(Week 14-15)

Objective:
Minimize the total cost of acquiring and maintaining inventories, supplies, and the various
services the organization needs to function.

EXPENDITURE CYCLE GENERAL

 Inaccurate or invalid Master data  Data processing integrity controls

 Unauthorized disclosure of sensitive  Restriction of access to master data
information  Review of all changes to master data
 Loss or destruction of data
 Poor performance

EXPENDITURE CYCLE ACTIVITIES

 Prepare Purchase Order

Information includes: name and address of the primary supplier, the EQO of
the items, and the standards or expected unit cost of the items
Purchasing department devote to meet scarce, expensive or unusual inventory needs,
prepares detailed product specifications and request bids from competing vendors.
 Threats Controls
 Inaccurate inventory  Perpetual inventory system
records  Bar coding or RFID tags
 Purchasing items not  Periodic physical counts of
needed inventory
 Purchasing at inflated price  Review and approval of
 Purchasing goods of purchase requisition
inferior quality  Centralized purchasing
 Unreliable suppliers function
 Purchasing from  Price lists
unauthorized suppliers  Competitive bidding
 kickbacks  Review of purchase orders
 Budgets
 Purchasing only from
approved vendors/ suppliers
 Review and approval of
purchases from new
suppliers
 EDI-specific controls

- Update inventory records

- Set-up accounts payable
 Copies of the PO reside in temporary files in various documents
 Since there is no economic event has yet occurred, the firm has received no
inventories and incurred no financial obligation, hence, firm often make memo entries
of pending inventory receipts and associated obligations
 Goods arising are reconciled with Blind Copy of the PO.
No quantity or price information
for counting and inspecting
inventories prior to completing the
receiving report.

 Expecting unordered items  Requiring existence of

 Mistakes in counting approved purchase order
 Verifying receipts of prior to accepting any
services delivery
 Theft of inventory  Require receiving
employees to sign receiving
report
 Document transfer of goods
to inventory
 Use of Barcodes and RFID
tags
 Configuration of ERP
System
 Segregation of duties
 Budgetary controls
 Audits
 Physical access restriction
3

a. Non- Voucher
 Each approved invoice is posted to individual supplier records in the A/P file and
is then stored in an open-invoice file
 When a check is written to pay is removed from the open-invoice price, the
voucher package is stored in the paid-invoice file.
b. Voucher
 Disbursement voucher is also created when a supplier invoice is approved for
payment.
 Identifies the supplier, lists the outstanding invoices and indicates the net amount
to be paid after deducting any applicable discounts and allowances.

-accounts payable department uses cash disbursements voucher and maintains a voucher
register.

-processes the payment of obligations created in the purchases system

 Identify liabilities due
 Prepare cash disbursements
 Update A/P records
 Post to general ledger

 Reduce number of checks

 Can utilize pre-sequential numbered voucher control
 Allows for separation of invoice approval from invoice payment

 Errors in supplier invoices  Verification of invoice

 Mistakes in posting to A/P accuracy
 Requiring detailed receipts
 Restriction of access to
supplier master data
 Data entry edit control
 Reconciliation of detailed
accounts payable with
general ledger control
account

 The system scans the due date field of the voucher register for items due
 Checks are printed for these items and is recorded in the check register, to close the voucher
and transfer the items to the closed A/P file
- upon receipt of the check copies, the items
transferred to the closed voucher file
  Failure to take advantage of  Filing of invoices by due date for
discounts for prompt payment discounts
 Paying for items not received  Cash flow budgets
 Duplicate payments  Restriction of access to supplier
 Theft of cash master file
 Check alteration  Regular reconciliation of bank
 Cash flow problems accounts
 Requiring dual signature on checks
 Access controls to EFT Terminals
 Use of dedicated computer and
browser for online banking
 Restriction of access to supplier
master file
 Limiting the number of employees
with ability to create one-time
suppliers and to process invoices
from one-time suppliers
 Running petty cash as an imprest
fund
 Surprise audits of petty cash fund
 Check protection machines
 Use of special inks and papers
 “Positive pay” arrangements with
banks
 Cash flow budget

1. Data Processing Department (DPD)- Purchasing Department

2. DPD- Receiving Department
-receiving clerks prepares a receiving report and sends copies to purchasing, A/P and
data processing
3. DPD- Accounts Payable Department
- reconciliation of reporting documents that were previously placed in the A/P
sending file; prepares vouchers
4. DPD
Batch totals are prepared for subsequent posting to the A/P control account in the
general ledger
Transaction authorization Inventory control
Segregation of Duties Inventory control
separate from purchasing
and inventory custody
A/P subsidiary ledger
separate from the general
ledger
Receiving Area
Supervision
A/P subsidiary ledger,
Accounting Records General Ledger, PR file,
Po File, receiving report
file
Security of physical
Access assets, limit access to the
accounting records above
A/P reconcile source
Independent verification documents before
liability is recorded,
general ledger, reconciles
overall accuracy of the
process
A/P authorize payment
Separate A/P subsidiary
ledger, cash disbursement
and general ledger
functions
Voucher payable file, A/P
subsidiary ledger, cash
disbursement journal,
general ledger, cash
accounts
Proper security over cash,
limit access to accounting
records above
Final review by cash
disbursement, overall
reconciliation by general
ledger, periodic bank
reconciliation by
controller
Instructor: John G. Paggadut, CPA, LPT, MSA
IFSU-Lagawe