Listed below are 12 internal control procedures or requirements for the expendit

Question

Listed below are 12 internal control procedures or requirements for the expenditure cycle (purchasing, payroll, accounts payable, and cash disbursements) of a manufacturing enterprise. For each of the following, identify the error or misstatement that would be prevented or detected by its use.

Duties are segregated between the cash payments and cash receipts functions

Signature plates are kept under lock and key

The accounting department matches invoices to receiving reports or special authorizations before payment

All checks are mailed by someone other than the person preparing the payment voucher

The accounting department matches invoices to copies of purchase orders

The blank stock of checks are kept under lock and key

Imprest accounts for payroll are used

Bank reconciliations are performed by someone other than the one who writes checks and handles cash

A check protector is used.

Surprise counts of cash funds are periodically conducted

Orders are placed with approved vendors only

All purchases are made by the purchasing department

Explanation / Answer

Internal control procedures or requirements for the expenditure cycle 1 Duties are segregated between the cash payments and cash receipts functions # This type of control prevents misappropriation of cash payments and receipts. If a single person can carry out and conceal errors and/or irregularities in the course of performing their day-to-day activities, they have generally been assigned or allowed access to incompatible duties or responsibilities. 2 Signature plates are kept under lock and key # This control procedure prevents misappropriation of signature or chances of forgery If signatures are kept unattended, there is a chance of getting misappropriated by employees 3 The accounting department matches invoices to receiving reports or special authorizations before payment # This procedure helps to check the authenticity and arithmetical accuracy of transactions 4 All checks are mailed by someone other than the person preparing the payment voucher # By using this, all the checks can be duly verified and can check whether these checks are issued with proper authorisation 5 The accounting department matches invoices to copies of purchase orders # This would helps the following :- prevent paying a fraudulent invoice prevent paying an inaccurate invoice prevent paying a vendor invoice twice be certain that all vendor invoices are accounted for 6 The blank stock of checks are kept under lock and key # This type of control will prevent from forgering of checks 7 Imprest accounts for payroll are used # The separate account also allows the company to accurately track the amount spent in payroll each period, and how it affects the bottom line. 8 Bank reconciliations are performed by someone other than the one who writes checks and handles cash # This helps in identifying the correct and accurate bank and cash balance 9 A check protector is used # The check protector helps in preventing alteration of checks and forgery 10 Surprise counts of cash funds are periodically conducted # This type of control eliminates defalcation of cash by employees 11 Orders are placed with approved vendors only # This eliminates the fake unapproved vendors ` 12 All purchases are made by the purchasing department # This helps in implementing integrity and uniqueness in purchasing process

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