EXPENDITURE CYCLE

HERE ARE 7 SCENARIOS REGARDING THE EXPENDITURE CYCLE

PLEASE IDENTIFY THE THREATS IN THE EXPENDITURE CYCLE AND CONTROLS ASSOCIATED WITH EACH SCENARIO

1). Peter owns a small company and purchases several raw materials from local companies. He has an office manager who acts as the payroll clerk, purchasing agent, and HR administrator. Peter has complete confidence in him. Purchases are made by phone, with an email confirmation sent by the vendor listing the products ordered and the price. Invoices from the vendor go to Peter who approves them and sends them to the cashier for payment.

2). The receiving dock at the ABC Corp. accepts shipments from vendors and records the receipts on a copy of the P.O. which is then re-copied and sent to accounts payable for payment. Accounts Payable re-adds the vendor invoice and if incorrect, makes manual adjustments to it before issuing a check for payment. The secretary to the A/P Department mails the checks to the vendors.

3). Bob is the general accountant for a company, and he also records the signed checks in the cash journal and then sends them to the appropriate vendor. Bob receives the canceled checks back along with the bank statement which he reconciles and makes any adjusting entries to the general ledger.

4). Brenda is the buyer at a medium sized company. She oversees ordering office supplies and is also responsible for finding new vendors and vetting their ability to meet the companys needs. Once Brenda finds a new vendor she likes, she adds the vendor to the database including the price and vendor information, such as address and bank account number. Brenda occasionally must override the price because of price changes or changes in shipping terms. Brenda approves all vendor invoices for payment.

5). The warehouse workers at a company assist the receiving personnel when they are busy. During such times, the warehouse employees write down the name of the vendor, product number, and quantities on a sheet of notebook paper using info found on the shipments packing slip. The papers are then given to the receiving personnel for entry into the system. The system automatically updates inventory upon receipt and forwards a copy of the receiving ticket to accounts payable.

6). Inventory is re-ordered automatically based on a Just-in-Time inventory system (JIT). The inventory system is automatically updated with receipts from receiving tickets and shipments from sales invoices. During the last quarter management noticed that several items supposedly in inventory were not available when ordered. An internal auditor noticed that some receiving tickets were sitting in the receiving clerks desk drawer and several tickets appeared to be missing based on a gap in the date recorded on the receiving ticket, although the auditor could not be sure.

7). Accounts Payable processes vendor invoices for payment. As such, it matches the vendor invoice with the P.O. and the receiving ticket. Once the vendor invoice is approved for payment (e.g., vouched), the clerk files the documents in a drawer. The clerk then issues a check for payment and mails the check to the vendor.