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21 September, 2015 - 11:32

CASE A: Klassic Grocers, Inc.

Klassic Grocers is an online grocery service that provides home delivery of groceries purchased via the Internet. Klassic operates in the greater Tulsa area and provides delivery to precertified customers. Because of the perishable nature of many grocery products, the bulk of orders must be handled similarly to processes used for just-intime processes.

To facilitate the process, Klassic uses a variation of vendor-managed inventory to monitor inventory levels closely. The purchasing process is triggered by a vendor (via an extranet portal) accessing Klassic’s inventory system to check current inventory levels of goods they provide. If additional grocery stocks (i.e., inventory) are needed, the vendor initiates a purchase requisition within Klassic’s purchasing system. The requisition is entered into the purchasing database. Periodically, throughout the day, Klassic’s purchasing manager accesses the purchasing database and reviews vendorinitiated purchase requisitions. The purchasing manager keys in either an acceptance or denial of the purchasing requisition (which is entered into the purchasing database) and the vendor is notified electronically through a transmission from the purchasing system. If the order is accepted, this transmission takes the form of an electronic purchase order; if it is rejected, the transmission is simply an electronic mail message of denial.

When goods are received from the vendor, a printout of the authorized purchase order is attached. The receiving department keys in the purchase order information to retrieve electronic authorization from the purchasing database. Accepted goods are recorded in the purchasing database as received, bar codes are automatically printed in the receiving department to label the crates/boxes received, and the goods are stored in the warehouse. Rejected goods are returned to the vendor along with the purchase order stamped “unauthorized—shipment refused.”

At the beginning of the following day, the cash disbursements officer connects to the purchasing database to review the received goods that automatically update the accounts payable balances. Per agreement with suppliers, all payments are due within 10 days after receipt of shipped grocery stocks. Thus, the cash disbursements officer connects to Klassic’s electronic banking system via the bank’s Web site and initiates payments to all vendors via electronic transfers the day after receipt of goods, as the bank requires five business days to complete all transactions. The bank sends a confirmation number instantaneously in response to the transaction and the cash disbursements officer enters the confirmation number into the purchasing database, serving to confirm completion of the payment to the vendor.

Case B: Lifeline Medical Supplies

Lifeline Medical Supplies makes a variety of medical supplies such as test tubes, thermometers, and disposable surgical garments. Lifeline employs the following procedures for purchases and accounts payable.

The supplies manager orders goods and maintains perpetual inventory records. The records include reorder points for all regularly used items. The supplies manager prepares a requisition on a two-part prenumbered form. After signing the requisition, he files one copy by requisition number and sends the other copy to the purchasing department. The production manager also must approve requisitions for items that cost over $100 and are not covered by a blanket order.

Some supplies that are used in large quantities come under “blanket” purchase orders. Blanket orders are based on agreements between Lifeline and different vendors to buy a minimum amount of supplies over a specified period of time at a guaranteed price. Purchase requisitions against these orders do not require the production manager’s approval, as long as the agreed minimum is not surpassed. The purchasing department keeps the blanket orders filed by item name.

The purchasing department checks a requisition for proper approval and selects a vendor. A five-part prenumbered purchase order is prepared. Copies are sent to the vendor, receiving department, accounts payable, and the supplies manager. The purchasing agent records the current purchase on the blanket order if applicable and files its purchase order and requisition copies by purchase order number in the open order file. The receiving department files its copy in a file by purchase order number. The supplies manager files his copy with its corresponding requisition.

The receiving department counts the goods when they are received, compares the count to the packing slip, and prepares a four-part receiving report. Copies of the receiving report are sent to the supplies manager, the purchasing department, and accounts payable. The receiving department files its copy of the receiving report and the packing slip with its copy of the purchase order. The supplies manager updates the perpetual inventory records when he receives the receiving report and then files the purchase order, purchase requisition, and receiving report by purchase order number. The purchasing department files its copy with the order in the open order file.

