Expenditure cycle
Four Basic Activities
Ordering
Receiving
Approving Supplier Invoices
Cash Disbursment
Threats & Controls
Threats
Controls
General Threats
Invalid Master Data Controls
Inaccurate or Invalid Master Data
Suppliers Master Data
Untimely deliveries
Sending payments to the wrong adress
Fraudulent cash disbursements
Ordering from unapproved suppliers
Inventory Master Data
Production delays
Unnecessary purchases
Excess inventory
Purchase Master Data
Unauthorised purchases
Failure to take advantage of discounts
Data Process Integrity Controls
Restrict access to the system
Segregation of duties
Regular reports and verification of the Master Data
Unauthorised disclosure of sensitive information
Unauthorised disclosure of sensitive information
Strong access controls to such information
Limit the ability to use the built-in query system
Encryption of sensitive data
Information encryption during transmission
Loss or destruction of Master Data
Loss or destruction of Master Data
Back up or recovery procedures
Dividing the ERP system in three different instances
Extensive Reporting
Types of Ordering Systems
Materials Requirements Planning (MRP)
Just-in-time Inventory system (JIT)
Four Basic Activities Threats
Ordering
Inaccurate Inventory Records
Four Basic Activities Controls
Ordering
Perpetual Inventory Method
Products of inferior quality
Using Information Technology
Periodical Inventory Checks
Purchasing unneeded Inventory
Revision and approval of purchase invoices
Centralized purchasing function
Economic Ordering Quantity (EOQ)
Choosing a Supplier
Price
Quality of Material
Dependability in making deliveries
Vendor-Managed Inventory (VMI)
Storing a price list of frequently bought items
Purchasing at inflated prices
Competitive Bids for high price items
Review of Purchase Invoices
Budgets
Making a list of approved suppliers
Collection of Quality Product Data
Unreliable Performance by Suppliers
Dealing with certified suppliers
Using the system to track information about the suppliers
Approving purchases only from suppliers marked as approved in the Master Data
Kickbacks
Prohibiting people from accepting gifts
Job rotation
Purchasing agents should sign annual conflict of interest statements
Auditing the suppliers
Receiving
Receiving report
Item Number
Description
Unit of measure
Quantity
Exceptions
Identification of the receiver
Receiving a different amount than the one ordered
Receiving damaged goods
Receiving goods of inferior quality
Debit Memo
Copy is send to the supplier
Receiving
Accepting delivery of unordered goods
Accepting deliveries only with purchase invoice
Mistake when counting the items received
Usage of the Inquiry Process System
Receiving Clerks should record the quantity of received goods in the system but also sign the purchase invoice
Offer bonuses for job well done
Use of RFID and Bar codes
Configurating the ERP system to flag discrepancies
Establishing if a certain service has actually been done
Actual and Budget expenses should be compared when a discrepancy arises
Internal Auditing
Theft of Inventory
Restricted Access to Inventory warehouses
All transfers of Inventory should be documented
Periodical count of Inventory on hand
Segregation of duties
Invoice is matched with a purchase order
Voucher Package is created
Two types of processing invoices
Voucher type system
Non-voucher type syste
Additional document is created - Disbursement voucher
Advantages
Reduce the number of checks needed to be written
The disbursement voucher simplify the tracking of all payables
Separates the time of invoice approval from its payment
Evaluated Receipt Settlement (ERS)
Procurement Card
Can only be used on designated suppliers to purchase specific kind of items
Approving suppliers' Invoices
Errors on the Supplier Invoice
Freight expenses
Approving Supplier Invoices
Verifying the mathematical accuracy of the invoices
Require of people using procurement cards to keep the receipts and verify the accuracy of the monthly statement
Adopting the Evaluated Receipt Settlement (ERS) system
Periodical Audits for freight expenses
Data entry and processing controls
Mistakes in recording and posting payments to suppliers
The total of all suppliers account balances (or unpaid vouchers) should be reconciled with the accounts payable account in the general ledger
Cash Disbursement
The ERP system should periodically print a list of all outstanding invoices as well track the invoices due date
Cash Disbursement
Not taking advantage of discounts
Paying for unreceived goods
Making a cash flow budget
Comparing the quantity of ordered and received goods
Reimbursements of travel and entertainment expenses
Budgetary controls and review of department expenses
Submitting a conference agenda, names of traveling employees in order to verify the validity of the trip
Requiring all employees to use corporate credit cards for paying business expensess
Suppling the company with fraudulent information
Duplicate Payments
Invoices should only be improved for payment only when they come with a complete voucher package
Only the original copy of a invoice should be paid
When an invoice is paid the invoice along with the voucher package should be canceled
Regular audits of all payments to suppliers in order to detect duplicates
Restricted control to cash incentives
Theft or misappropriation of funds
Checks should be sequentially numbered and periodically accounted for by a cashier
Controls over all outgoing EFT transactions
Designated computer for online banking
Key-stroke logging software
Automated Clearing House blocks (ACH)
Issuance of fake checks
Segregation of duties
Checks in-between 5000$ and 10000$ should require two signatures
Someone who did not participate in processing the cash or in the disbursement should reconcile all bank accounts
Restrictions to the approved suppliers list
Restriction of the ability to create one time supplier account
Petty cash fund should be created
Check - protection machines
Check alternation
The one in charge of the petty cash fund is held liable for any missing receipts or cash
Usage of special paper for making checks
Using services such as Positive Pay
Cash flow problems
Creating a cash flow budget