test of controls in the expenditure or disbursement

7/29/2019 Test of Controls in the Expenditure or Disbursement

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2/16

Acquisition of goods andservices

(expenditure in the cycles

title)Expenditure or

Disbursement Cycle

Payment of cash

(disbursement)

For the services acquired


3/16

Scope of Expenditure or Disbursement Cycle

Related Business

FunctionsCommon Activities Common Entries Common Forms

a. Resources

(goods and services

) are required from

vendors in

exchange

a. Purchasing a. Purchases a. Purchaserequisitions

b. Obligations tovendors and

employees are paidb. Receiving b. Account Distributions b. Purchase orders

c. Recording c. Prepaid and accruedexpenses c. ReceivingReports

d. Payment ( inclu- dingauthorizing andpreparing checks

d. Adjustments d. Vendorsinvoicese. Cash Disbursements e. Vouchers


4/16

Paper or computer image documents

PURCHASE REQUISITION

PURCHASE ORDER

RECEIVING REPORT

VENDOR'S INVOICE

VOUCHER PACKAGE


5/16

Requisi-

tioning

dept.

purchase

requisitio

n

Prepare

purchase order

requisition

purchase

order

purchase

order

purchase

order

purchase

order

purchase

order

To

vendor

To

Requis

itioning

dept.

To re-

ceivin

g

FileTo Ac-

count

s

paya-

ble

Purchasing

5

4

3

2

1


6/16

from

purchasi

ng

purchase

order

File

Unit

Goods

Recd

Count Goods,

Prepare Receiving

Report and ,

Update Receiving

Log

To Ac-

counts

paya-

ble

To Pur

chasing

Receiving Log

purchase order

ReceivingReport

Receiving

Report

Receiving

Report

File

matchedwith

purchase

order

No. 4 ,

Filed in

Purchasin

g

Receiving

1

2

3

3

3


7/16

From

Pur

chasi

ng

From

mail-

room

From

Recei

ving

requisition

purchase

order

Receiving

ReportInvoice

compar

e

Prepare voucher

and daily summary

requisition

purchase

order

Receiving

Report

Invoice

voucher

daily summary

daily summary

ToGenera

l

Accoun

- ting

File

File

To cash

Disbur

sement

By

Date

due

File

by

duedate

Accounts

payable

5

1

1

2

5

1


8/16

From

Accou

nts

payabl

e

requisition

purchase

order

ReceivingReport

Invoice

voucher

Review;

Prepare

check and

daily

summary

Check signed and

voucher

Package Cancelled

summary

check

summary

To

genera

l

Accou

n

t ing

and Ac

counts

payabl

e

Tovendo

r

file

requisition

purchase

orderReceiving

Report

Invoice

voucher

can -

cel

and

File

2

1

5

11

5

cash Disbursements

(Treasury Dept.)


9/16

Summary of Purchases and Cash

Disbursements Activities

PURHASING

Accept approved purchase requisitions fro user

departments

Prepare purchase order, distribute copies andretain file copy


10/16



RECEIVING File purchase orders until goods are received

Upon receipt of goods, count quantities and

compare with purchase order Prepare receiving report

Forward goods to Inventory control

Forward copies of receiving report to Accounts

Payable and to Purchasing; retain file copy ofreceiving report, purchase order, and update

receiving log


11/16



ACCOUNTS PAYABLE

Compare purchase requisition, purchase order,receiving report, and vendors invoice

Prepare voucher and daily summary; assemblevoucher package

File voucher package by due date; forward tocash disbursements ( Treasury Department) ondate due

Forward daily summary to General Accountingfor recording; retain file copy


12/16



CASH DISBURSEMENTS (TREASURY

DEPARTMENT)

Review voucher package received from Accounts

Payable on due datePrepare checks and daily summary

Have checks signed by authorized signatories

Forward checks to vendors

Forward summary to General Accounting andAccounts Payable for recording; retain file copy

of summary

Cancel and file voucher packages

P h i d C h Di b t Obj ti


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Purchasing and Cash Disbursements: Objectives,

Potential Errors or Frauds, and Control

Procedures

Control Objectives Types of Errors or Frauds that couldoccur if Objectives is NOT met Control Procedures designed toPrevent or Detect Errors or Frauds

Vendors should be

approved prior to

purchasing goodsPurchase could be made from

unauthorized vendors, potentially

resulting in purchasing from relatedparties without senior managements

knowledge or from foreign vendors in

violation for import quotas

Prepare lists of authorized vendors

Establishing criteria for adding to,

changing, or deleting from the vendor

listTypes, quantities,

payment, terms, and

prices should be

approved for all products

and services

Unnecessary goods may be ordered,

potentially resulting in write-downs of

unusable or unsaleable inventoryMaintain updated guidelines for

purchase transactions (e.g. competitive

bids, specific authorization for all

purchases exceeding minimum dollar

amounts)Goods may be purchased at

noncompetitive prices or unfavorable

terms, resulting in reduced earningsEstablish procedures for reviewing and

approving purchase prices and terms

prior to purchase


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Potential Errors or Frauds, and Control Procedures

Control Objectives Types of Errors or Frauds that couldoccur if Objectives is NOT met

Control Procedures designed toPrevent or Detect Errors or

Frauds

Received goods should be

counted and inspected for

quality

Damaged or unordered goods could be

accepted, potentially creating delays in

receiving the goods desired

Establish procedures for

inspecting and counting goods

received before releasing the

carrier

All cash disbursements for

goods and services should

be based on a bona fide

liability

Cash could be disbursed to

unauthorized parties, potentially resulting

in fraudulent payments

Prenumber and control vouchers

and checks

Duplicate payments could be made,potentially resulting in misspent cash

Cancel voucher packagesimmediately upon payment

Require manual dual signatories

for all checks over a prespecified

amount


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Control Objectives Types of Errors or Frauds thatcould occur if Objectives is NOT

metControl Procedures designed to

Prevent or Detect Errors orFrauds

All goods and services

received should be

accurately and promptly

recorded

Goods may be received but not

reported, potentially resulting in

understated inventory and liabilitiesPrenumber receiving reports, and

subsequently review for prompt

recordingPurchases and cash

disbursements transactions

should be recorded properly

and in the proper accounting

period

Account balances may be

inaccurate, potentially resulting in

misstated financial statementsTotal input documents (e.g., number

of documents, dollar amounts) and

reconcile journals and ledgers

Establish processing and recording

procedures

Purchases and cash

disbursements transactions

should be posted accurately

to individual vendor accounts

Summaries of detailed records may

not agree with control accounts Establish validation procedures toverify postings (e.g., check digits)

Transactions may be posted to

improper vendor accounts,

potentially resulting in improper

payments

Batch and reconcile input totals to

processed and output controls

Promptly investigate


16/16



Access to AssetsControl Objectives

Types of Errors or Frauds thatcould occur if Objectives is NOT

metControl Procedures designed to

Prevent or Detect Errors or

FraudsAccess to purchasing and

cash disbursement records

and to forms and documents

should be restricted to

personnel authorized by

management

Records, form, or documents may

be misused by unauthorized

personnel, potentially resulting in

misstated payables or diversion for

personal use

Establish physical controls over

unused forms and documents

Segregate responsibilities forauthorization, execution, and

recording functionsMaintain listings and samples of

authorized signatories

test of controls in the expenditure or disbursement

Documents