Expenditure cycle

Question 1

expenditure cycle?

Answer 1

expenditure cycle is the exchange of goods or services for cash

Question 2

the key decisions to be made in the expenditure cycle, and identify the information needed to make those decisions

Answer 2

• Key decisions: what, when, how much to purchase and from whom.
• Inventory control is a key factor:
• Inaccurate records are major problem.
• Inventory control - various methods used:
  Economic Order Quantity (EOQ)
  the number of units that a company should add to inventory with each order to minimize the total costs of inventory
  Just in Time Inventory (JIT) – “pull” system
  the components and sub-assemblies used to create finished goods are delivered to the production area exactly on time.
  Materials Requirements Planning (MRP).
  a software-based solution that works backwards from customer orders to determine when materials will be needed for production and then initiates their purchase to have delivery coincide with upcoming manufacturing runs and scheduled product delivery dates

Question 3

Opportunities for fraud

Answer 3

• Bribery and corruption
  Favouring particular vendor in exchange for bribes or due to a conflict of interest
• Accounts payable fraud
  Creating fake vendors/shell companies in the vendor master data.
  duplicate payments
  Payments below approval limits
  Personal purchases on company account

Question 4

How to detect fraud by?

Answer 4

• Vendor
  overcharging –> Price contrary to agreement
  Duplicate billing–> duplicate invoices
  short supplying–> Invoice doesnt match receipt
• Employee
  Fake vendor –> vendor not in white pages
  Own bank account –> Shared bank account
• Employee and vendor
  Kickback –> growth in purchasing from vendor