Comprehensive Final Exam Project Business Cycles and Inte.docx

Comprehensive Final Exam Project: Business Cycles and
Internal Controls
1
Video Link
https://www.bloomberg.com/news/videos/2015-05-20/home-
depot-vs-lowe-s-the-business-of-home-improvement
Overview of Lowe’s
Retail store that specializes in home improvement and
appliances
Founded in 1946 in North Wilkesboro, NC
2nd largest home improvement retailer in the world
Home Depot
Menards
19th largest overall retailer
3

Lowe’s Financials
$65,017,000,000 in revenue
$22,464,000,000 in gross profit
$3,093,000,000 in net income
Importance of This Project
Give Lowe’s an employee’s view
Help their business cycles run more efficiently
Business Cycle Documentation
Revenue Cycle
A recurring set of business activities and related information
processing operations associated with providing goods or
services to customers and collecting cash in payment for those
sales.
Four major activities in the revenue cycle
Sales order entry
Shipping

Billing
Cash collection
Expenditure Cycle
A recurring set of business activities and related info processing
operations associated with the purchase of payment for goods.
Activities of the expenditure cycle
Ordering goods
Receiving goods
Paying for goods
Production Cycle
A recurring set of activities and information related to
manufacturing products.

Four basic steps in a production cycle
Product design
Planning and scheduling
Production operation
Cost accounting
HRM/Payroll Cycle
A set of business activities and related data processing
operations associated with effectively managing the employee
workforce.
Internal Controls
Controls Against Computer Fraud & Abuse
Employee ID number and password to access computer
terminals
Only employees can access info
Answer 2 security questions when logging in remotely

Prevents masquerading and impersonation
Block unapproved websites
Prevents malware or viruses
Control and AIS
Preventative
Hiring qualified personnel
Segregation of duties
Detective
Double-checking cash counts
Preparing accurate deposit slips
Corrective
Maintain printed and digital copy of a customer’s order
Controls for Information Security
Accounting info is restricted to specified individuals
Physical and technological
Only managers have access to organizational info
Not entire access
Customer info
Only used by those collecting payment
Employee info
Only HR can access employee sensitive info

Confidentiality and Privacy Controls
Follows GAAP
Publicly traded on NYSE
Training
One week training at beginning
Recurring training videos have due dates
Description, Table, & Recommendations
Narrative Description
Revenue Cycle
In this cycle, Lowe’s receives orders for merchandise from
customers. A sales associate will then pick the order and take it
to the back to be shipped out by an external source like FedEx
or UPS. Lowe’s will then receive payment for the product,
record it, and deposit it into the bank.
Expenditure Cycle
In this cycle, Lowe’s acquires the inventory/merchandise it
needs to sell to customers. Inventory will be automatically
ordered by the computer system if it notices they are low or by
a department manager. Once receiving takes the inventory off
the delivery trucks, the inventory is placed on store shelves

where it is set to sell.
Production Cycle
This is the cycle that deals with order and producing special
orders. When a customer wants a product that Lowe’s does
readily carry, they special order the product. The special order
is sent to an external source who constructs the product and
delivers it to the customer.
HR/Payroll Cycle
This cycle is done by the HR department. HR deals with hiring,
firing, and training employees. Payroll is done by HR and the
payroll departments. They deal with paying employees and
filing taxes.
Table of DutiesLowe’s Employees ComputerExternal
SourceRevenueReceive order
Pick order
Delivers order
Receive payment
Record Payment
Deposit payment
X
X
X
X
X
X
X
X

X
X
ExpenditureRequest inventory
Order inventory
Deliver inventory
Receive inventory
Store inventory
Pay for inventory
Update APX
X
X
X
X
XX
X
X
ProductionReceive special order
Enter special order
Build special order
Ship to customer
Cost accountingX
X

XXX
x
XHR/PayrollClock in timecard
Approve timecard
Update payroll
Update tax rates
Pay taxes
Prepare payroll
Disburse payroll
Prepare benefits
Disburse benefitsX
X
X
X
X
X
X
X
XX
Recommendations

