Expenditure Cycle

Question 1

Inaccurate inventory records

Answer 1

• Perpetual inventory system
• Bar codes and RFID
• Periodic physical counts with reconciliation

Question 2

Purchase items not needed

Answer 2

• Perpetual inventory system
• EOQ, MRP, JIT systems
• Approval of requisitions
• Centralized purchasing function

Question 3

Inflated prices

Answer 3

• Price lists
• Competitive bidding
• Review and approval of POs
• Budget and comparison of actual to budgets

Question 4

Inferior/poor quality

Answer 4

• Pre-approved suppliers only
• New supplier audit and approval
• Responsibility for scrap or rework
• Quality surveillance and reporting

Question 5

Unreliable suppliers

Answer 5

• Supplier quality certifications (e.g. ISO9000)

- Audit and monitor supplier performance

Question 6

Unauthorized suppliers

Answer 6

• Application control to prevent unauthorized

- New supplier audit and approval

Question 7

Kickbacks

Answer 7

• Policy, training, signed statements, personal disclosure
• Job rotation and mandatory vacations
• Supplier audits to validate PO

Question 8

Accepting unordered items

Answer 8

• Compare to PO

Question 9

Counting errors

Answer 9

• Do not disclose expected quantity
• Bar codes and RFID
• Transfers are re-counted and documented
• Application controls report discrepancies

Question 10

Verifying receipt of services

Answer 10

• Document receipt with signature

- Budget controls and audits

Question 11

Theft of inventory

Answer 11

• Physical access controls
• Document transfers
• Perpetual inventory system
• Physical count of inventory and reconciliation
• Segregation of duties

Question 12

Errors in Supplier invoices, paying for items not received

Answer 12

• Compare invoice to PO and receiving report

- Check math

Question 13

Fictitious vendors/suppliers

Answer 13

• Approve new vendors
• Restrict access to vendor master file
• Document receipt of goods/services

Question 14

Accounts Payable posting errors

Answer 14

• Data entry edit controls

- Reconcile AP subsidiary ledger detail to General Ledger

Question 15

Pay for items not received

Answer 15

• Three way match or ERS
• Check signer reviews voucher package
• Receipts for all expense reports, petty cash, etc

Question 16

Duplicate payments

Answer 16

• Cancel voucher packages when paid
• Require voucher package for each check
• Pay only original invoices
• Application software checks for duplicates

Question 17

Theft of cash

Answer 17

• Pre-numbered, secure check stock
• Secure check signing machine
• Access control for EFT and online banking
• Do not let AP write checks
• Reconcile bank accounts - independent person
• Count cash on hand and reconcile

Question 18

Check alteration

Answer 18

• Special inks and paper

- Positive Pay with banks

Question 19

Missing prompt payment discounts

Answer 19

• Schedule payments on due dates

- Cash flow budget

Question 20

Cash flow problems

Answer 20

• Cash flow budget and monitoring

Question 21

Invalid or inaccurate master data

Answer 21

• Restrict access - Segregation of Master File changes and recording
• Chapters 7&8: encryption, access controls, authorization controls

Question 22

Loss or destruction of data

Answer 22

• Chapters 7&8: disaster recovery plan, offsite backups, insurance

Question 23

Poor performance

Answer 23

• Hire competent people and train them

- Performance reports to identify non-conformance