Exam 2 (ch 15)

Question 1

Basic Expenditure Cycle Activities

Answer 1

• Order materials, supplies, and services
• Receive materials, supplies, and services
• Approve supplier (vendor) invoice
• Cash disbursement

Question 2

Key decisions

Answer 2

• What is the optimal level of inventory?
• Which suppliers provide the best quality at the best price?
• How can IT be used to improve the efficiency and accuracy of logistics?
  -How can we take advantage of vendor discounts?
• How can we maximize cash flow?

Question 3

General Threats

Answer 3

1) Inaccurate or invalid master data
2) Unauthorized disclosure of sensitive information
3) Loss or destruction of data
4) Poor performance

Question 4

General Controls

Answer 4

1) - Data processing integrity controls
- Restriction of access to master data
- Review of all changes to master data
2) - Access Controls
- Encryption
3) - Backup and disaster recovery procedures
4) - Managerial reports

Question 5

Order Goods (Material/Supplies)
or Services
Processing Steps

Answer 5

Identify what, when, and how much to purchase
- Source Document: Purchase requisition
(Someone needs to request a purchase
and someone to approve it)

Choose a supplier
- Source Document: Purchase Order

Question 6

Ordering Goods/Services

Threats

Answer 6

• Stockouts and excess inventory
• Purchasing items not needed
• Purchasing items at inflated prices
• Purchasing goods of poor quality
• Unreliable suppliers
• Purchasing from unauthorized suppliers
• Kickbacks

Question 7

Controls to this threat:

(stockouts and excess inventory)

Answer 7

• Perpetual inventory system
• Bar-coding, RFID
• Periodic physical counts

Question 8

Controls to this threat:

(Purchasing Items not needed)

Answer 8

• Perpetual Inventory Systems
• Review and approval of purchase requisitions
• Centralized purchasing

Question 9

Controls to this threat:

(Purchasing items at inflating prices)

Answer 9

• Price lists
• Competitive bids
• Review purchase orders

Question 10

Controls to this threat:

(Purchasing goods of poor quality)

Answer 10

• Use approved suppliers
• Review and approve purchases from new suppliers
• Monitor product quality by supplier
• Hold purchasing managers responsible for rework and scrap cost

Question 11

Controls to this threat:

(Unreliable suppliers)

Answer 11

• Monitor supplier performance
• Require quality certification

Question 12

Controls to this threat:

(Purchasing from unauthorized suppliers)

Answer 12

• Purchase from approved suppliers
• Review approval from purchases of new suppliers
• EDI specific controls

Question 13

Controls to this threat:

(Kickbacks)

Answer 13

• Supplier audits
• prohibit gifts
• Job rotation & mandatory vacations
• Required disclosure of financial and personal interests in suppliers

Question 14

Receiving Process

Answer 14

• Goods arrive
  
  • Verify goods ordered against the
    purchase order (what, how much, quality)
  • Source Document: Receiving Report

Question 15

Receiving Goods or Services

Threats

Answer 15

• Accepting unordered items
• Mistakes in counting
• Verifying receipt of services
• Inventory theft

Question 16

Controls to this threat:

(Accepting unordered items)

Answer 16

• Authorized purchase orders needed before receiving goods

Question 17

Controls to this threat:

(Mistakes in counting)

Answer 17

• Bar codes or RFID
• Receiving employees sign receiving-report
• Do not inform receiving of quantity-ordered

Question 18

Controls to this threat:

(Verifying receipt of services)

Answer 18

• Budget controls and audits

Question 19

Controls to this threat:

(Inventory theft)

Answer 19

• Restrict physical access to inventory
• Document all inventory transfers
• Segregate custody vs receiving of inventory

Question 20

Voucher

Answer 20

Supplier invoice + Receiving report + purchase order

Question 21

Review pages 21-26 on the papers

Answer 21

Review pages 21-26 on the papers

Question 22

Approve Supplier Invoice

threats

Answer 22

• Errors in supplier invoice
• Mistakes in posting to accounts payable

Question 23

Controls to this threat:

(Errors in suppliers invoice)

Answer 23

• Verify invoice accuracy
• Require detailed receipts for p-cards
• Restrict access to supplier master data

Question 24

Controls to this threat:

(Mistakes in posting to accounts payable)

Answer 24

• Data entry edit controls
• Reconcile detailed accounts payable records to the general ledger accounts payable account

Question 25

Cash Disbursements

Threats

Answer 25

• Failure to take discounts
• Pay for items not received
• Duplicate payments
• Theft of cash
• Check alteration
• Cash flow problems

Question 26

Controls to this threat:

(Failure to take discounts)

Answer 26

• File invoices by the due date to take advantage of discounts

Question 27

Controls to this threat:

(Pay for items not received)

Answer 27

• Match supplier invoice to supporting documents (Purchase order, receiving report)

Question 28

Controls to this threat:

(Duplicate Payments)

Answer 28

• Pay only original invoices
• Cancel supporting document when payment is made

Question 29

Controls to this threat:

(Theft of cash)

Answer 29

• Physical security of checks
• Separation of duties
• Reconcile bank accounts

Question 30

Controls to this threat:

(Check Alteration)

Answer 30

• Check protection machines
• Special inks/papers

Question 31

Controls to this threat:

(Cash flow problems)

Answer 31

• Cash flow budget