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24 Cards in this Set
- Front
- Back
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Purpose |
ensure that goods and services are recorded as necessary receive goods as they arrive and verify condition safeguard physical goods verify that invoices received are valid and correct record and verify expenditures promptly and accurately post obligations tot he AP sub ledger ensure that disbursements are related to authorized expenditures record and classify cash disbursements prep docs and reports
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Functions |
recognize the needs for goods and services place orders for goods and services receive and store deliveries check the validity of payment obligation prepare disbursement posting process reports |
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Recognize the needs for goods and services- triggered by the inventory system |
a.back orders represent a need to expedite b. long term procurement contracts -deliveries are based on standing order-not based on need c.continual basis billing-use and get billed for what you need: metered electric or water |
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Place order for goods and services using documents |
a. purchase requisition b.purchase order- should have expiration date
vendor selection: request for proposal (RFP) followed by vendor bidding
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Receive and store deliveries |
a. receive at centralized area to maintain SOP -receiving doc lists who the vendor is and when it was received b. merchandise is unloaded and counted and checked for conformance -conformance: is this the amount and item that I ordered c. items moved using controls to secure area
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checking the validity of a payment obligation (vouching the invoice) |
a. invoices are logged upon receipt b.validate the invoice- only pay for what is received, not ordered - before paying, check against receiving document -are prices correct? are discounts honored? c.independent recalculation of the invoice -create the obligation in the AP sub journal and purchases journal
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Prepare disbursements |
a. payment is made within discount period or net 30 b. checks prepared on the basis of standing obligation-payable should already exist- duty should be separate c.check payments should be reviewed by an independent party (maybe by random sampling) d.EFT
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Posting Process |
Batch v. Realtime
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Reports |
a. purchasing summary- if company is doing repeat purchases of the same item, should be ordering in bulk b.cash disbursement summaries c.budgets
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Other |
a.payroll disbursement is special case and handled separately b.fixed assets are handled separately c.purchase returns d.petty cash
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Risk Exposures |
goods are not needed goods were received and not ordered goods ordered have not been received buyers favor suppliers with conflict of interest supplier changes more than agreed damaged goods loss of purchase discount double payment disbursements to fictitious parties disbursement errors paying for goods never received fraudulent alteration of checks loss of support documentation |
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Goods ordered are not needed |
1.Money is tied into non productive assets 2.Why does this happen -I have over ordered because I don’t trust book inventory system and I have over ordered to avoid stock outs 1. To fix: do a periodic inventory ii. Lack of coordination 1. If one store has excess merchandise, it should be transferred as opposed to ordered 2. Controls: Risk management There is an authority level- buyers should have a limit to the amount of money they can commit on their own authority |
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Goods received have never been ordered |
Vendor may have made a substitution without consulting customer Vendor has “feather bedded” the order- thrown in a a few things that you didn’t ask for “Product dumping” -control- the receiving doc cannot accept a delivery without an open purchase order-taking delivery and refusing to pay later may create a legal liability -the person in receiving should not be able to create a purchase order (read only access)- otherwise they could make a deal with the delivery trucker and fake a purchase order |
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Goods ordered have not been received |
a. The purchase order should have an EDA (estimated date of arrival) i. Anything that is over due is reported on- needs follow up |
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Buyers favor suppliers with a conflict of interest |
Buyers need to do what is in the best interest of the owners- “the fiduciary relationship” Can the buyer ever accept gratuity from the vendor? a.Some employers “0 tolerance” ; b.Some set financial limitsControl: having an SOP with respect to vendor selection |
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Supplier charges more than agreed |
Supplier charges more than agreed |
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Damaged goods |
Immediate check for damage at receiving Problem with non visible damage i. Inventory should be tested in a timely manner |
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Loss of purchase discount |
Failure to take a discount is viewed as a loss – discounts should not be missed i. Control: library system to monitor 2-10 net 30’s |
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Double payment for merchandise |
i. Control: once inventory is received, receiving document and purchase order need to be Cancelled/ closed |
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Disbursements to fictitious parties |
Large companies deal with a lot of invoices What if the purchase order and receiving document are also faked? |
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Disbursement errors |
Overpayments |
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Disbursements for goods never received |
Disbursements for goods never received |
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Fraudulent alteration of checks |
Can be avoided using electronic deposit Control is back reconciliation |
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Loss of support documentation |
Don’t lose it Imaging has risks |