The purchasing department receives two-part invoices from the vendors. The invoices are compared by a clerk to the purchase order and the receiving report from the open order file. The clerk initials them if they are accurate. The purchasing agent must approve any price or quantity variances that are more than 5 percent over the price or quantity quoted on the purchase order. One copy of the approved invoice is sent to accounts payable. The purchase order, purchase requisition, invoice, and receiving report are then filed in the closed order file by purchase order number.

The accounts payable department receives purchase orders and approved invoices from the purchasing department and receiving reports from the receiving department. As each one is received, it is filed in the pending file by vendor name. When all the documents for an order are received, a clerk posts the payable amount to the payable voucher for the particular vendor. A disbursement voucher is then prepared and attached to the order, receiving report, and invoice. This package is then given to the accounts payable manager for review and approval. The manager gives the approved disbursement vouchers to a second clerk. This clerk batches and totals the approved vouchers and prepares a batch summary. The batch summary is sent to the accounting department. A third clerk completes a two-part, prenumbered check/ remittance advice form for each disbursement voucher. The check/remittance advices and the disbursement vouchers are sent to the cashier.

The cashier totals the checks and compares that total to the total of all the batches. She then signs the checks with the treasurer’s signature using a check-signing machine that she has in her office. She then places in envelopes the first copies of the check/remittances and sends them to the vendors. The second copy is sent to the accounting department.

  1. For the company assigned by your instructor, complete the following requirements:
    1. Prepare a table of entities and activities.
    2. Draw a context diagram.
    3. Draw a physical data flow diagram (DFD).
    4. Prepare an annotated table of entities and activities. Indicate on this table the groupings, bubble numbers, and bubble titles to be used in preparing a level 0 logical DFD.
    5. Draw a level 0 logical DFD.
  2. For the company assigned by your instructor, draw a systems flowchart. If any exception routines are described in the narrative, they should be shown on a separate page (referenced through an off-page connector), so that the exception routines will not clutter the flowcharting of normal activities.
  3. For the company assigned by your instructor, prepare a control matrix for the purchasingand/or the receiving functions only, as appropriate for the case in question. Observe the following specific instructions:
    1. Your choice of recommended control plans should come from this chapter plus any other control plans from CONTROLLING INFORMATION SYSTEMS: PROCESS CONTROLS through THE “ORDER-TO-CASH” PROCESS: PART II, REVENUE COLLECTION (RC)  that are germane to your company’s process.
    2. Annotate the systems flowchart (either prepared by you in P12-2 or distributed by your instructor) to show the points where control plans are “present” (codes P-1 . . . P-n) or where they are “missing” (codes M-1 . . . M-n).
    3. Because your explanations of the cell entries are as important as the cell entries themselves, pay particular attention to step 5 in “Steps in Preparing a Control Matrix,” Table 9.1.
    4. In the appropriate control goal columns of the matrix, (1) identify the specific resources of this process, for which we want to ensure security of resources, and (2) indicate the master data, for which we want to ensure update accuracy (UA) and update completeness (UC).
  4. For the company assigned by your instructor, prepare a control matrix for the accounts payable and the cash disbursements functions only, as appropriate for the case in question. Observe the specific instructions listed in items (a) through (d) of P12-3.
  5. The following capsule cases present short narratives of processes used by three actual organizations whose names have been changed for the purpose of this problem. You will use the cases to practice the mechanics of drawing data flow diagrams.

Capsule Case 1: Rock of Gibraltar Insurance Co.

Rock of Gibraltar Insurance Co. (ROG) is one of the largest automobile insurance companies in the country. Each year, ROG receives more than 30,000 claims billings from Plexlite Glass Corp. (Plex), the country’s largest auto glass replacement chain and a leading manufacturer of replacement windshields. Recently the two companies entered into an agreement to abandon paper invoices and adopt EDI for the processing of claims. The new process works as follows:

An insured party calls ROG to report glass damage. The ROG representative taking the call gives the insured an authorization number and opens a claim record on ROG’s claims processing system. The insured party takes the automobile to a Plex shop to have the glass repaired, gives Plex the authorization number, and pays the deductible amount required by the insurance policy. After the Plex store replaces the glass, the store manager enters the authorization number and other data into its computer system via a point-of-sale (POS) terminal, and the data are recorded to the receivables data.

