Question

Discuss threats and controls in the expenditure cycle, revenue cycle, and production cycle

Answer 1

Threats and controls in the expenditure cycle are as follows :

Threats :

1. Inaccurate or invalid master data.

2. unauthorised disclosure of sensitive information.

3. Stockouts or excess inventory

4. Ordering unnecessary items

5. Purchasing goods at inflated price.

6. Purchasinh goods of inferior quality.

7. Purchasing goods from unauthorised suppliers.

8. Receiving unordered goods.

9. Theft of goods.

10. Recording and posting errors in Accounts payable.

Controls :

1. There should be data processing integiry controls to prevent inaccurate data.

2. There should be proper access controls and encryption to combat unauthorised disclosure of sensitive information.

3.Inventory control systems could be adopted to avoid stockouts.

4. Actual perpetual inventory records should be maintained to avoid ordering unnecessary items.

5. Proper price list and list of authorised vendors shopuld be maintained to avoid the problem of inflated prices and unauthorised vendors.

6. verification of valid purchase order should be done.

7. Physical access controls should be enforced.

8. Data entry and processing ontrols.

Threats and controls in the revenue cycle are as follows :

Threats:

1. Incomplete or inaccurate orders.

2. Invalid orders.

3. Uncollectible Accounts.

4. Loss of customers.

5. Choosing wrong item or quantity.

6. Failure to bill.

7. Billing errors and posting errors.

8. Theft of cash

9. Cash flow problems.

10. Poor performance.

Controls :

1. Data entry edit controls should be maintained.

2. Digital or written signatures should be there to combat invalid orders.

3. Credit evaluation, approval and limits.

4. Best customer service should be given to retain customers.

5. Bar-code, RFID, automated handling.

6. Segregation of duties: bill, record, adjustments.

7. Use software to create invoice based on sales .

8. Hire competent people and train them.

Threats and controls in the production cycle are as follows :

Threats :

1. Poor product designs.

2. Over or under production.

3. Suboptimal investment in fixed asset.

4. Theft of inventories and fixed assets.

5. Disruption of operations.

6. Inaccurate cost data.

Controls :

1. Improved information about effect of product design changes on total cost.

2. Accurate production planning system.

3. Review and approval of fixed aaste transactions.

4. Restricted physical access to work-in-process and finished goods inventories and to fixed assets.

5. Disaster recovery and business resumption plans.

6. Data entry and proessing controls.