Internal Control for

Disbursements

By: Group 3
 Accounting Concepts of
Accounts Payable and other
disbursements
What are Disbursements?

Disbursement is the act of paying out or

disbursing money, such as money paid
out to run a business, cash expenditures
and dividend payments. It constitutes all
cash paid out during a given period either
in currency (cash) or by check. It may
also mean the settlement of government
payables/obligation by cash or by check.
 Accounts Payable

is an accounting entry that represents

an entity's obligation to pay off a
short-term debt to its creditors.
the accounts payable entry appears
under the heading current liabilities.
 Other Disbursements:
Purchases
an exchange of money for a particular good or service.
Payment of Operating Expenses
Operating Expenses are those expenditures that a
business incurs to engage in any activities not directly
associated with the production of goods or services.
Payment of Dividends Payable
Dividends payable are dividends that a company's
board of directors has declared to be payable to its
shareholders.
Other Disbursements:
Payment of Payroll Liabilities
Payroll liabilities are any type of payment
related to payroll that the company owes, but
has not yet paid. These include taxes withheld
from employees, Social Security and other
items such as union dues, health insurance
contributions.
What are the best internal
control practices for
Purchasing Department?
 What are the potential
consequences if those
practices are not performed?
 Internal Control
Practices: Purchasing
Separation of duties
To ensure proper separation of duties, assign
related buying functions to different people. With
proper segregation, no single person has complete
control over all buying activities.
 Internal Control
Practices: Purchasing
Best practice is to have different people:
Approve purchases
Receive ordered materials
Approve invoices for payment
Review and reconcile financial records
Perform inventory counts
Potential consequences if duties are not
separated:
Unauthorized or unnecessary purchases made
Improper charges made to department budgets
Excessive costs incurred
Goods purchased for personal use
 Internal Control
Practices: Purchasing
Accountability, authorization, and
approval
You maintain accountability when you
authorize, review, and approve purchases
based on signed agreements, contract terms,
and purchase orders.
 Internal Control
Practices: Purchasing
Best practices:
Comply with ethical buying practices and policy.
Review and update signature authorizations
periodically.
Obtain pre-approval of consultant agreements by
Purchasing.
Verify receipt of goods and services against contract/
purchase order and invoice information.
Reconcile ledgers for accuracy of recorded transactions.
Monitor to ensure that invoices are paid in a timely
manner.
 Internal Control
Practices: Purchasing
Potential consequences if accountability does not
exist:
Unauthorized, unnecessary, or fraudulent purchases
Unauthorized work performed by suppliers
Lost supplier discounts due to late payments
Improper charges to incorrect account/ funds resulting
in a misappropriation of funds
Conflict of interest when paying UCSD employee for
unauthorized outside work
 Internal Control
Practices: Purchasing
Security of assets
Once you have received your purchased
goods, secure the materials in a safe location.
To ensure that your resources are accounted
for, periodically count your inventory and
compare the results with amounts shown on
control records.
 Internal Control
Practices: Purchasing
Best practices:
Secure goods received in a restricted area.
Restrict inventory access to appropriate staff.
Lock goods and materials, and provide key or
combination to as few people as possible.
Keep inventory records and periodically calculate
beginning and ending inventory amounts.
Potential consequences if your assets have not
been secured:
Theft of goods
Inventory shortages
Additional costs incurred for replacement of goods
 Internal Control
Practices: Purchasing
Review and reconciliation
Practice timely review of suppliers invoice,
packing slips, and purchase orders. Check accuracy
of the information for prior payment, correct quantity
ordered, and price charged. Monthly ledger
reconciliation enables you to find improper charges
and validate appropriate financial transactions.
 Internal Control
Practices: Purchasing
Best practices:
Review supplier invoices for accuracy by comparing
charges to purchase orders.
Verify that the goods and services purchased have been
received.
Perform monthly reconciliations of operating ledgers to
ensure accuracy and timeliness of expenses.
Potential consequences if review and reconciliation is not
performed:
Improper charges to your department budgets
Disallowances resulting from costs charged to incorrect
accounts/funds
Payments made for items or services not provided
 Any internal control system has limitations. Because humans
are involved in the internal control system, our negligence,
fatigue, misjudgment, and confusion can negatively
impact the goals of the system. Also, an internal control
system can be circumvented by individuals who desire to
commit fraud and who are willing to work together to do
so. Human fraud is driven by the triple-threat of fraud
which includes opportunity, pressure, and rationalization.
 4. Assuming that you are the
Chief Executive Audit of SM
Department Stores Corporation,
prepare internal control
guidelines for Inventories