Plex’s computer system collects the invoice data from the individual Plex stores and transmits the data each week to ROG in EDI format through IVANS, a value added network owned by the insurance industry. Thus, the data is received by ROG’s computer system without the need for human intervention.

After the data are checked electronically against the open claim data for proper authorization number, auto make and model, proper insurance coverage, and correct pricing by Plex, the claims invoice is written to the validated claims data, and an EDI message informs Plex which claims will be paid. Claims rejected by ROG’s system are processed manually; description of the exception routines is beyond the context of this case. Once a week, ROG’s treasurer accesses the validated claims data and sends a single check to Plex for all claims approved that week.

Capsule Case 2: Baby Bell Telephone Co.

Baby Bell Telephone Co. uses a computer-assisted PtoP process called PRP (purchasing, receiving, payables) that includes an EDI function. An abbreviated description of the purchasing portion of PRP follows. (The description covers only the purchase by field technicians of items to be delivered by suppliers directly to the technicians in the field.)

The company’s field technicians continually need to replace items such as small hand tools, wire, and power tools. (Note: Assume that an external entity called “Field Inventory System” triggers the PRP system by identifying a “Field inventory replacement need.”) They do so by using handheld computers to log into the PRP system. Users have login IDs and passwords that allow them access only to information for which they have clearance. Once logged in, a technician enters the requested item’s stock number. PRP presents the user with a display showing the item’s description, size, and so forth. Information on price, brand, or supplier is not provided to most users because it is information they don’t need to know. To complete the order request, the user visually verifies the information shown in the display, keys in the quantity ordered, and presses the “enter” key.

PRP records the order in the purchase order master data (disk). The order is routed through a wide area network to the workstation of an available order entry clerk in the purchasing department. The clerk enters a code that requests PRP to match the item’s stock number with the supplier code in the inventory master data. The system then retrieves the supplier’s standing data (e.g., name, address, whether or not an EDI vendor, and so forth) from the vendor master data and displays it on the workstation screen. The purchasing clerk next enters another code that either transmits the order electronically to the vendor through an EDI VAN or prints a hard copy purchase order document that is mailed to the vendor, in the case of a supplier that does not have EDI capability. In either case, the purchase order master data are updated to show that the PO has been issued. Hard copy purchase orders are put in envelopes and mailed.

Capsule Case 3: Big 3, Inc.

Big 3, Inc. (BIG), is a major manufacturer of automobiles. This narrative gives an abbreviated description of the procedures used by BIG in buying original equipment windshields from its only supplier of windshields, Akron Glass Co. (AGC). When BIG’s inventory system requests the purchasing department to reorder windshields, the order information is recorded to the purchase order data store and transmitted electronically directly from BIG’s computer to AGC’s computer via the Internet. AGC returns an electronic acknowledgment to BIG.

When AGC is ready to ship the order, it transmits an electronic invoice to BIG and prints a paper bill of lading that is given to the trucker who transports the goods. BIG’s computer records the invoice to the pending invoices data. The receiving department at BIG keys in the goods received. The keying operation creates a receiving record in the receiving data and updates the purchase order master data store to reflect the receipt. Each morning, a clerk in BIG’s accounts payable department accesses the electronic invoices received from all EDI suppliers the previous day. He audits the invoice by checking it against data from the purchase order master data store (e.g., descriptions, quantities, prices, and purchase terms) and from the receiving data. The clerk then enters the date to be paid and a code to authorize payment of each invoice.

The payment authorization is transmitted electronically to BIG’s bank where it is stored in the authorized payments data until the specified payment date. The evening before the payment date, BIG’s bank forwards the payment—with remittance data electronically “attached” to it—to AGC’s bank. The payment data are in encrypted, authenticated form. BIG’s bank account is debited for the payment. The next morning, AGC’s bank account is credited for the payment. BIG’s remittance data are translated to a standard lockbox format, integrated with AGC’s other lockbox remittances, and reported online to AGC for automatic posting to its accounts receivable database.

