Revenue Cycle

Process Narrative
The revenue cycle starts with gathering and recording customer information in their Personal
Information Data Sheet. After the information is gathered, the branch customer service
representative will update main office records. The data is sent to the main office customer
service manager so that it may be inputted in the main office customer database.
Furthermore, The customer is given the option to pay either through cash or credit. Whether
payment is done through cash or credit, the payment is inputted to the cashiers register. Should
there be a need for credit approval, it will be inputted by the branch cashier. After which, the
payment is recorded in the Sales/Cash Receipts file. The payment information from the register
is used by the branch cashier to generate the official receipt and a voucher.
The accountant will record the payment in Sales/Cash Receipt file and update main office
record. The Main Office Customer Sales Database can be retrieved by the main office sales
manager while the Main Office Cash Receipts File can be retrieved by the main office credit
manager
The updates in the main office sales and cash receipts database will be reflected in the branchs
system. These updates are recorded in the general ledger accounts which are used to generate
the financial statements for the business
Internal Control Weakness
A problem might be encountered in the process due to the absence of retrieval of basic
information and payment history of an old customer from the database. This prevents the
company from utilizing the database in the best way. Moreover, this removes the connection
between the cashier and credit manager. The cashier accepts payment directly from the
customer without retrieving payment history.

Expenditure Cycle
Process Narrative
The gyms expenditure cycle for operating expenses consists of three main disbursements: 1)
supplies, 2) repairs and 3) utilities.
Supplies
The expenditure cycle for supplies starts with a request for an item purchase from a requesting
entity. These typically include, but are not limited to, requests for purchase of screws, oil and
lubricants for gym equipment and other supplies. The requesting entity then fills out an item
purchase requisition form to document the request. This form is sent to the purchasing
department for approval.

Once the purchase request has been approved, the purchasing department issues a purchase
order form. Two copies of this form are issued to the: 1) supplier, and 2) accounting department,
while a third blind version (no quantity is specified) is sent to the receiving clerk.
When the goods are shipped by the supplier, the receiving clerk accepts the package delivery
and checks the blind purchase order to verify that the company is indeed expecting a delivery
from the supplier and the type of items to be received. The receiving clerk also counts the goods
received and generates a receiving report by filling up the quantity in the blind purchase order
form which is then forwarded to the accounting department.
Meanwhile, the product invoice is received directly by the accounting department. An
accountant compares this with the receiving report (blind PO with count) and the purchase order
form. If these documents reconcile, the accountant records the accounts payable and prepares
a payment voucher to be sent to the Treasury.
The payment part of the cycle shall be discussed later.
Repairs
Expenditure for repairs also begins with a request form from a requesting entity. The repair
request form is then sent to the accounting department which approves the request. A job order
form is generated by the accountant and forwarded to the service entity who will perform the
repair service. The bill for repairs received after the repairs have been finished shall be verified
by the accountant by checking if the required repairs have been completed. After verifying the
bill, the accountant generates a payment voucher for the amount of the bill and sends the
voucher to the treasury.
Utilities
Expenditure for utilities is a lot simpler because it no longer requires requests and only needs
the verification of the utility bill from the utility company. When a utility bill is received, it is
verified by the accounting department. Amount in the bill is compared with the resource
consumed. When these amounts check, a payment voucher is prepared by the accountant and
sent to the treasury for payment.
Payment
Similar payment procedures are conducted for all three expenses. The accounting department
first verifies the expense (purchase of supply, repairs or utilities) then issues a payment voucher
to the treasury.
After receipt of the payment voucher, the treasury prepares a cash disbursement check and
promptly cancels the payment voucher. The check payment is sent to the supplier, repair
service or utility company as the case may be, while the cancelled payment voucher is returned
to the accounting department to notify them of payment. The accounting department records the
payment upon receipt of the cancelled voucher by updating their Cash disbursement journal and
accounts payable ledger (or other payables as required).

