(4.1) ERP and Internal Control
Company X
Company X processes fluid chemicals. The purchasing department places orders based on a
minimum inventory level. The chemicals are received through pipelines and stored in tanks. The
company has a logistic system in which an employee of the storage department enters the received
goods. The purchasing department makes payments based on bills received with each delivery of
goods. Each department (among others, purchasing, sales, production, accounts receivable
administration, storage department, controlling) has a personal computer at its disposal which is
connected to a network. All financial transactions are processed in the financial system. In addition,
the company uses a management information system supplying relevant managerial information. The
three information systems are not integrated.
Company Y
Company Y processes fluid chemicals. Orders are placed automatically by the ERP-system (logistics
module) based on a minimum inventory level. Chemicals are delivered through pipelines and stored in
tanks. The minimum inventory level is indicated by means of an automated observation system
integrated in the ERP-system. Subsequently, an order is placed with the supplier through EDI
(Electronic Data Interchange; purchasing module). At the supplier’s the order is prepared
automatically by the computer and shipped automatically through the pipeline. Based on the receipt
through the pipeline Y’s purchasing department automatically prepares a pro forma bill and sends it
by means of EDI (purchasing module). Payments are made automatically through electronic money
Company Y takes over Company X. A big hurdle to take is the conversion from the old-fashioned
information system of X to the ERP-system of Y.
Discuss the differences between Company X and Company Y regarding the internal control measures
that are to be taken. In doing so, deal with the following areas:





Segregation of duties.

Access security.

Information and communication technology.