Maintain better inventory records
Implement lean or pull manufacturing
Install security cameras on the side of the building
Update computer system and software
Accounting 3310 Accounting Information Systems and Controls
Final Comprehensive Project
Introduction
For this comprehensive final exam project, the client I
chose was Lowe’s Home Improvement. Here is the link to my
video describing what type of business Lowe’s does;
https://www.bloomberg.com/news/videos/2015-05-20/home-
depot-vs-lowe-s-the-business-of-home-improvement.
Lowe’s is a retail store that specializes in home
improvement and appliances. It was founded in 1946 in North
Wilkesboro, NC, and has grown to be the 2nd largest home
improvement retailer in the world and the 19th largest overall
retailer. On their most recent financial statements, Lowe’s
reported $65,017,000,000 in revenue, $22,464,000,000 in gross
profit, and $3,093,000,000 in net income.
With my experience working at Lowe’s, I have seen first
hand the pros of the way they do things and the negatives.
Sometimes their business cycles run smoothly and sometimes
they don’t. Lowe’s can benefit from my work in this project in a
couple of ways. First, Lowe’s can benefit from this project by
getting a second opinion on what would make their business
cycles run more efficiently. Businesses are always looking for
ways to become more efficient and this project can give Lowe’s
ideas on how to achieve greater efficiency. As well, Lowe’s can
benefit from my work by seeing what their employees are

thinking. Most of the time, they just do what they’ve been doing
for ever and don’t take into account employee opinions. If I
myself am thinking about some of these issues with regards to
their business cycles, I can’t be the only one. This project will
hopefully open Lowe’s’ eyes to implement some of their
employee’s suggestions.
Business Cycle Documentation
The business cycles we learned about and studied in class are
extremely important to Lowe’s as a business. The revenue,
expenditure, production, and hrm/payroll cycles are all seen in
the day-to-day operations of the company. First off, the revenue
cycle is a recurring set of business activities and related info
processing operations associated with providing goods and
services to customers and collecting cash in payment for those
sales. This is important to Lowe’s because this is what their
business is based on, providing high-quality home improvement
products at everyday low prices. Just as important is the
expenditure cycle. Lowe’s carries over 40,000 products in store
and tons more online. The expenditure cycle deals with how
they acquire those products to sell to consumers. The
production cycle relates back to Lowe’s in the area of special
orders. What a customer wants for their project isn’t always
readily available. Lowe’s need to specially order and produce a
product for a customer if the customers’ desired product is not
in-store. Lastly, the HRM/Payroll cycle is important because the
sales specialists and other employees need to be paid for their
work.
Revenue Cycle
First up is the revenue cycle. As mentioned above, the
revenue cycle is a recurring set of business activities and

related information processing operations associated with
providing goods or services to customers and collecting cash in
payment for those sales. The four major activities in the revenue
cycle are sales order entry, shipping, billing, and cash
collection. At Lowes, a customer will place an order and the
store will receive it. The sales associate would then update the
sales order file, update the customer file, and check available
inventory. The merchandise would then be sent to shipping
where it is picked, packed, and shipped to the customer using an
3rd party like UPS or FedEx. The billing department would then
receive the bill of lading from shipping so they can properly
invoice the customer. After the customer receives the invoice
for their order, they would send payment to the cash collections
department. There, they would update the appropriate files and
deposit the payment into the bank. I have constructed a data
flow diagram, a business process diagram, and a flowchart to
depict the revenue cycle.
Expenditure Cycle
After the revenue cycle comes the expenditure cycle. The
expenditure cycle is a recurring set of business activities and
related info processing operations associated with the purchase
of payment for goods. Activities of the expenditure cycle
include ordering goods, receiving goods, and paying for goods.
Whether it’s production, a store department or inventory
management, each will send a purchase requisition to order a
specific product. The order system will then check available
inventory and appropriate vendors. If the item needs to come
from a vendor, the vendor will send the inventory, packing slip,
and bill of lading to the stores where the receiving department
receives it. Receiving will check the shipment against the
purchase order to make sure it is correct. Once the shipment of
merchandise has been received, the cash disbursement

