Accounting Information Systems 

Synopsis of ERP (Enterprise Resource Planning) & “Maker-Checker”

Before pursuing the case, it is necessitous to understand about ERP (Enterprise Resource Planning) system and its significance. Since the case relies and revolve around ERP. So, ERP is the amalgamated management of business purposes which uses common databases. ERP traces business resources – funds, cash, raw materials, inventory, production capacity, plant and machinery and so on. All in all ERP facilitates, the information flow between all the departments such as purchase, sales, accounting, customer service, finance, marketing, operations and so on (Tauber, D. (2013).

In ERP system, there is one elementary principle which needs to be taken care of – “Maker – checker”. In a layman’s language “maker-checker” suggests the principle of authorization in the information system. Basic rule of “maker-checker’ principle suggests that there must be two individual involved in a process where one has right to create or make a transaction while the other one is authorized to check over the same. Now the “maker-checker” principle directly relies on SOD (segregation of duties). Segregation of duties plays a significant role as SOD is a stringent control in any organization, since it leads to reduce the chances of big scams which may occur in the organization. SOD focuses on allocating task department wise where no individual or employee can poke and get his leg in between. (Rouse, 2014)

Significance of Dual Approval or Maker-Checker

  • Payment Scams- Payment scams is expanding its wing with a rapid pace.(Rouse,2014)
  • Process errors- A checker can identify multiple errors or mistakes, from unethical practice in internal procedure to typing errors, since humans are not perfect so making errors is quite obvious.(Rouse,2014)

Weaknesses in Expenditure Cycle Procedure - Part 1

There are multiple problems and limitations in Luxurious firm’s expenditure cycle procedures-

Point no. 1

Employees from any department may enter purchase requests for items, they note as being either out of stock or in small quantity.

Problem- If any employee can enter purchase requests it may definitely lead to lose confidentiality of data, vendors & prices. For example- a person who belongs to marketing department. and that one is entering the purchase request in the system then, there is the probability where he can perform misconduct, since marketing person oftentimes does marketing where he stipulates others to come in and purchase the commodity while on contrary, if he participates in purchase request, he can manipulate the prices of commodity and can offer the same to its own people. However this is all unethical.

Suggestion- Here, the company should give the access to the authorized person or a person who belong to the purchase team but not to every employee. Since the present practice may lead to big scam.

Point no. 2

Once in a while special items are ordered which are not regularly kept as part of inventory, from a specialty supplier who will not be used for any regular purchases. In these cases, an accounts payable clerk creates a one-time supplier record.

Problem- Now if purchase of special items will not be considered as part of inventory then it is obvious that the accounting of that period will be inappropriate since purchasing anything in the accounts of business but not neglecting the recording will definitely lead error of omission. However its repercussions will reflect in the balance sheet of the company in the year end.

Suggestion- An accounting clerk should be regular in recording of all the transactions of the business in the respective books and should stop doing manual work as he is maintaining a onetime supplier record. The above error is known as process error where the practice of recording is missing and the manual work is carried out without any approval.

Point no. 3

Every single day, employees in the purchasing department process all purchase requests from the prior day. To the extent possible, requests for items available from the same supplier are combined into one larger purchase order in order to obtain volume discounts. Purchasing agents use the Internet to compare prices in order to select suppliers. If an Internet search discovers a potential new supplier, the purchasing agent enters the relevant information in the system, thereby adding the supplier to the approved supplier list. Purchase orders above $10,000 must be approved by the purchasing department manager. Electronic Data Interchange is used to transmit purchase orders to most suppliers, but paper purchase orders are printed and mailed to suppliers who are not Electronic Data Interchange capable.

Problem- On the basis of possibility of anything, accounting cannot be done. First of all since accounting is absolute in nature and every figure in the books of accounts depicts something, however it is not imaginary, alike the marketing idea. In the ERP system, each and every transaction has the record while on contrary discovering the things on internet has no record and here the purchase agent can take the advantage, reason being activities are carried out in a manual way. In this case, if the purchase is more than $10,000 then it is approved by purchase dept. manager while on contrary, if it is less then there is no checker. Here, the purchase agent can fixes the price with the particular supplier and sets his commission while on contrary he can show the imaginary quotation to the management of various suppliers.

Suggestion- There must be a person assigned who should watch the activity of purchase agents if the purchase value is less than $10000 as there is no checker.

Point no. 4

Receiving department employees have read-only access to outstanding purchase orders. Usually, they check the system to verify existence of a purchase order prior to accepting delivery, but sometimes during rush periods they unload trucks and place the items in a corner of the warehouse where they sit until there is time to use the system to retrieve the relevant purchase order. In such cases, if no purchase order is found, the receiving employee contacts the supplier to arrange for the goods to be returned.

Problem- Here, the concern person is not getting system generated report of the final quantity that is why time consumption is very much higher as unloading the truck & then placing the items in warehouse and later on checking and matching the items with the purchase order will take more time. Secondly if no purchase order is identified, then again he asked the supplier for the goods to be returned, here the question arises who will bear the freight charges, and other transportation charges.

