Professional Documents
Culture Documents
HAPTER 11
Purchasing to Cash
Disbursements
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INTRODUCTION
Questions to be addressed in this chapter
include:
What are the basic business activities and
data processing operations that are
performed in the expenditure cycle?
What decisions need to be made in the
expenditure cycle, and what information is
needed to make these decisions?
What are the major threats in the expenditure
cycle and the controls related to those
threats?
2008 Prentice Hall Business Publishing
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INTRODUCTION
The primary external exchange of information is with
suppliers (vendors).
Information flows to the expenditure cycle from other
cycles, e.g.:
The revenue cycle, production cycle, inventory control, and
various departments provide information about the need to
purchase goods and materials.
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INTRODUCTION
The primary objective of the expenditure
cycle is to minimize the total cost of acquiring
and maintaining inventory, supplies, and
services.
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INTRODUCTION
Decisions that must be made include:
What level of inventory and supplies should we
carry?
What vendors provide the best price and quality?
Where should we store the goods?
Can we consolidate purchases across units?
How can IT improve inbound logistics?
Is there enough cash to take advantage of early
payment discounts?
How can we manage payments to maximize cash
flow?
2008 Prentice Hall Business Publishing
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INTRODUCTION
Management also has to evaluate the
efficiency and effectiveness of expenditure
cycle processes.
These evaluations require data about:
Events that occur.
Resources affected.
Agents who participate.
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INTRODUCTION
In this chapter, well look at how the three
basic AIS functions are carried out in the
expenditure cycle:
How do we capture and process data?
How do we store and organize the data for
decisions?
How do we provide controls to safeguard
resources (including data)?
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IT can help
improve
efficiency
Inventory
control and
purchasing are and
outsourced to a
supplier.
effectiveness
of purchasing
function.
The supplier
has access to POS and
inventory data and
automatically replenishes inventory.
The major
cost driver is the number of
This approach:
Reduces amount
of inventory carried.
purchase orders
processed.
Time and cost
Eliminates costs of generating purchase orders.
can be cut
by:
Requires good controls to ensure accuracy of inventory
records.
Using EDI
to transmit purchase orders.
Using vendor-managed inventory systems.
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Internal
visits each
potential
supplier in final
Using
EDI auditor
to transmit
purchase
orders.
cut to verify accuracy of their bid.
Using vendor-managed inventory systems.
May identify mathematical errors in bid which can
Reverse
auctions.
produce
considerable savings.
Pre-award audits.
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Suppliers
quote to
accurate
pricesinvoices
when ordersby
are placed.
Requiring
suppliers
submit
Receiving personnel count accurately and inspect
EDI.
merchandise received.
Typically,
incorporates
very timely communications
Having
the system
automatically
match
about shipments and receipts.
invoices to POs and receiving reports.
Eliminating vendor invoices.
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VP of Manufacturing
Purchasing
Receiving
Inventory
Stores
CFO
Controller
Treasurer
Accounts
Payable
Cashier
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VP of Manufacturing
Purchasing
Receiving
Inventory
Stores
CFO
Controller
Treasurer
Accounts
Payable
Cashier
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VP of Manufacturing
Purchasing
Receiving
Inventory
Stores
CFO
Controller
Treasurer
Accounts
Payable
Cashier
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VP of Manufacturing
Purchasing
Receiving
Inventory
Stores
Approves invoices
for payment
CFO
Controller
Treasurer
Accounts
Payable
Cashier
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VP of Manufacturing
Purchasing
Receiving
Inventory
Stores
CFO
Controller
Treasurer
Accounts
Payable
Cashier
Issues payment to
vendors
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CRIME TIME
Before we discuss specific threats, it may be
helpful to have some background on a form
of occupational fraud and abuse which is
broadly referred to as corruption.
Corruption cases often involve arrangements
between a companys purchasing agent and
a sales representative for one of the
companys vendors.
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CRIME TIME
The vendors representative may try to induce the
purchasing agent to buy goods that:
Are over-priced
Are of inferior quality
Arent even needed
Arent even delivered
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CRIME TIME
According to the Fraud Examiners Manual
published by the Association of Certified
Fraud Examiners, these schemes usually
take four forms:
Bribery
Typically involves the vendor offering a kickback
(something of value) to the buyer to buy inflated,
substandard, un-needed, or un-delivered goods, etc.
Alternately, may involve an inducement to the buyer
to rig a competitive bidding process so that the
vendor gets the bid.
2008 Prentice Hall Business Publishing
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CRIME TIME
According to the Fraud Examiners Manual
published by the Association of Certified
Fraud Examiners, these schemes usually
take four forms:
Bribery
Conflict of interest
In conflict of interest cases, the purchasing agent is
usually arranging for his employer to make purchases
from a company in which he has a concealed interest.
For example, perhaps his wife owns the vendor
company.
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CRIME TIME
According to the Fraud Examiners Manual
published by the Association of Certified
Economic extortion
basically theusually
reverse of a bribe.
Fraud Examiners,
theseisschemes
Instead of the vendor making an offer of something of
take four forms:
value to the purchasing agent, the purchasing agent
Bribery may tell the vendor that he must provide something of
value to the purchasing agent if he wants to continue
Conflict to
ofdo
interest
business with his employer.
Economic extortion
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CRIME TIME
According to the Fraud Examiners Manual
published by the Association of Certified
Fraud Examiners,
these
schemes
usually
Illegal gratuities
involve
gifts that are
given to the
purchasing agent by a vendor after the vendor has
take four forms:
been selected.
Bribery
There was no intent by the vendor to influence the
process; the gift was provided after the fact.
Conflict selection
of interest
But the problem is that the gift is likely to impact
Economic
extortion
future
decisions by the purchasing agent.
Illegal gratuities
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CRIME TIME
According to the Fraud Examiners Manual
published by the Association of Certified
Fraud Examiners, these schemes usually
take four forms:
Bribery
Conflict of interest
Economic extortion
Illegal gratuities
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THREATS IN
APPROVING
AND
The types of problems posed by each threat.
The controls that can
mitigate the threats.
PAYING VENDOR
INVOICES
Pay only for goods and services that were ordered and received.
Safeguard cash.
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EXPENDITURE CYCLE
INFORMATION NEEDS
Information is needed for the following
operational tasks in the expenditure cycle,
including:
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EXPENDITURE CYCLE
INFORMATION NEEDS
Information is also needed for the following
strategic decisions:
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EXPENDITURE CYCLE
INFORMATION NEEDS
The AIS needs to provide information to
evaluate the following:
Purchasing efficiency and effectiveness
Supplier performance
Time taken to move goods from receiving to
production
Percent of purchase discounts taken
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EXPENDITURE CYCLE
INFORMATION NEEDS
When the AIS integrates information from the
various cycles, sources, and types, the reports
that can be generated are unlimited. They
include reports on:
Supplier performance
Outstanding invoices
Performance of expenditure cycle employees
Number of POs processed by purchasing agent
Number of invoices processed by A/P clerk
Number of deliveries handled by receiving clerk
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EXPENDITURE CYCLE
INFORMATION NEEDS
Number of inventory moves by warehouse worker
Inventory turnover
Classification of inventory based on contribution to
profitability
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SUMMARY
Youve learned about the basic business
activities and data processing operations that
are performed in the expenditure cycle,
including:
Ordering goods, supplies, and services
Receiving and storing them
Approving invoices and paying for them
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SUMMARY
Youve learned about decisions that need to be
made in the expenditure cycle and what
information is required to make these
decisions.
Youve also learned about the major threats
that present themselves in the expenditure
cycle and the controls that can mitigate those
threats.
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