Internal Control Weakness

Analysis reveals the following possible fail points and internal control weaknesses that could
provide opportunity for fraud.
1) Reconciliation. Because the same department approves the purchase requests and
prepares the purchase order form, there is a possibility that the purchasing agent may issue
orders of goods for personal use. Also, the reconciliation of documents for the preparation of the
payment voucher does not include a comparison between the purchase requisition and
purchase order forms; this makes it harder to detect such fraudulent schemes. To mitigate this,
the accounting department should also require the turnover of the purchase requisition form so
that amounts and items in this form may be compared with those appearing in the purchase
order form. Also, the reconciliation process may include a more detailed breakdown such as:
a. Purchase Order and Requisition -comparison of quantities ordered and
requested; any discrepancy should be noted. If quantity in PO>quantity in PR and the
difference is not evidenced by sufficient documents/authorized by both the purchasing
and requesting departments, the excess may be returned to the supplier (if material) or
additional fees would be charged to the purchasing agent. However, proper investigation
should be made first to determine whether the discrepancy arose from mistake or fraud.
b. Receiving Report and Purchase Order- any discrepancy between the quantities
ordered and quantities received should be investigated especially if material. Supplier
should be notified for missing/insufficient shipment.
c. Receiving Report and Product invoice-ensure that the company is only billed for
the goods shipped. Discrepancies should be made known to the supplier.
2) Document keeping and control. Documents used for transactions that are already
completed should be properly distinguished from documents that are still being used for current
transactions. This is to avoid double orders and payments. At present, only the payment
vouchers are being cancelled to signify payment. Thus, POs, PRs, and RRs should also be
perforated after reconciliation and invoices already paid for should be stamped paid. Proper
filing and safekeeping of these documents should also be implemented.
3) Vendor Accreditation. The current system doesnt emphasize the need for properly
choosing the vendors. Thus, vendor accreditation could still be integrated into the system by
maintaining a database for accredited vendors and ensuring that purchases are made only from
vendors that have passed certain criteria (quality, price and reliability). This would also prevent
opportunities for unethical actions such as kickbacks and commissions on purchases.

Fixed Assets
Process Narrative

When the branch manager decides to purchase a fixed asset, a decision is prompted whether
the old asset is to be replaced or not. If Yes, a purchase request form and asset disposal form is
generated. Otherwise, only purchase request form is generated. After this, approval from home
office is sought.

Fixed Asset acquisition

If purchase request is approved, a purchase order generated and sent to the supplier. The
supplier will then send the equipment and the invoice. The branch manager receives the
equipment wand and generates two copies of receiving reports to be sent to the accounts
payable department and fixed asset department. On the other hand, if purchase request is not
approved, no action is taken.
After getting the receiving report, the accounts payable department will match the form with the
sales invoice from the supplier. If the forms dont match, the home office should be informed.
Otherwise, a liability shall be recorded in the general ledger. The treasury department creates
an open voucher from the liability recorder and disburses cash. After disbursement, the voucher
is canceled and a closed voucher is created. The closed voucher is then sent to the accounts
payable department along with a copy of the cash disbursement voucher created from the
disbursement of cash for them to record payment and file the closed voucher. The other copy of
the cash disbursement voucher is retained by the treasury department.
From the receiving report sent by the branch manager, the fixed asset department records the
asset and depreciates it accordingly. It is then posted to the general ledger maintained by the
accounts payable department and recorded to the fixed asset file under the fixed asset
department. The same is done with the cash disbursement voucher received from the treasury
department.
Disposal of Old asset
The asset disposal request form is sent to the home office for approval.. When disposal request
form is approved, the fixed asset department shall determine the book value of the asset to be
disposed. The fair market value is compared with the carrying amount to determine whether
impairment will be recognized. The asset is then removed from the fixed assets file and
recorded in the general ledger maintained by the accounts payable department. On the other
hand, If asset disposal request form is not approved, no action is taken.

Internal Control Weakness

The company cannot verify whether the items ordered by the home office has the same quantity
and quality with the items received and items delivered.This fails to ensure the authorization,
review, and approval of invoices for payment. On the side of payment of payable, there is a

failure in segregation of duties. The treasury should not have the authority to create the voucher
since he disburses cash,
Moreover, there is an internal control weakness in keeping the accounting record. Accounts
payable maintains all general ledger but this should be transferred to accounting department.

