Question

Identify six classes of physical controls employed in the expenditure cycle and give examples of each.

Answer 1

In expenditure cycles we have the following class of physical control:

• Transaction authorisation: Every expenditure shall be disbursed by that employee who have been given the authority to execute it. Also it should be ensured such disbursements have been adequately approved, if subject to any approval. Example include, postage and courier checks are prepared by finance staff, approved by the finance manager and paid by cashier. Thus the roles are clearly defined to authorize the transactions.
• Segregation of duties: Every authorized transaction shall flow through at least two employees such that one persons makes the payment and other maintains the document. This helps in early detection of error or fraud. Example, vendor manager approves the bill and cashier makes the payment and acknowledges the document.
• Supervision: The organisation structure should be such that work of one person automatically comes under the supervision of the other. Example, as explained in point 1, postage and courier checks written is subject to supervision of the book keeper.
• Accounting Records: Documents, vouchers and records both physical and electronic shall be offered adequate protection. Example, Vouchers and Bill's paid shall be kept in custody of authorized employee and kept in safe place not subject to unauthorised access and damages.
• Access controls: These controls are put in place to ensure only authorized personnel make payments. Example, login controls and authorisation access controls in internet banking make sure only those with access make wire transfers.
• Independent verification: Records of expenditure and its records shall be independently verified by a person. Example, internal auditors verify and do a three way match of the books of accounts, bank statements or dsupporting voucher for payments and bill from vendors.