CASE 13-1 Research Project: Impact of Information Technology on Expenditure Cycle Activities, Threats, and Controls

Search popular business and technology magazines (Business Week, Forbes, Fortune, CIO, etc.) to find an article about an innovative use of IT that can be used to improve one or more activities in the expenditure cycle. Write a report that:

a. Explains how IT can be used to change expenditure cycle activities. b. Discusses the control implications. Refer to Table 13-2, and explain how the new procedure changes the threats and appropriate control procedures for mitigating those threats.

TABLE 13-2 Threats and Controls in the Expenditure Cycle

ACTIVITY

THREAT

CONTROLS (FIRST NUMBER REFERS TO THE CORRESPONDING THREAT)

General issues throughout entire expenditure cycle

1. Inaccurate or invalid master data 2. Unauthorized disclosure of sensitive information 3. Loss or destruction of data 4. Poor performance 1.1 Data processing integrity controls 1.2 Restriction of access to master data 1.3 Review of all changes to master data 2.1 Access controls 2.2 Encryption 3.1 Backup and disaster recovery procedures 4.1 Managerial reports Ordering

5. Stockouts and excess inventory 6. Purchasing items not needed 7. Purchasing at inflated prices 8. Purchasing goods of inferior quality 9. Unreliable suppliers 10. Purchasing from unauthorized suppliers 11. Kickbacks 5.1 Perpetual inventory system 5.2 Bar coding or RFID tags 5.3 Periodic physical counts of inventory 6.1 Perpetual inventory system 6.2 Review and approval of purchase requisitions 6.3 Centralized purchasing function 7.1 Price lists 7.2 Competitive bidding 7.3 Review of purchase orders 7.4 Budgets 8.1 Purchasing only from approved suppliers 8.2 Review and approval of purchases from new suppliers 8.4 Tracking and monitoring product quality by supplier 8.3 Holding purchasing managers responsible for rework and scrap costs 9.1 Requiring suppliers to possess quality certification (e.g., ISO 9000) 9.2 Collecting and monitoring supplier delivery performance data 10.1 Maintaining a list of approved suppliers and configuring the system to permit purchase orders only to approved suppliers 10.2 Review and approval of purchases from new suppliers 10.3 EDI-specific controls (access, review of orders, encryption, policy) 11.1 Prohibit acceptance of gifts from suppliers 11.2 Job rotation and mandatory vacations 11.3 Requiring purchasing agents to disclose financial and personal interests in suppliers 11.4 Supplier audits

Receiving	12.Accepting unordered items 13.Mistakes in counting 14.Verifying receipt of services 15.Theft of inventory	12.1 Requiring existence of approved purchase order prior to accepting any delivery 13.1 Do not inform receiving employees about quantity ordered 13.2 Require receiving employees to sign receiving report 13.3 Incentives 13.4 Use of bar codes and RFID tags 13.5 Configuration of the ERP system to flag discrepancies between received and ordered quantities that exceed tolerance threshold for investigation 14.1 Budgetary controls 14.2 Audits 15.1 Restriction of physical access to inventory 15.2 Documentation of all transfers of inventory between receiving and inventory employees 15.3 Periodic physical counts of inventory and reconciliation to recorded quantities 15.4 Segregation of duties: custody of inventory versus receiving
Approving supplier invoices	16.Errors in supplier invoices 17.Mistakes in posting to accounts payable	16.1 Verification of invoice accuracy 16.2 Requiring detailed receipts for procurement card purchases 16.3 ERS 16.4 Restriction of access to supplier master data 16.5 Verification of freight bill and use of approved delivery channels 17.1 Data entry edit controls 17.2 Reconciliation of detailed accounts payable records with the general ledger control account