CASE 13-1 Research Project: Impact of Information Technology on Expenditure Cycl

ID: 2729566 • Letter: C

Question

CASE 13-1 Research Project: Impact of Information Technology on Expenditure Cycle Activities, Threats, and Controls

Search popular business and technology magazines (Business Week, Forbes, Fortune, CIO, etc.) to find an article about an innovative use of IT that can be used to improve one or more activities in the expenditure cycle. Write a report that:

a. Explains how IT can be used to change expenditure cycle activities.

b. Discusses the control implications. Refer to Table 13-2, and explain how the new procedure changes the threats and appropriate control procedures for mitigating those threats.

Explanation / Answer

Answer:a A firm’s use of technology to improve its expenditure cycle activities (inbound logistics) can help suppliers to improve their outbound logistics (shipping) in several ways. For example, if a company adopts the use of bar-coding or RFID (radio frequency identification) tags to expedite the handling of inventory, its vendors can streamline their shipments by adopting similar technology. In addition, EDI can be used by vendors to notify customers that shipments are on their way, so that the customer’s warehouse receiving function can be prepared. EDI and satellite technology also enable both the supplier and customer to track the status and location of all shipments in transit. By using shipping companies whose trucks are equipped with data terminals linked to satellites, it is possible to track the exact location and to redirect trucks in case of an urgent need in another location. Truck drivers also can be directed to certain loading docks that would be available for unloading thereby shortening truck turnaround time.

Customers have an incentive to share innovations with their suppliers because this may both further improve the efficiency of the customer’s inbound logistics activities and also enable suppliers to lower prices.

Answer:b

Types of controls used at various steps in the expenditure cycle.

Process/Activity

Threat

Type of Controls (P = preventive, D = detective, C = corrective)

Order goods

1. Preventing stockouts and/or excess inventory

2. Requesting unnecessary items

3. Purchasing goods at inflated prices

4. Purchasing goods of inferior quality

5. Purchasing from unauthorized suppliers

6. Kickbacks

Inventory control systems P; perpetual inventory records D; bar code technology P; periodic counts of inventory D and C

Accurate perpetual inventory records P; approval of purchase requisitions P

Solicit competitive bids P; use of approved suppliers P; approval of purchase orders P; budgetary controls D and C

Use of approved vendors P; approval of purchase orders P; monitor vendor performance D and C; budgetary controls D and C

Approval of purchase orders P; restrict access to supplier master file P

Policies P; require purchasing employees to disclose financial interests in suppliers P; vendor audits D and C

Receive and store goods

7. Receiving unordered goods

8. Making errors in counting

9. Stealing inventory

Require receiving to verify existence of valid purchase order P

Use of bar coding technology P; document employee performance D and C; incentives for accurate counts P

Physical access controls P; periodic counts of inventory and reconciliation of physical counts to records D and C; document all transfers of inventory D

Approve and pay vendor invoices

10. Failing to catch errors in vendor invoices

11. Paying for goods not received

12. Failing to take available purchase discounts

13. Paying the same invoice twice

14. Recording and posting errors in accounts payable

15. Misappropriating cash, checks, or EFTs

Double-check invoice accuracy D; training of accounts payable staff P; use of ERS P

Only pay invoices supported by original receiving report P; use of ERS P; budgetary controls D and C

Proper filing P; cash flow budgets P

Only pay invoices supported by original voucher package P; cancellation of voucher package upon payment P; use of ERS P; control access to supplier master file P

Various data entry and processing edit controls P, D and C

Restrict access to blank checks, check signing machine, and EFT transfer terminals P; segregation of duties of accounts payable and cashier P; reconciliation of bank account by someone independent of cash disbursement process D; check protection measures including Positive Pay P; regular review of EFT transactions D and C

General control issues

16. Losing data

17. Performing poorly

Backup and disaster recovery plans P; physical and logical access controls P

Development and periodic review of appropriate performance reports D and C