Payroll System
Process Narrative
The payroll system is divided into three processes: 1) hiring of employee, 2) continuing payroll
procedure and 3) termination of employee.
Hiring of Employee
The branch supervisor handles the hiring of branch employees. Once an applicant is hired, a
blank employee personal information form (EPIF) will be handed out to the newly hired
employee to be filled out by the latter. The filled-out EPIF is then stored with the other EPIF files.
The employee information from the filled-out EPIF is then sent to the main office. The new
employee receives a timecard. Meanwhile the employee information sent to the Main Office is
received and recorded by the Personnel Department. A new employee profile is created which is
stored in the company employee database. Employee information in the database can then be
accessed (view only) by the Payroll Department.
Continuing Payroll Procedures
Time clock system is used as the company payroll system. The branch employee punches his
timecard before and after work. Punched employee timecard is then validated and signed by the
branch supervisor. The validated and signed punch card is then sent to the main office. The
Payroll Department will receive the said timecard. A payroll register is prepared based on the
timecard received and data viewed from the employee database. The payroll file is then
updated and a paycheck prepared. The paycheck is to be reviewed and signed by the treasury
department. Meanwhile the prepared payroll register is forwarded to the Accounting
Department. A cash disbursement voucher is prepared based from the payroll register. A payroll
expense and liability is then recorded in the general ledger. The voucher is forwarded to the
Treasury department.
Upon review and signature of the paycheck by the Treasury Department (sent by the Payroll
Department), it will be sent to the branch employee via the paymaster. Meanwhile another
check is prepared by the Treasury Department based on the cash disbursement voucher sent
by the accounting department. This will be deposited to the payroll imprest bank account and
would result in the cancellation of the voucher. The cancelled voucher is then sent back to the
Accounting Department. The accounting department records in the general ledger the transfer
of cash to the imprest account then stores the cancelled voucher with the other cancelled
voucher files. The liability initially recorded in the general ledger is then derecognized.
Termination of Employee
Once a branch employee resigns, the branch supervisor immediately informs the Personnel
Department (Main Office). The Main office then sends mandatory documents to be filled out by

the resigning employee via the branch supervisor. Upon accomplishment of the mandatory
document, the employee submits the documents and surrenders his punch card to his branch
supervisor. The branch supervisor signs the mandatory documents and the punch card then
sends them to the Personnel Department and Payroll Department respectively. The Personnel
Department, upon receipt of the mandatory documents, reflects termination status of employee
in the employee information database. Meanwhile the Payroll Department, upon receipt of the
said timecard, a payroll register is prepared based on it and data viewed from the employee
database. The payroll file is then updated and a paycheck is prepared. The paycheck is to be
reviewed and signed by the treasury department. The prepared payroll register is forwarded to
the Accounting Department. A cash disbursement voucher is prepared based from the payroll
register. A payroll expense and liability is then recorded in the general ledger. The voucher is
forwarded to the Treasury department.
Upon review and signature of the paycheck by the Treasury Department (sent by the Payroll
Department), it will be sent to the branch employee via the paymaster. Meanwhile another
check is prepared by the Treasury Department based on the cash disbursement voucher sent
by the accounting department. This will be deposited to the payroll imprest bank account and
would result in the cancellation of the voucher. The cancelled voucher is then sent back to the
Accounting Department. The accounting department records in the general ledger the transfer
of cash to the imprest account then stores the cancelled voucher with the other cancelled
voucher files. The liability initially recorded in the general ledger is then derecognized. Upon
derecognition of the liability, the Accounting Department notifies the Personnel Department of
the derecognition. The Personnel Department then proceeds to delete the said employees
information from the employee information database.
Internal Control Weakness
The company uses time punching system where in hours worked are tracked through the
punched timecard and later verified by a branch supervisor. This system is time costly and
vulnerable to both data entry error and collusion among the branch supervisor and branch
employee. To avoid such scenarios, the company can adapt an electronic timecard system that
could effectively and efficiently record hours worked by an employee. There will be no need for
branch employees to punch their timecards and for the branch supervisor to validate and sign
said timecards. Such data would be recorded into a database that can be viewed by the Payroll
Department in the Main Office.
Check preparation and signing, for transfer of funds from main company account to payroll
account, is not segregated. Check preparation should be handled by the Payroll Department
upon notice from the Accounting Department. The check would then be forwarded to the
Treasury Department for review. Afterwhich, the check will be signed and deposited to the bank.