ACC 542 Week 2 Documenting Business Processes and Data Flows Example

Drawing the Purchase-to-Pay Process Three Ways: A Narrative, a Data Flow Diagram and a Flowchart for a Composite Restaurant Supply Wholesaler, and the Control Gaps They Reveal

[Student Name]

University of Phoenix

ACC/542: Accounting Information Systems

Week 2 Assignment

[Instructor Name]

[Date]

The wholesaler, its process and all figures are composites written for a model paper; methods and research findings come from the sources listed.

A composite wholesaler delivers food, paper goods, cleaning chemicals and small kitchen equipment to about 1,200 restaurants from one distribution center. It buys from about 300 vendors and processes roughly 2,500 vendor invoices a month. The new controller wanted to understand the purchase-to-pay process before changing anything. A process no one has written down is a process no one can fully control, because weaknesses hide in the handoffs nobody sees whole. This paper documents the process three ways and uses the documentation to find its gaps.

The Narrative

Based on interviews with buyers, receiving clerks and accounts payable staff and a walkthrough of one purchase, the process works as follows. Buyers review stock levels in the inventory system each morning and create purchase orders, which the system sends to vendors electronically. Purchase orders over $25,000 require the purchasing manager's approval in the system. When deliveries arrive, receiving clerks count goods against the purchase order on a handheld scanner, noting shortages and damage, and the system records a receiving report. Vendor invoices arrive by email; an accounts payable clerk enters each invoice and the system matches it to the purchase order and receiving report, flagging differences above 2%. Matched invoices are scheduled for payment on their due dates, and the controller approves each weekly payment run before the treasury analyst releases electronic payments.

Non-inventory purchases, such as repairs, uniforms and office supplies, follow a different path. Department managers call or email vendors directly, and invoices are sent to accounts payable with a manager's emailed approval. There is no purchase order or receiving report.

The Context Diagram

The context diagram shows the purchase-to-pay system as a single process with three external entities. Vendors send invoices and goods information into the system and receive purchase orders and payments from it. The bank receives payment files and returns payment confirmations. Department managers send non-inventory purchase approvals. The diagram shows what crosses the system's boundary and nothing about how work is done inside.

The Level-Zero Data Flow Diagram

The level-zero diagram breaks the system into five processes. Process 1, determine needs, reads the inventory data store and produces purchase requisition data. Process 2, order goods, writes purchase orders to the purchase order data store and sends them to vendors. Process 3, receive goods, compares deliveries with purchase orders and writes receiving data to the receiving data store. Process 4, approve invoices, reads the purchase order and receiving stores, receives vendor invoices and writes approved invoices to the payables data store. Process 5, pay vendors, reads the payables store, sends payment files to the bank and updates the vendor master data store. A second flow into process 4 comes from department managers for non-inventory purchases and bypasses processes 2 and 3.

The Document Flowchart

The flowchart is organized in four columns: purchasing, receiving, accounts payable and treasury. In purchasing, the buyer creates the purchase order in the system, with a decision symbol for the over-$25,000 approval. In receiving, the delivery ticket from the vendor is scanned and matched, and the receiving report is stored electronically. In accounts payable, the emailed invoice is keyed and the system performs the match, with an exception report reviewed daily. For non-inventory purchases, the flowchart shows the manager's email attached to the invoice and entered without a match. In treasury, the payment run report goes to the controller, whose approval is shown as a manual operation before release.

Risks the Process Must Address

Before judging controls, the controller listed what could go wrong in purchase-to-pay: buying goods that are not needed, paying for goods not received, paying the wrong amount or the same invoice twice, paying a fictitious vendor and diverting a legitimate payment to a fraudster's account. Each risk maps to a control objective within the COSO framework's control activities component, which calls for controls selected to mitigate identified risks (Committee of Sponsoring Organizations of the Treadway Commission, 2013). The documentation was then read with these risks in mind, step by step.

Controls Already Working

The process has real strengths. Purchase orders for inventory are created from stock data, which limits unneeded buying. The approval threshold catches large orders. The system match and daily exception review prevent most overpayments on inventory, and the controller's approval of each payment run adds a review before cash leaves. The system also rejects an invoice number already entered for the same vendor, which prevents most duplicate payments.

Reading the Three Together

Comparing the documentation reveals four gaps. First, non-inventory purchases bypass the purchase order and receiving processes entirely, so there is no three-way match; about $1.4 million a year of spending relies on an emailed approval that cannot be verified against receipt of goods or services. Second, the data flow diagram shows that process 5 updates the vendor master data store, and interviews revealed that the accounts payable clerk who enters invoices can also add vendors and change bank account numbers, a combination that allows a fictitious vendor or diverted payment. Third, the 2% tolerance in the match is applied per invoice, so small overcharges on many invoices pass automatically. Fourth, the flowchart shows no step in which anyone compares the payment run to approved invoices after release.

Recommendations

The company should require purchase orders for non-inventory purchases above $1,000, with a service confirmation from the requesting manager in the system, so a match can occur. It should remove vendor master file access from accounts payable clerks and assign changes to a separate person, with a callback to verify any bank account change. It should review the total of variances accepted under the 2% tolerance monthly by vendor. And it should reconcile the bank's payment confirmation to the approved payment run each week.

Keeping the Documentation Current

Documentation loses value as soon as the process changes. The controller assigned ownership of the purchase-to-pay narrative and diagrams to the accounts payable supervisor, with a review each year and whenever the system or approval thresholds change. The auditors will use the same documentation for their walkthrough, which avoids repeating interviews each year.

Why Documentation Techniques Matter

Romney et al. (2021) describe narratives, data flow diagrams and flowcharts as complementary tools: data flow diagrams show what a system does, flowcharts show how it does it and narratives capture detail neither can. Bradford et al. (2007) surveyed practitioners and educators and found that flowcharts and data flow diagrams remain widely used, with flowcharts favored by auditors evaluating controls, which matches this analysis: the vendor master weakness appeared in the data flow diagram, while the missing post-payment check appeared in the flowchart.

Conclusion

Documenting the purchase-to-pay process as a narrative, a data flow diagram and a flowchart gave three views of the same activity. Read together, they revealed an unmatched path for non-inventory purchases, a conflict of duties over vendor data, a tolerance that could hide repeated overcharges and a missing check after payment. Each recommendation addresses a gap the documentation made visible.

References

Bradford, M., Richtermeyer, S. B., & Roberts, D. F. (2007). System diagramming techniques: An analysis of methods used in accounting education and practice. Journal of Information Systems, 21(1), 173-212. https://doi.org/10.2308/jis.2007.21.1.173

Committee of Sponsoring Organizations of the Treadway Commission. (2013). Internal control, integrated framework.

Romney, M. B., Steinbart, P. J., Summers, S. L., & Wood, D. A. (2021). Accounting information systems (15th ed.). Pearson.