1. Identify key deficiencies for cash disbursements. After you decide on the deficiencies, include each deficiency in the bottom portion of one of the two matrices.

2. Include aD in the matrix in each column for the objective(s)to which each control deficiency applies.

Figure 12-13 Pinnacle Manufacturing-Acquisition and Payment Cycle CENTRALIZED PURCHASING DEPARTMENT RECEIVING DEPARTMENTS ACCOUNTS PAYABLE CLERK CASH DISBURSEMENTS CLERK Prepare purchase order from approved requisition; P.O. approved by supervisor Receive and check goods Receive vendor's invoice Verifies accuracy and completeness of documents package, dates and approves. Purchase order Receiving report INV Key enter and process cash disbursement transaction data, reconciles to control total R.R. R.R. P.O. REQ P.O. REQ Cash disbursement transaction file Voucher document package vendor Match documents Prepare voucher Notes on controls 2 Print reports Cash disbursements journal Check Purchases can only be made from vendors included in pre-approved vendor file. Key enter and process Chart of accountsthe company uses purchase transaction an adequate detailed chart of accounts. data, reconciles Prenumbered documentsall documents to control total shown are prenumbered. They are accounted for by a function other than the preparer. Clerk follows up weekly on computer Purchase Voucher generated report of unmatched receiving report. transaction document Bank reconciliation-done monthly by file package independent person. Procedures are applied daily. Accounts payable master file total is reconciled to the general ledger total Print monthly reports Treasurer reviews vendor activity for major vendors and commitments requiring disclosure. Acquisitions File description journal 1. Chronological 2. Numerical *Includes voucher, vendor's invoice, receiving report, purchase order, and purchase requisition. Update accounts payable master file To vendor; signed by treasurer (reviews support) Accounts payable master file Figure 12-12 Information for Audit of Accounts Payable Previous Year Accounts payable, 12-31-18 Number of accounts Total accounts payable Range of individual balances Performance materiality for accounts payable 452 $9,460,776 $33.27$677,632.97 $230,000 Transactions, 2018 Acquisitions: Number of acquisitions Total acquisitions 16,243 $92,883,712 Cash disbursements: Number of disbursements Total cash disbursements 23,661 $87,280,031 Results of audit procedurestests of controls and substantive tests of transactions for acquisitions (sample size of 100): Purchase order not approved Purchase quantities, prices, and/or extensions not correct Transactions charged to wrong general ledger account Transactions recorded in wrong period No other exceptions 2 2 1 1 Results of audit procedurescash disbursements (sample size of 100): Cash disbursement recorded in wrong period No other exceptions 1 Results of audit proceduresaccounts payable: (50% of vendors' balances were verified; combined net understatement amounts were projected to the population as follows): Three cutoff misstatements One difference in amounts due to disputes and discounts No adjustment was necessary because the total projected misstatement was not material. $52,349 $9,552 Figure 12-13 Pinnacle Manufacturing-Acquisition and Payment Cycle CENTRALIZED PURCHASING DEPARTMENT RECEIVING DEPARTMENTS ACCOUNTS PAYABLE CLERK CASH DISBURSEMENTS CLERK Prepare purchase order from approved requisition; P.O. approved by supervisor Receive and check goods Receive vendor's invoice Verifies accuracy and completeness of documents package, dates and approves. Purchase order Receiving report INV Key enter and process cash disbursement transaction data, reconciles to control total R.R. R.R. P.O. REQ P.O. REQ Cash disbursement transaction file Voucher document package vendor Match documents Prepare voucher Notes on controls 2 Print reports Cash disbursements journal Check Purchases can only be made from vendors included in pre-approved vendor file. Key enter and process Chart of accountsthe company uses purchase transaction an adequate detailed chart of accounts. data, reconciles Prenumbered documentsall documents to control total shown are prenumbered. They are accounted for by a function other than the preparer. Clerk follows up weekly on computer Purchase Voucher generated report of unmatched receiving report. transaction document Bank reconciliation-done monthly by file package independent person. Procedures are applied daily. Accounts payable master file total is reconciled to the general ledger total Print monthly reports Treasurer reviews vendor activity for major vendors and commitments requiring disclosure. Acquisitions File description journal 1. Chronological 2. Numerical *Includes voucher, vendor's invoice, receiving report, purchase order, and purchase requisition. Update accounts payable master file To vendor; signed by treasurer (reviews support) Accounts payable master file Figure 12-12 Information for Audit of Accounts Payable Previous Year Accounts payable, 12-31-18 Number of accounts Total accounts payable Range of individual balances Performance materiality for accounts payable 452 $9,460,776 $33.27$677,632.97 $230,000 Transactions, 2018 Acquisitions: Number of acquisitions Total acquisitions 16,243 $92,883,712 Cash disbursements: Number of disbursements Total cash disbursements 23,661 $87,280,031 Results of audit procedurestests of controls and substantive tests of transactions for acquisitions (sample size of 100): Purchase order not approved Purchase quantities, prices, and/or extensions not correct Transactions charged to wrong general ledger account Transactions recorded in wrong period No other exceptions 2 2 1 1 Results of audit procedurescash disbursements (sample size of 100): Cash disbursement recorded in wrong period No other exceptions 1 Results of audit proceduresaccounts payable: (50% of vendors' balances were verified; combined net understatement amounts were projected to the population as follows): Three cutoff misstatements One difference in amounts due to disputes and discounts No adjustment was necessary because the total projected misstatement was not material. $52,349 $9,552