AISA BANSAO

IT CNCPS SEC 1

Expenditure Cycle - Internal Controls Assessment

Hi guys, as announced, we'll be providing activities for you to complete during the
quarantine season. 
For this assignment, you are tasked to perform and identify potential internal controls
and how it can address certain risk/issue.  Be as creative as you can. (e.g. Control - The
AP clerk performs three-way matching (invoice, purchase order,  receiving report) prior
to processing payment to vendor. Risk - Unauthorized payment to fictitious
purchase/vendor.)
Fixed Assess System
The fixed asset acquisition procedures for ABC company, are as follows:
Supervisors in the user departments determine their fixed asset needs and submit bids or
orders directly to contractors, vendors, or suppliers. In the case of competitive bidding,
the user makes the final selection of the vendor and negotiates the prices paid. The
assets are delivered directly to the user areas. The users inspect and formally receive the
assets. They submit the invoice to the cash disbursements department for payment.
Please prepare your answers a yellow pad/intermediate paper to be submitted  in our
next meeting
You can refer to Chapter 3-4 (week 3-4).pdf  for discussion on Internal Controls.

Control
1. Supervisors determining their fixed asset needs and then submitting bids is
basically the inventory control function. As inventory levels drop to their
predetermined reorder points, inventory control formally authorizes
replenishment with a purchase requisition. Formalizing the authorization
process promotes efficient inventory management and ensures the legitimacy
of purchases transactions.
2. When goods arrive from the supplier, receiving clerks must inspect items for
proper quantities and condition. The receiving clerks will also receive a blind
copy of the original PO from purchasing. A blind PO has all the relevant
information about the goods being received except for the quantities and
prices. To obtain quantities information, which is needed for the receiving
 report, the receiving personnel are forced to physically count and inspect the
goods.
3. When all goods are inspected and ready for payment. The AP function should
authorize cash disbursements via the cash disbursement vouchers. To provide
effective control over the flow of cash from the firm, the cash disbursements
function should not write checks without this explicit authorization.
4. During a cash disbursement event the tasks writing checks, posting to the
cash account, and maintaining AP should all be segregated.
Risk
1. Without formalizing the authorization process for inventory control,
purchasing agents could purchase inventories at their own discretion, being in
a position both to authorize and to process the purchase transactions.
Unauthorized purchasing can result in excessive inventory levels for some
items, while others go out of stock.
2. If receiving clerks were provided with quantity information via an open PO,
they may be tempted to transfer this information to the receiving report
without performing a physical count. Inspecting and counting the items
received protect the firm from incomplete orders and damaged goods.
3. A cash disbursements journal (check register) containing the voucher number
authorizing each check provides an audit trail for verifying the authenticity of
each check written.
4. An individual with the combined responsibilities of writing checks, posting to
the cash account, and maintaining AP could perpetrate fraud against ABC
company. For instance, an individual with such access could withdraw cash
and then adjust the cash account accordingly to hide the transaction. Also, he
or she could establish fraudulent AP (to an associate in a nonexistent vendor
company) and then write checks to discharge the phony obligations.