Question

Sandy then moves to the EXPENDITURE CYCLE where she finds the following.

1. All managers have access to blank purchase orders and use them to buy items needed in their respective departments.

2. While a list of “suggested vendors” is available, managers are free to order from whom they wish.

3. The manager enters the vendor name, part-number, and its price on the P.O. and sends it to the vendor and Accounts Payable.

4. Accounts Payable is responsible for making a copy of the P.O. and sending it to the Receiving Department.

5. When the material is received, the receiving personnel review the P.O. for quantity ordered.  

6. The receiving department performs a quick count to see if the quantity on the P.O. agrees with their count.

7. If so, a receiving ticket is written and sent to Accounts Payable.

8. If the quantity counted differs from quantity received, then the receiving personnel accept the merchandise and put it aside until Purchasing can resolve the issue.

9. No receiving ticket is issued in these cases.

10. Accounts Payable compares the receiving ticket, the purchase order, and the vendor invoice for agreement. If all three documents agree, Accounts Payable issues a check to the vendor.

REQUIRED: IN TWO PAGES OR LESS, LIST THE INTERNAL CONTROL WEAKNESSES IN THE ABOVE SCENARIO AND LIST THE INTERNAL CONTROLS THAT SHOULD BE PRESENT. ORGANIZE YOUR ANSWER AS FOLLOWS:

NUMBER WEAKNESS(S) INTERNAL CONTROL(S)

Sandy is rewarded for doing a good job identifying internal control weaknesses by being assigned to a systems design team responsible for developing a new system for the Expenditure Cycle. Specifically, Sandy is tasked with suggesting input edit controls for the above identified weaknesses she identified during her review of the EXPENDITURE system.

REQUIRED: USE THE WEAKNESSES LISTED ABOVE; YOU ARE TO IDENTIFY THE INPUT EDIT CONTROLS NEEDED TO FIX THOSE WEAKNESSES. LIMIT YOUR ANSWER TO ONE PAGE. ORGANIZE YOUR ANSWER AS FOLLOWS:

NUMBER WEAKNESS INPUT EDIT CONTROL

Answer 1

Number	Weakness(S)	Internal control(s)
1	All managers have access to blank purchase orders and use them to buy items needed in their respective departments. All managers should be provided with requisition slip rather than the purchase order.	The requisition should be raised by the department manager by “requisition slip” to the purchasing department. The purchase order should only be with the purchasing department and not with the entire department. Purchase department should be responsible for all the purchase and raising the purchase order. Another department manager should focus on their respective work and not the purchase.
2	While a list of “suggested vendors” is available, managers are free to order from whom they wish. Chances of fraud. Chances of purchase which is not favorable to the company. Managers may purchase from the vendor who offers the bribe to the manager. More quantity can be purchased than required.	It is a major weakness in the internal control system. Formalize a purchasing policy, the person should be authorized to make purchases. The vendor should be selected on the Basis of the most favorable price of the product and quality offered. The price offered and the quantity ordered should be mentioned in a Purchase order. All the terms of the purchase should be mentioned in the purchase order. Compare not only the price and quality but also the payment terms.
3	The manager enters the vendor name, part number, and its price on the P.O. and sends it to the vendor and Accounts Payable Chances of fraud from the manager.	Department manager should not have any right for sending the PO to the vendor and accounts payable. Purchase department should enter the price on the PO on the basis of quotes received from the vendor and terms of the agreement. The PO should be duly signed by the purchase manager and vendor.
4	Accounts Payable is responsible for making a copy of the P.O. and sending it to the Receiving Department.	The purchase order should be made in triplicate which is duly signed. The copy should be sent to Vendor, Accounts payable and receiving department.
6	The receiving department performs a quick count to see if the quantity on the P.O. agrees with their count.	The receiving department should not only perform a count of the quantity but also check that the item is as per the required quality and specification.
7	a receiving ticket is written and sent to Accounts Payable.
8 & 9	If the quantity counted differs from quantity received, then the receiving personnel accept the merchandise and put it aside until Purchasing can resolve the issue. No receiving ticket is issued in these cases. ·         Without issuing the receiving report the receiving department will not be held responsible for the quantity received by the receiving department.	The receiving report must be issued for the difference quantity received by the receiving department. If the receiving report is not issued then the quantity must be mismatched which is actually present in the department.
10	Accounts Payable compares the receiving ticket, the purchase order, and the vendor invoice for agreement. If all three documents agree, Accounts Payable issues a check to the vendor.	Three-way match to assure that only the accurate vendor invoices are recorded and paid. Three-way match involves the following Purchase order What company has ordered at what cost? Receiving report What company has received Vendor invoice what the vendor billed the company