department will pay the vendor according to the invoice they
sent along with the correct purchase order. I have made a data
flow diagram to show the expenditure cycle at Lowe’s.
Production Cycle
The production cycle is a recurring set of activities and
information related to manufacturing products. The four basic
steps in a production cycle are product design, planning and
scheduling, production operation, and cost accounting. While
Lowe’s doesn’t necessarily manufacture anything in the
traditional sense, the still have a production cycle. Their
production cycle deals in the area of special orders. When a
customer wants a product that is not in-store, they need to
special order the product. This way, Lowe’s can offer a large
variety of options without running out of space in their stores.
When a Lowe’s employee special orders a product for a
customer, the special order is sent to the appropriate supplier of
the product. They will check if they need to build the product or
ship it as is. Once the item is shipped by the supplier, it is
received by the customers’ Lowe’s store. Here, the sales
associate who helped the customer will set up a date and time
for the item to be delivered to the customer or for them to pick
it up. I have constructed a business process diagram to show
Lowes’ production cycle.
HRM/Payroll Cycle
The last cycle is the human resource and payroll cycle. This is a
set of business activities and related data processing operations
associated with effectively managing the employee workforce.
This cycle is straight forward. An employee will clock in and
out on Kronos, which is Lowe’s workforce management
software. HR will update employee and company information
into Kronos as well. Employees are then paid every two weeks
via direct deposit or check and can view their pay stub on

Kronos. Here is a flowchart showing the hr/payroll cycle of
Lowe’s.
Internal Controls
Controls Against Computer Fraud and Abuse
A lot of Lowe’s business is done through a computer.
Whether it is managing orders, checking inventory or paying
employees, computers are used every day at Lowe’s and can be
suspect to fraud and abuse. To access a computer terminal at
Lowe’s you need to have your employee number and password.
This is to ensure that someone who is not an employee doesn’t
access the information. As well, when trying to access the
employee portal from a computer that is not in a Lowe’s store,
you need to answer two security questions along with your
employee number and password. This control prevents
masquerading or impersonation. Lastly, Lowe’s uses a website
blocker that blocks any unapproved websites. This prevents
against malware or viruses being downloaded onto a Lowe’s
terminal and infiltrating the system.
Control and AIS
There are three overarching control types; preventative,
detective, and corrective. Some preventative controls Lowe’s
implements are hiring qualified personnel and segregation of
duties. These especially apply to those in management positions
because they are dealing with company information and
customer payment on a regular basis. Some detective controls
Lowe’s uses are double-checking cash counts and preparing
accurate deposit slips. Lastly, some corrective controls include
maintaining both a printed copy and a digital copy of a
customer’s order.
Controls for Information Security
There are several principles that help form information
security controls. Those are security, confidentiality, privacy,

processing integrity, and availability. Lowe’s important
accounting information is restricted to only specified
individuals. There is both physical and technological access to
this information. Secondly, confidentiality deals with
organizational information. Only managers have access to this
information. Even managers might not have entire access to
organizational info. Some of this is restricted except only to
those at the corporate office in North Carolina. Privacy deals
with customer and employee information. Customer info such as
address and credit card numbers are used only by those in
charge or receiving customer payment, usually those at the
customer service desk and managers. The only person at Lowe’s
that can access employee sensitive information is HR.
Confidentiality and Privacy Controls
Since Lowe’s is a publicly traded company on the New
York Stock Exchange it must follow GAAP. One of the specific
controls Lowe’s uses for confidentiality, and everything in
general, is training. When you first start working at Lowe’s
there is usually a one-week training period where you watch
videos on various subjects. As well, there are training videos
that have specific due dates on them that employees must watch
every so often. Lowe’s makes sure its employees are up to date
on their control procedures.
Processing Integrity and Availability Controls
Lowe’s uses a lot of data entry controls to make their
systems reliable. They employ field checks, limit checks, size
checks, completeness checks, and validity checks. Lowe’s
enables field checks when scanning for inventory and making
product labels, they implement completeness checks when
filling out a purchase order for a customer, and Lowe’s employs
validity checks when signing in to the Lowe’s terminal
database. All these checks they use ensure that the inventory,
customer orders, company data, etc. is accurate.
Internal Control Overview
Internal controls are an important part of any business. If
you want your business to be successful, you must protect it.

