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45 Cards in this Set

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What is the primary purpose of the acquisition payment process?
The primary purpose of the acquisition/payment process is to obtain the resources the organization needs and to pay for them.
How do we think about the acquisition payment process and what does it deal with?
The acquisition/payment process is principally related to procurement and inbound logistics. Procurement is a synnym for purchasing; inbound logistics refer to the process of getting resources from where they are to where they're needed.
What are the steps in the acquisition/payment process?
1. Request goods and services based on monitored need.
2. Authorize purchase
3. Purchase goods/services.
4. Receive goods and services.
5. Disburse cash.
6. When necessary, process returns.
Acquisition/payment process Step 1.
1. Request goods/services based on a monitored need.

Organizations use all sorts of tools and techniques to establish the need for a good or service. Inventory levels for example, might be monitored with a recorder point' orders could be based on an economic order quantity formula. Other resources may be time-sensitive; for example, your car insurance bill may be paid monthly or semiannually. A special project, such as the design and implementation of an AIS system may lead to a request for goods or services on a more episodic basis. In many organizations, requests for inventory, supplies, and services are coordinated through a central purchasing department, thus creating economies of scale and discounted purchase prices.
Acquisition/payment process STep 2.
2. Authoriza a purchase.
This step promotes good internal control. For example, the AIS instructor may be authorized to select her own textbook for the course or the decision could be a collaborative one, with a department chair or course coordinator having the final authorization for placing a textbook order. Even in the bookstore not every employee is authorized to deal with publishers and suppliers; rather, that right is probably vested in a single employee or a small group.
Acquisition/payment process Step 3
3. Purchase goods/services.
Once a purchase has been authorized, the appropriate documentation must be submitted to the vendor/supplier.
Acquisition/payment process step 4
4. Receive goods and services.
Major purchases of goods, particularly inventory, are received through a dedicated receiving departent for stronger internal control. Individual employees, however, may be authorized to make small purchases using company credit or debit cards.
Acquisition/payment process step 5
5. Disburse cash
Once the goods have been properly purchased and received, accouting personnel generate payment to the vendor. Keeping a solid audit trail is very important here, as it is in the other steps and in the sales collection process.
Acquisition/payment process step 6
6. When necessary, process purchase returns.
If received goods are defective, do not meet quality standards, or are otherwise unacceptable to the buyer, they may need to be returned to the vendor.
The steps between the sales/collection and acquisition/payments cycle and how they relate.
sales collection:
take customer order
ship product
collect payment

Acquisition/payment:
Purchase goods and services
Receive goods and services
Disburse cash.
Electronic data interchange
Documents can be either paper or electronic. Documents in both processes can be transmitted electronically using electronic data interchange.
How does the form cycle go in an acquisition payment cycle?
Once an operating department establishes the need for a good or service; its personnel generate a purchase requisition. The purchase requisition, like all forms, should have a clear title and penty of white space for easy reading. Information should be complete and logically laid out. In most cases, the operating department keeps a copy of the purchase requisition for its own files and sends a copy to the purchasing department.

The purchasing department then will consolidate various purchase requisitions into a single purchase order. Consolidating purchase requisitions may allow the company to take advantage of quantity discounts. Creating a separate urchasing department also facilitates strong internal control through separation of duties. Purchasing agents may be in charge of dealing with a specific set of vendors, a certain group of parts ar suppliers or the purcahse rqequisitions of one or more departments. While the purchase requisition generated from operating department is an informal, internal document, the signed purchase order functions as a "contract" between the company and the vendor. The purchase requisition will normally include the goods and quantities requested. The purchase order will specify the vendor, the expected price the freight terms, and other important data for the transactions. In most cases, the purchasing department keeps a copy on file and sends a copy to receiving and accounting departments.

When the goods arrive from the vendor, the receiving department prepares a receiving report. The goods should be matched and verified aganinst an existing purchase order to ensure the co does not receive goods that were not properly ordered. The receiving personnel also may verify quantity and condition before accepting deliery. Commonly, the receiving department copies the accounting department and purchasing departmet as well.