REQUIRED: For the capsule case assigned by your instructor, complete the following requirements:
a. Prepare a table of entities and activities.
b. Draw a context diagram.
c. Draw a physical data flow diagram (DFD).
d. Prepare an annotated table of entities and activities. Indicate on the table the groupings, bubble numbers, and bubble titles to be used in preparing a level 0 logical DFD.
e. Draw a level 0 logical DFD.  

P12-6 Figure 13.3 presents only the “normal” horizontal flows for the PtoP process. In other words, that figure intentionally ignores flows related to exception routines.
REQUIRED: Using Figure 13.3 as the model, create a figure that shows all the horizontal data flows related to handling purchase returns to vendors. Observe the following specific requirements:
a. At the top of the figure, draw triangles to show the functional entities involved in processing purchase returns. Enter the titles of the specific managers that are involved, including any new managers not shown in Figure 13.3.
b. Near the right margin, draw a vertical line to demarcate the PtoP process from the “environment.” As you draw the horizontal flows, insert any necessary external entities to the right of the vertical line.
c. Draw all of the horizontal flow lines (and their directions) needed to process purchase returns. Number each flow, starting with 1.
d. List the numbers 1 . . . n to correspond to each flow line added to the diagram in part (c). Provide a brief description of each information flow number.
P12-7 Draw a DFD to reflect the exception routine of handling purchase returns and allowances.
P12-8 Note: If you were assigned DQ12-4, consult your solution to it. Modify the DFDs in Figure 13.4 and Figure 13.13 through Figure 13.15, as appropriate, to reflect the following independent assumptions:
a. Purchasing a technical product that could not be inspected in the receiving department but had to undergo quality control testing before being accepted.
b. Purchasing goods through an online auction site, so that the price changes each time a purchase is made.
c. Making payments twice per month, on the fifth and twenty-fifth of the month, and taking advantage of all cash discounts offered.
Note: Because the three assumptions are independent, your instructor may assign only some of them.

P12-9 Modify the DFDs in Figure 13.4 and Figure 13.13 through Figure 13.15, as appropriate, to reflect that the purchase from our vendor was “drop-shipped” to one of our customers instead of being shipped to us.
P12-10 Assume that Pyrotechnics, Inc., has the following departments (plus others not to be considered in this problem):
A. Storeroom (including inventory control)
B. Purchasing
C. Accounts payable
D. Receiving
E. Treasurer
F. General ledger
The following documents/forms are to be considered in this problem:
1. Purchase requisition
2. Purchase order
3. Receiving report
The following information system control goals are to be considered in this problem:
IV. Purchase events are valid.
IC. All valid purchase events are input to the system.
IA. Purchase events are accurately input to the system.
UC. Recorded events are completely updated to the proper master data.
UA. Recorded events are accurately updated to the proper master data.

a. List the numbers 1 through 3 on your solution sheet. Each number represents a document from the second list. In column 1, opposite each of the three document numbers, insert a single capital letter (A through F) to indicate the department in the first list that would originate (initiate) that document.

b. In column 2, opposite each of the three document numbers, insert one or more capital letters (A through F) to indicate every department that you want to receive a copy of that document (i.e., the destination departments). Include the letter of the originating department if you want it to keep a copy of the document.

c. From your solution to requirement b, select only one department from column 2 for each document (obviously, the department could be different for each document). Circle the letter of that department in column 2. Then in column 3, describe how that department could use the document in question to serve a control purpose. In other words, describe a control procedure (control plan) related to the document in question. Limit each description to two or three sentences.

d. In column 4, insert a code from the third list above (IV, IC, IA, UC, or UA) to show the control goal that you believe is best served by the procedure described in column 2. Limit your answer to one procedure performed in one destination department for each document.