Whether it be requiring strong passwords and multi-step
verification for logging in or enabling antispyware and
antimalware to protect against viruses, Lowe’s makes sure that
its computers and online information is secure. By ensuring that
their company, customer, and vendor information is safely
stored, Lowe’s sets itself up for future success. If either of
those is compromised, Lowe’s not only loses the information
but loses trust in their customers and vendors, which would lead
to lower sales.
Narrative Description and Tables
Revenue Cycle
In this cycle, Lowe’s receives orders for merchandise from
customers. A sales associate will then pick the order and take it
to the back to be shipped out by an external source like FedEx
or UPS. Lowe’s will then receive payment for the product,
record it, and deposit it into the bank.
Expenditure Cycle
In this cycle, Lowe’s acquires the inventory/merchandise it
needs to sell to customers. Inventory will be automatically
ordered by the computer system if it notices they are low or by
a department manager. Once receiving takes the inventory off
the delivery trucks, the inventory is placed on store shelves
where it is set to sell.
Production Cycle
This is the cycle that deals with order and producing special
orders. When a customer wants a product that Lowe’s does
readily carry, they special order the product. The special order
is sent to an external source who constructs the product and
delivers it to the customer.
HR/Payroll Cycle
This cycle is done by the HR department. HR deals with hiring,
firing, and training employees. Payroll is done by HR and the
payroll departments. They deal with paying employees and
filing taxes.

Lowe’s Employees
Computer
External Source
Revenue
Receive order
Pick order
Delivers order
Receive payment
Record Payment
Deposit payment
X
X
X
X
X
X
X
X
X
X
Expenditure
Request inventory
Order inventory
Deliver inventory

Receive inventory
Store inventory
Pay for inventory
Update AP
X
X
X
X
X
X
X
X
X
Production
Receive special order
Enter special order
Build special order
Ship to customer
Cost accounting
X
X
X

X
X
x
X
HR/Payroll
Clock in timecard
Approve timecard
Update payroll
Update tax rates
Pay taxes
Prepare payroll
Disburse payroll
Prepare benefits
Disburse benefits
X
X
X
X
X
X
X
X
X
X
Conclusion

Interesting Facts
Lowes was started by H. Carl Buchan, owner of North
Wilkesboro Hardware Company. He wanted to create a chain of
hardware stores. At the same time, Lowes was a small hardware
store that sold all different types of products that was owned by
James Lowe, Buchan’s brother-in-law. Buchan bought Lowe’s
from his brother-in-law and it has grown into the home
improvement store you know today. As well, each Lowe’s store
has over 40,000 individual products in it.
Recommendations
One recommendation I have for Lowe’s is maintaining
better inventory records. Whether it’s by using RFID or having
more inventory counts, Lowe’s needs to have more accurate
inventory levels. Often times, the system will say there is a
large number of a certain product left but there are none to be
found.
As well, certain products always are in delivery shipments
no matter if they are low or not. This often times leads to too
much inventory of certain products that never sell. Lowe’s
should implement lean or pull manufacturing that responds to
customer demand rather than in anticipation of it.
Another recommendation I have is installing security
cameras along the side of the store. During the summer when all
the mulch and top soil are store along the side, it is incredibly
easy for someone to steal bags. While a security camera would
not directly stop the theft of merchandise, it would help in the
detection of it.
Lowe’s should update their computer system and software.
For managing inventory and orders for customers, Lowe’s uses
a system called Genesis. It is an outdated MS-DOS program that
looks like it’s from the early days of computers. There is no
mouse or pictures, just keystrokes. Even with sufficient
training, this program is extremely difficult to navigate. By
upgrading their inventory and order management system, they
can become more efficient by not having employees waste time
trying to figure out how to work the system.