The accounting department receives both a copy of the purchase order and a copy of the receiving reprort. When the vendor mails an invoice for payment, then, accounting personnel use those documents to ensure that the invoice reflects goods that were properly ordered and received before generating payment. The department then issues a check in payment of the invoice, taking advantage of any discounts offered.
What does the accounting department do in the acquisition/payment process?
The accounting department receives both a copy of the purchase order and a copy of the receiving reprort. When the vendor mails an invoice for payment, then, accounting personnel use those documents to ensure that the invoice reflects goods that were properly ordered and received before generating payment. The department then issues a check in payment of the invoice, taking advantage of any discounts offered.
What happens when the goods arrive from the vendor?
When the goods arrive from the vendor, the receiving department prepares a receiving report. The goods should be matched and verified aganinst an existing purchase order to ensure the co does not receive goods that were not properly ordered. The receiving personnel also may verify quantity and condition before accepting deliery. Commonly, the receiving department copies the accounting department and purchasing departmet as well
Purchase requisition
Basic purpose
originator
receipient
Basic purpose: To request that the purchasing department order goods or services from a vendor.
originator: Operating department
receipient: Purchasing department
Purchase order
Basic purpose
originator
recipient
Basic purpose: To specify the items to be ordered, freight terms, shipping address, and other information for the vendor.
originator: purchasing department
recipient: vendor
Receiving report
Basic purpose
originator
recipient
Basic purpose: To ensure that goods have been ordered and received in good condition
originator: receiving department
recipient: various departments
Vendor invoice
Basic purpose
originator
recipient
Basic purpose: To request payment from a customer
originator: vendor
recipient: accounting department
Check
Basic purpose
originator
recipient
Basic purpose: to pay the vendor
originator: accounting department
recipient: vendor
What are internal controls designed to do?
Internal controls are designed and implemented to provide reasonable assurance not absolute assurance.
Risk: Ordering unneeded goods
a. institute a system for monitoring inventory. In addition to traditional systems like EOQ, many organizations use information technology to monitor inventory levels.
b. REquire justification for unusual orders or orders over a specified dollar amount. If an employee is ordering goods unnecessarily or is attempting to defraud the organization by ordering goods for personal benefit, an additional authorizing signature or approval process can be effective in detecting the problem.
c. Specify the business purpose for ordered goods. This control is connected to the previous one. Consider, for example, a company with unusually high travel expenses. Employees should be required to justify the business purpose of a trip before taking it.
Risk: Purchasing goods from inappropriate vendors.
a. develop and enforce a conflict of interest policy. Such policies make clear the actons tht constitute a conflict of interest, as well as the consequences for engaging in those actions.
b. Establish criteria for supplier reliability and quality of goods. Managers may establish standards for delivery time, product quality, and availability for their suppliers. Home Depot, for example, requires its vendors to maintain adequate inventory levels in their own operations so that they can fill Home Depot's inventory needs.
c. Create strategic alliances with preferred vendors.
Porter conceptualized the value chain as a way of "examining all the activities a firm performs and how they interact. . . . the value chain disaggregates a firm into its strategically relevant activities, it may form a strategic alliance with orgaizatios that are more adept at other value chain components. For example, an outstanding manufacturer may establish a strategic alliance with a particular common carrier, thus creating value for both organizations.
Risk: Receiving unordered or defective goods
a. Match receiving reports with approced purchase orders. Document matching is a fundamental internal control found in may organizations. In the acquisition/payment process, the receiving clerk should verify that goods have been ordered by an authorized company representative before accepting them. Goods received without a purchase order are suspicious; suh receipts should either be refused outight or investigated more carefully to ensure no fraud is involved.
b. Inspect goods before accepting a shipment. This control is especially applicable when dealing with very specialized goods. Receiving clerks should have a clear grasp of acceptable quality standards and verify that (at least) a sampling of products meets those standards.
c. Insure products en route. Purchasing transit insurance cannot necessarily prevent damage, but it can help organizations recover financially if goods are damaged in transit.
Risk: Experiencing theft of inventory and/or cash
a. establish an internal audit function. The Sarbanes Oxley act of 2002 has done a lot to establish the importance of internal audits in organizations.
b. REconcile bank statements promptly. Failure to reconcile promptly may lead to major loss of cash due to embezzlement.
c. Separate authorization, custody, and usage functions for both inventory and cash. Separation of duties is another common and essential, internal control procedure. Three important duties should always be separated to foster good internal control: physical custod of an asset, authorizaton for use, and recordkeeping used for it.
d. install employee monitoring systems. Systems like these are controversial and may involve ethical and legal issues. Such as one company puts detection sensors in employee's identification badges. The sensors allowed managers to track employee ovement inside headquarters
