Purchases and Payments cycle Flashcards
Risks and internal controls in the cycle
1.Ordering of Goods from Suppliers
Purchases could be made from fictitious suppliers due to fraud
Purchases could be made for items not needed by the business due to not having updated stock records or negligence (human error)
Purchase orders could be for the incorrect quantity or price due to capturing errors
Not all orders are recorded due to order forms being lost or staff being overworked and making errors
Orders are made too late due to inefficiencies in the ordering system or outdated records
There is a risk that goods of an inferior quality are ordered due to management not doing research on suppliers
The purchases clerk will assess the quantity and nature of the goods that have been requested, the suitability of the supplier by referring to an authorised supplier list and the reasonableness of the price of the materials by referring to an authorised supplier price list.
A dated, numerically numbered purchase order form is then completed by cross referencing to the authorised
purchase requisition form. Follow up on any discrepancies
.
A second purchases clerk agrees the details of the purchase order against the requisition and signs the purchase order form to acknowledge the procedure.
The purchases manager reviews and authorises purchases before they are sent to the supplier.
Management to put policies in place which ensures that an order is made at set time.
Purchase manager to make regular spot checks to ensure that management policies are being followed accordingly.
2.Receiving Goods into Warehouse
Receiving goods not ordered due to supplier error (valid)
Receive the incorrect quantity/quality of goods due to supplier error (Accuracy)
Not all goods ordered are received due to supplier error or an employee accidentally cancelling an order (completeness)
The warehouse manager or a receiving clerk inspects the goods received for any defects or damage and counts the quantity received and compares this to the corresponding copy of purchase order form.
The warehouse manager or receiving clerk then signs the supplier’s delivery note after agreeing the details to the goods received note and the copy of the purchase order form.
The warehouse manager regularly performs a sequence check on outstanding orders and follows up missing or long outstanding orders.
2.Receiving Goods into Warehouse
Goods are not received timeously (too late) due to supplier error or having placed the order late.
No one to receive good delivered by supplier due to shortage of staff, employees not sticking to shift or slacking.
Goods may be stolen.
Management include in contract as terms that delivery must be made on time (specify time)
The supervisor should regularly check up on whether employees are carrying on their duties.
Management to implement more manageable shifts
Security guard on duty at place of receiving goods/ have CCTV and regularly monitor it/ employees searched when clock out.
4.Making Payments
Making payments to fictitious suppliers due to fraud
Making duplicate payments (pay for same item twice) due to human error or fraud
Payments are inaccurate or wrong amount due to human error (calculating amount incorrectly or capturing it incorrectly)
Not paying all suppliers due to incorrect accounting records or negligence (human error)
Not paying creditors on time due to incorrect accounting records or negligence (human error)
The monthly creditors statements that are sent is reconciled to the supporting documentation e.g. invoices, payments etc. The individual creditors accounts in the creditors ledger is reconciled with the monthly creditors statements sent by the suppliers.
Once payment has been made, the supporting documentation is marked as “cancelled” to prevent any unauthorised and fraudulent payments on the same invoice.
Management to have policies in place so that employees may know when to make payments.
Regularly reviewing creditors’ age analysis in order to make sure payments are made on time by creditor’s clerk.
