Question

Which internal control procedure would be most cost-effective in dealing with the following expenditure cycle threats?

A purchasing agent orders materials from a supplier that he partially owns.

Receiving-dock personnel steal inventory and then claim the inventory was sent to the warehouse.

An unordered supply of laser printer paper delivered to the office is accepted and paid for because the “price is right.” After all of the laser printers are jammed, however, it becomes obvious that the “bargain” paper is of inferior quality.

The company fails to take advantage of a 1% discount for promptly paying a vendor invoice.

A company is late in paying a particular invoice. Consequently, a second invoice is sent, which crosses the first invoice’s payment in the mail. The second invoice is submitted for processing and also paid.

Inventory records show that an adequate supply of copy paper should be in stock, but none is available on the supply shelf.

The inventory records are incorrectly updated when a receiving-dock employee enters the wrong product number at the terminal.

A clerical employee obtains a blank check and writes a large amount payable to a fictitious company. The employee then cashes the check.

A fictitious invoice is received and a check is issued to pay for goods that were never ordered or delivered.

The petty cash custodian confesses to having “borrowed” $12,000 over the last five years.

A purchasing agent adds a new record to the supplier master file. The company does not exist. Subsequently, the purchasing agent submits invoices from the fake company for various cleaning services. The invoices are paid.

A clerk affixes a price tag intended for a low-end flat-panel TV to a top-of-the-line model. The clerk’s friend then purchases that item, which the clerk scans at the checkout counter.

Read Chap 13 Introduction and replicate the following diagrams and flowcharts in EITHER Word/Excel/software or in hand-writing (rather than copy and paste or even print from the textbook) and then make submission by (1) uploading Word/Excel/software file, (2) converting into PDF file and then submiting, or (3) taking pictures and then turning in. (Note: A student will receive zero if copying and pasting or even printing from the textbook).   

Figure 13-1 Context Diagram of the Expenditure Cycle

Figure 13-2 Level 0 Data Flow Diagram for the Expenditure Cycle

Figure 13-3 Overview of ERP System Design to Support the Expenditure Cycle

Answer 1

Identify the best control procedure for the given scenario:

a.Require that purchase order be reviewed and authorized by someone other than the purchasing agent.Also mutiple bids alternatives should be included to show that the purchasing agent isnt purposefully ordering from thier outside business.

b.Restrict access to the inventory to only authorized personnel.Also require documentation for all the inventory transfers.

c.Require the receiving department to inspect the goods received before accepting.Also the purchasing department should be certain to keep records of shipments from vendors that are inadequate in quality in order to aviod purchasing from them in the future.

d.Better record keeping and timely entry and filing of invoices in order to ensure opportunity to take cash discount .

e.Require that the system reject mutiple invoices with the same invoice numbers.

f.Perform periodic inventory counts more often.Also restrict access to inventory to only authorized personnel.

g.Use of closed loop verification in the process in order to make sure that the correct item is being received and entered in the system.

h.Require dual signatures for checks over a certain threshold.Also the check stock should be keot in a locked are where access is restricted to only authorized personnel.

i.Verify invoices against receiving tickets and purchase orders prior to processing payment to vendors.

j.Periodic review and reconciliation of petty cash account by someone other than the custodian.

k.Restrict access to the master file to only authorised personnel.Someone other than the entry check should also be reviewed and approve changes to the file.

l.Restrict access to pricing data to only aurthorized personnel.Someone other than the sales clerk should also review and approve changes to the file