycle Description New Born Candy Company receives orders from one of two places: they are delivered to the mail room where they are received and sorted, or the sales personnel receive them directly. After the mail is received and sorted by the mail room, sales orders are passed to the sales personnel. GMD Consulting looked further into mail room procedures and operations and made some interesting findings. Jonathan, the supervisor of the mail room, explained to GMD Consulting that there are so many orders (due to the rapid growth of the business and the 6,000 plus customers) that they have trouble sorting through all of the mail and getting it to the appropriate department. Jonathan explained that people in the mail room have been working considerable overtime to process the mail, but they still frequently fall behind. In talking with Suzanne, a veteran salesperson for New Born Candy Company, it was discovered that sales orders often take several days to get from the mail room to the sales department. She also told GMD Consulting that during busy times, it is very difficult to process all of the daily orders. After receiving the customer order, the sales personnel manually prepare several copies of a sales order and perform a credit check. When completed, the credit copy of the sales order is filed along with the customer order. The billing copy of the sales order is sent to the computer department, and the stock release, packing slip, shipping notice, and file copy are sent to the warehouse. The goods are picked and sent to shipping along with the supporting documents. Shipping then reconciles the file copy, shipping notice, packing slip, and stock release with the goods. The shipping clerk signs the shipping notice, and manually prepares three hard copies of a bill of lading. Two copies of the bill of lading, along with a packing slip, are given to the carrier for shipment to the customer. The file copy, stock release copy, and a copy of the bill of lading are placed in a shipping file. It is important to note that in examining the shipping department, it was found that they have been receiving an increasing number of complaints from customers. Some key documents (found on pages 260–263) shed some light on this issue. The billing copy that was generated by the sales department is now in the computer department. Here, via a keystroke operation, a clerk produces a digital sales order file. The sales order file is then processed by a batch edit program to identify errors. After the edit run, the batch sales application posts the sales orders to the sales journal, accounts receivable subsidiary file, the inventory subsidiary file, and the control accounts in the general ledger file. The system then prepares various management reports including sales and shipping reports. Also, the customer invoice is printed and sent to the customer. Expenditure Cycle Description Twice each week, a computer program in New Born Candy Company’s computer department reviews the digital inventory file. From this review the computer prints a requisition list of items that need to be replenished. The list is sent to the purchasing department and used to manually prepare hard copy purchase orders. Two purchase orders are sent to the vendor, and one is filed in the department along with the requisition list. When the vendor receives the order from purchasing, it ships the goods along with a copy of New Born’s original purchase order and a formal packing slip to the receiving department. There the purchase order and packing slip are used to assist the receiving clerk in manually preparing three hard copies of a receiving report. The purchase order and packing slip are then filed in the department. One copy of the receiving report is sent to the purchasing department, where it is filed; another copy is sent to accounts payable, where it is filed until the vendor’s invoice arrives. The third copy accompanies the good to the stores area. When accounts payable receives the vendor’s invoice, the accounts payable clerk matches it to the filed copy of the receiving report. The clerk then manually prepares a cash disbursement voucher to authorize payment and files the invoice in the accounts payable department. The disbursement voucher is sent to the computer department, where it is used in a keystroke operation to create an accounts payable record. Once the digital accounts payable is created the hard copy cash disbursement voucher is destroyed in the computer center. At the end of the day the accounts payable clerk prepares a hard copy journal voucher that is sent to the computer department and used to update the general ledger computer file. The journal voucher is filed in the computer department. Cash Disbursements Process At the end of the week the cash disbursement system (a batch computer application) scans the accounts payable file for items that need to be paid. The system closes the open accounts payable record and adds a new record to the check register to record the payment. The system then prints the check, which is sent to the vendor, and prepares a cash disbursement report that goes to management. Required

a. Create data flow diagrams of the revenue and expenditure procedures.

b. Create system flowcharts of the current revenue and expenditure procedures.

c. Analyze the internal control and operational weaknesses in the system.

d. Prepare system flowcharts of a redesigned system that resolves the control and operational weaknesses you have identified. Explain your solution.