Suggestion-There should be a person assigned at the entry point of warehouse where he can at least match the LR (Loading receipt) copy with the purchase order so that the time can be saved.

Point no.5

Receiving department employees compare the quantity delivered to the quantity indicated on the purchase order. Whenever a discrepancy is greater than 5%, the receiving employee sends an email to the purchasing department manager. The receiving employee uses an online terminal to enter the quantity received before moving the material to the inventory stores department.

Problem- In this point, the concern person is not getting system generated report of the final quantity. The same process may lead to time consuming procedure meanwhile secondly if a discrepancy is greater than 5% then again he asked the supplier for the goods to be returned. Now here, the question arises who will bear the freight charges, and other transportation charges.

Suggestion- There should be a person assigned at the entry point of warehouse where he can at least match the LR (Loading receipt) copy with the purchase order so that the time can be saved.

Therefore, “maker-checker’ principle ought to be applicable in all the above points.

Weaknesses in Expenditure Cycle Procedure - Part 2

Below table depicts the revenue activities of Luxurious firm’s ERP system. Matrix shows the number of times each employee performed a particular task.


Take Order

Approve Credit

Ship Inventory

Maintain A/R

Issue Credit Memo

Bill Customer

Deposit Customer Remittances

Reconcile Bank account

Employee A

250 times

5 times




15 times



Employee B

305 times





100 times



Employee C

275 times



10 times





Employee D


85 times



10 times


5 times


Employee E



400 times



25 times



Employee F



430 times






Employee G






600 times



Employee H




400 times



20 times


Employee I


15 times


430 times

25 times




Employee J







650 times

1 times

The above table shows the improper SOD (segregation of duties) between all the employees.

Below are the examples of improper SOD (segregation of duties)

In case of employee A –

He has taken 250 orders, approves 5 credits and made 15 bills to the customer. It is crystal clear that if he has taken 250 order then he might belongs to sales team while on the other side, approving credit and billing the customer is less, if compared.

Here firm should not avail the right to employee A for approving credits and generating bills since he is a sales team employee and how a sales team person can make approvals regarding the credits. Hence employee A can take personal advantage and give advantage to its clients as well.

For instance- he can allow credit to its client while on contrary; his clients can provide a commission for doing so.

Employee B-

Here yet again employee B is a sales person, but on contrary, he is generating bills. Now in this scenario he can perform misconduct in order to retain its clients, he can generate less amount bill to its client just to retain them and secure the business.

Employee C

In employee C’s case, he is taking orders and besides that he is maintaining the account receivables as well. Again, this can be a disaster for a firm since employee C can done the variations in the books of accounts where he can show the less orders reason being he is pursuing both the task and more over there is no “maker-checker” principle is followed. He can keep some of the quantity with himself for his personal use and later on shows less in the account receivables

Employee I

Employee I is a accounts person since the matrix shows that he has performed maintaining A/R for 430 times while on contrary, he has approved credit for 15 times. This clearly denotes the improper segregation of duty. Reason being the accounts person is not at all eligible to approve credit of anyone, he has right only to participate in recording of transaction in the books of accounts.

Employee J

He is doing customer remittances for 650 times & reconciling for 1 time. This is also the big example of improper SOD, and the reason being person who is doing customer remittances should not have the right to reconcile the books.

Therefore, segregation of duties (SOD) is a base for risk management for the business or a firm and it also emphasizes on internal controls for the same. The principle of SOD is suggests shared responsibilities of a crucial & key process that disperses the critical functions of that process to more than one person or department. SOD (segregation of duties) relies on a “maker-checker” principle. However, without doing the separation in functional departments & division in key processes may results in frauds and error risks. 

Importance of Proper SOD

Risk management- If the organization and the management will do conventional SOD (segregation of duties) then the risk bearing capacity is going to be tolerable & if not then it shows that “maker-checker” is not in place and control is weak. So proper SOD among employees helps to cover maximum risk of the business or the organization.

Segregation of duties refers to dividing the duties of each employee so that the functions of recordkeeping, bills generating, taking orders, allowing credit, custody of assets and authorization of asset use are performed by different individuals. Dividing these duties is crucial & necessary to ensure the company is not a victim of theft of its assets and records or fraud which is a deliberate attempt to deceive others for personal gain.

References for Weaknesses in Expenditure Cycle Procedure and Improper SOD

Shaul, L.; Tauber, D. (2013). "Critical Success Factors in Enterprise Resource Planning Systems: Review of the Last Decade". ACM Computing Surveys. 

Vilpola, Inka Heidi (2008). "A method for improving ERP implementation success by the principles and process of user-centred design". Enterprise Information Systems. 

Allen, Kern and Havenhand (2000) "ERP Critical Success Factors: an exploration of the contextual factors in public sector institutions", Proceedings of the 35th Hawaii International Conference on System Sciences

Remember, at the center of any academic work, lies clarity and evidence. Should you need further assistance, do look up to our Accounting and Finance Assignment Help

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