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