e. Bond employees who handle high value goods. Fidelity bonding is a form of insurance focused on employee behavior. According to kishel an kishel, three types of fidelity are common. "Individual bonds cover theft from a specific named individual. Schedule bonds list every name or position to be covered. Blanket bonds cover all employees without reference to individual names or positions.
Risk: Making errors paying invoices
a. require document matching (purchase order, receiving report, invoice) before issuing a check. This contro technique is especially effective when incorporated with good separation of duties. When the accountant/cash payment clerk has all three docuentsin hand he or she will know all goods were properly ordered and received. The invoice will show the amount due and the accountant /cash payments clerk will cut a check for the vendor.
b. Employ information technology to take advantage of available discounts. Most general ledger software packages, such as Quickbooks, can prompt users to pay invoices before cash discounts expire.
c. Stamp documents paid to avoid uplicate payment. This control seems simple, but it is very effective in avoiding duplicate payments. Whether documents are stamped electronically or physically, they should somehow be marked so they are not paid more than once.
How can IT help the acquisition payments process?
1. Paying vendors online. Most online banking systems have strong internal controls built in such as passwords, lockouts, and transaction numbers. Online payments are much more efficient.
2. Utilizing barcodes for inventory. Bar codes can be used to monitor inventory levels an to make pricing changes easily.
3. RIFD Tags can be used to track goods from the receiving function to the warehouse and can be used for remote data transfer in vitrually any business process.changes easily.
What risks are involved in ordering?
1. inaccurate ordering or purchasing items not needed ordering incorrect items.
2. paying too much for the goods
3. kickbacks the person doing the ordering overcharges and keeps the profits.
4. purchasing from unauthorized or unreliable vendors.
5. purchasing inferior goods.
What can be done to prevent inaccurate ordering/purchasing items not needed/ and ordering incorrect items?
1. Good inventory tracking such as RFID tags can be used.
2, Physical counts
3. Authorized signatures necessary for all ordering.
What can be done to prevent paying too much for goods?
1. Price limit checks
2. Competitive biding
3. Analyze variances between planned and actual.
What can be done to prevent kickbacks for the person doing the ordering?
1. Financial discolosure requirements which mean the relationship must be disclosed.
2. Ethical training to help employees understand acceptable limits.
3. Job rotation so if someone is doing kickback ordering there's a chance they will get caught.
4. Mandatory vacations.
What can be done to prevent from purchasing from unauthorized or unreliable vendors?
1. Standards can be set for vendor reliability.
2. Monitor vendor performance data.
3. Computer limit systems to permit purchases only from approved suppliers.
4. Strategic alliances with preferred vendors.
What can be done to prevent purchase of inferior goods?
1. Purchasing manager is responsible for the rework and scrap variances.
What risks are involved with receiving?
1. Could receive and accept unordered goods.
2. counting errors/quality inattention in receiving function.
3. Theft of inventory/cash
4. Verifying receipts of services.
What can be done to prevent reeiving and accepting unordered items?
1. Receiving unit must have an approved PO before accepting delivery.
What can be done to prevent counting errors/quality inattention in receiving function?
1. Blind receiving report where you don't know what you're supposed to have signed and initialed.
2. Differences noted in the system immediately when there is a difference between quantity ordered and received.
What can be done to prevent theft of inventory/cash?
1. Access controls, People who have access to inventory are limited.
Document transfers of inventory between receiving and the floor.
What can we do to prevent verifyin receiptes of services?
1. Must be a PO system for services.
2. Reporting system that triggers payments.
What risks are involed with approving supplier invoices and cash dispursements
1. Errors in invoices
2. Payments for non-approed invoice/services
3. Duplicate invoices paid
4. theft of cash
5. unauthorized travel expenses.
What can be done to prevent invoice errors?
1. Internal math checks in the system
2. internal price checks
What can be done to prevent payments for non-approved invoice/services
1. Computer programmed to match receiving report, PO, and invoice. IF there's an exception require human manual override.
What can be done to prevent duplicate payment of invoices?
1. 2% of all payments are duplicate payments..
2. Do periodic duplicate payments studies. Do a query for 1# off and or for # transpositions.
4. Systems must cancel invoices after payment. When a check is generated cannot access that number anymroe.
What can be done to prevent theft of cash?
1. monthly bank reconciliation prepared by someone who does not have cash custody which looks for differences in check numbers.
2. Physical controls on cahs/checks
3. Run queries on check usage.
4. Lockdowns on EFT's on most accounts.
5. imprest systems. Imprest payrol or dispursement checks.
Imprest
Gets money transcribed in a certain amount. That 's it. If a person were to try to use their check twice there won't be enough funds to cash it.
What can be done to prevent unauthorized travel expense recognition?
1. Documentation
2. supervisor approval
3. limit checks
Internal control questionaire questions
1. Are prenumbered purchase orders a requirement?
2. Do you count goods before accepting a shipment?
3. Are purchase orders matched with receiving reports?
4. Are there price limit checks to prevent paying too much for goods?
5. Are mandatory vacations enforced to prevent theft of inventory?
6. Are managers responsible for rework and scrap variances?
7. Is the receiving department required to prepare a blind receiving report?
8. Are invoices stamped paid once payment has been remitted
9. Is a monthly bank reconcilliation prepared?
10. Is there an imprest bank account for payroll?