The format of your solution will appear as follows:
Doc. Col. 1 Col. 2 Col. 3 Col. 4
# Originating Department Destination Department Description of control procedure Control goal

Listed below are 12 process failures that indicate weaknesses in control.

Process Failures

  1. A cash disbursements event was updated on the wrong record in the accounts payable master data because the data entry clerk transposed digits in the vendor identification number.
  2. Several scanned invoice documents were lost and did not get recorded.
  3. The amount of a cash disbursement event was erroneous, resulting in a negative balance in the accounts payable master data.
  4. Supplies were purchased from a vendor found on an auction site. The supplies arrived late, and were of poor quality.
  5. A purchasing agent ordered unneeded inventory items from a supplier company of which he is one of the officers.
  6. The total shown on a vendor’s invoice was greater than the sum of the invoice details, resulting in an overpayment to the vendor.
  7. The vendor invoiced for goods that were never delivered. The invoice was paid in its full amount.
  8. The vendor shipped goods that were never ordered. The invoice for those goods was paid.
  9. The unit prices the vendor charged were in excess of those that had been negotiated. The invoice rendered by the vendor was paid.
  10. Goods were stolen by storeroom personnel. When the shortage was discovered, the storeroom personnel claimed that the goods had never been delivered to them from the receiving department.
  11. A vendor submitted an invoice in duplicate. The invoice got paid twice.
  12. Because of several miscellaneous errors occurring over a number of years, the total of the outstanding vendor payable balances shows a large discrepancy from the balance reflected in the general ledger.

REQUIRED: List the numbers 1 through 12 on your solution sheet. For each of the 12 process failures described above, provide a two- to three-sentence description of the control plan that you believe would best address that deficiency. Obviously, there could be more than one plan for a particular situation. However, select only one plan for each of the 12 process failures and include in your description a justification of why you believe it is best. When in doubt, opt for the plan that is preventive in nature, as opposed to plans that are detective or corrective.

P12-12 In applying the control framework to the physical PtoP process in the chapter, we intentionally omitted from the control matrix (see Figure 13.11) certain technology-related and other control plans introduced in CONTROLLING INFORMATION SYSTEMS: PROCESS CONTROLS and THE “ORDER-TO-CASH” PROCESS: PART I, MARKETING AND SALES (M/S). While we did so in the interest of simplifying the discussion, we acknowledged that such control plans—to the extent that they are germane to the process—should be included in the matrix and should be discussed in Table 13.2.


a. Prepare a continuation of the control matrix of Figure 13.11 that includes any additional control plans that you believe are relevant to the process depicted in the systems flowchart in Figure 13.7.

b. Annotate the systems flowchart (distributed by your instructor) to show the points where the additional control plans are “present” (codes P-8 . . . P-n) or where they are “missing” (codes M-1 . . . M-n).

c. Because your explanations of the cell entries are as important as the cell entries themselves, pay particular attention to step 5 in “Steps in Preparing a Control Matrix,” Table 9.1.

P12-13 (Appendix 12A ) Use the data flow diagrams in Figure 13.4 and Figure 13.13 through Figure 13.16 to solve this problem.

REQUIRED: Prepare a 4-column table that summarizes the PtoP processes, inputs and outputs. In the first column, list the four processes shown in the level 0 diagram (Figure 13.4). In the second column, list the subsidiary functions shown in the four lower-level diagrams (Figure 13.13 through Figure 13.16). For each subsidiary process listed in column 2, list the data flow names or the data stores that are inputs to that process (column 3) or outputs of that process (column 4). (See Note below.) The following table has been started for you to indicate the format for your solution.

Note:To simplify the solution, do not show any reject stubs in column 4.


Summary of the PtoP inputs, outputs, and data stores


Subsidiary Functions



1.0 Order goods and services

1.1 Select vendor

Inventory’s purchase requisition

Purchase requisition-supplies and services

Vendor master data

Purchase requisition


1.2 Prepare purchase order

Purchase requisition

Inventory master data

Continue solution ...