Summary
Lowe’s is a retail store that specializes in home
improvement and appliances. It was founded in 1946 in North
Wilkesboro, NC, and has grown to be the 2nd largest home
improvement retailer in the world and the 19th largest overall
retailer. On their most recent financial statements, Lowe’s
reported $65,017,000,000 in revenue, $22,464,000,000 in gross
profit, and $3,093,000,000 in net income.
In this project, I explore how Lowe’s operates and the
business processes and cycles they employ. I looked at their
revenue, expenditure, production, and HR/payroll cycles. I then
created charts to demonstrate the flow of activities at Lowe’s.
Next, I went through the different internal controls Lowe’s uses
to keep their information secure. Lastly, I gave some
recommendations for how Lowe’s can become more efficient in
their business cycles and their controls.
This project was enjoyable because I was able to dive
deeper into the inner-workings of how Lowe’s operates. It gave
me a better appreciation of how much goes into running a
successful home improvement store, and in Lowe’s case, the
2nd largest world. I hope my findings are an accurate
representation of what I learned and I hope that my
recommendations might be implemented one day. I have not
received any feedback from Lowe’s yet.
ACCT 3310 ACCOUNTING INFORMATION SYSTEMS &
CONTROLS
BUEINSS CYCLES & INTERNAL CONTROL
The strategic objectives of the project are:
· To master and apply the course material
· To provide you with the opportunity to reach out to the real

business world and work with a real organization
· To gain experience with real-life constraints and opportunities
· To practice communicating your work orally and in writing
1.Introduction
Requirement: Your final document should include:
· A web link to a video about your client or similar to your
client’s business (if you cannot find a video for your client).
· Introduction to your client and your relationship with the
client (e.g., show why the business cycles you are going to
study are critical for your client’s success).
· Importance of your work: Explain how your client will benefit
from your work
2. Business Cycle Documentation
If necessary, visit your client and conduct interviews with
people involved in the business cycles that you wish to study.
We have applied three systems documentation techniques in
Chap 3 (Data Flow Program, Flowcharts, and Business Process
Diagram) to four business cycles: The Revenue Cycle (Chap
12), The Expenditure Cycle (Chap 13), The Production Cycle
(Chap 14), and HRM/Payroll Cycle (Chap 15).
Your goal is to understand the business processes in depth:
· The step-by-step activities
· The flows of physical products or services
· The ways of information collection, storage and process
· Four business cycles of your clients:
(a) Use all three systems documentation techniques (Data Flow
Program, Flowcharts, and Business Process Diagram) to
document the first business cycle of your choice for your client
(e.g., the Revenue Cycle);

(b) Use Data Flow Program (one of three systems
documentation techniques) to document the second business
cycle of your choice for your client (e.g., the Expenditure
Cycle);
(c) Use Flowcharts (one of three systems documentation
techniques) to document the third business cycle of your choice
for your client (e.g., the Production Cycle); and
(d) Use Business Process Diagram (one of three systems
documentation techniques) to document the fourth business
cycle of your choice for your client (e.g., the HRM/Payroll
Cycle);
· Business cycle overview: Discuss the objectives of the
business cycles and their alignment with your client goals,
inputs and outputs, interactions with other cycles and external
entities
· Narrative description and tables: Describe business cycle
activities and use table of entities and activities in order to
reduces the narrative to a list of simple sentences delineating
“who does what”
3. Internal Control Mechanism
When visiting your client, you also need to understand your
client’s internal control mechanisms. The internal control
mechanisms involve controls against Control and AIS such as
Sarbanes-Oxley Act of 2002, COSO’s Internal Control
Framework, COSO’s ERM Framework, COBIT Framework, etc.
(Chap 7), Controls for Information Security (Chap 8),
Confidentiality and Privacy Controls (Chap 9), and Processing
Integrity and Availability Controls (Chap 10).
· Five internal control mechanisms of your client:
(a) Control and AIS;
(b) Controls for Information Security;
(c) Confidentiality and Privacy Controls; and

(d) Processing Integrity and Availability Controls
· Internal control overview: Discuss the objectives of the
internal control mechanism and their alignment with your client
goals.
· Narrative description and tables: Describe business cycle
activities and use table of entities and activities in order to
reduces the narrative to a list of simple sentences delineating
“who does what.”
4. Conclusion and Recommendations
· Any possible ethical issues about your client; if there is no
ethical issue about your client, discuss ethical issue about some
company in your client’s industry.
· Any interesting things about your clients.
· An Executive Summary of your work and Recommendation to
your client.
· Your client’s feedback on your work, if applicable. Your
client’s feedback is a great addition to your final report. If your
client provides you with formal or informal feedback, describe
it in your own words in a paragraph or two. However, it is not
always possible to receive your client’s feedback; if you do not
have your client’s feedback, do not fake it!

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