Académique Documents
Professionnel Documents
Culture Documents
ANS.
DQ12-2
Explain why ambiguities and conflicts exist among operations process goals, and
discuss some potential ambiguities and conflicts relative to the effectiveness goals
you described in Discussion Question 12-1.
ANS.
Conflicts exist because each organizational unit wants to do its best (or at least be
seen as doing its best). However, many (perhaps any) individual units cannot
perform at their best because trade-offs must be made so that the organization as a
whole can do its best.
Ambiguities may exist when it is not clear when a goal has been reached, which
could happen, for example, when goals have subgoals. For example, which
vendor is the best may not be clear. It may be that the purchasing office cannot
find a vendor that can offer price, quality, and delivery date. In addition, some
effectiveness goals may conflict with the other operation process goals: efficient
employment of resources and security of resources.
Conflicts that may exist relative to the processes goals in DQ 12-1 include the
following:
Adequate research may not precede a quickly prepared purchase order.
To insure authorized receipts, we may provide the receiving department with
complete copies of the purchase order. Without a blind copy of the purchase
order, receiving clerks may not pay attention to counting the goods.
To have adequate cash to make timely disbursements, we may sacrifice
interest earned on the cash.
To maintain an adequate stock of vendors, we may purchase goods with
varying degrees of quality.
By promptly forwarding goods to the warehouse, we may skimp on inspection
and counting.
To acquire the best goods at the best price, the purchasing office may spend
too much time researching the purchase.
To minimize ordering costs and to obtain quantity discounts, the purchasing
office may purchase large quantities in each order. The size of these orders
makes it difficult for the receiving department to adequately count and inspect
the goods and forward them in a timely manner to the warehouse.
To minimize purchase returns and allowances, the purchasing office might
select vendors that rate highly for quality of product and for accuracy of
filling orders but have low ratings for price of products and/or meeting
delivery deadlines.
DQ12-3
In designing vendor records, what specific data elements would you include to
help you select the best vendor for a particular purchase? Be specific as to the
nature of the data to be stored, where it would come from, and how it would be
used in the selection process.
ANS.
Without redrawing the figures, discuss how Figures 12.3, 12.4, 12.6, 12.7, and
12.9 would change as a result of purchasing a technical product that could not be
inspected in the receiving department, but rather had to undergo quality control
testing before being accepted.
ANS.
Figure 12.9, bubble 3.1, and the related portions of Figure 12.4 would be affected.
A copy of the purchase order (including the technical specifications), the packing
slip, and the goods must be sent to a quality control department or other
department. While the goods are in the inspection process, they should be
recorded on the inventory master data as on site but not available for use or sale.
After the goods are approved for use, the receiving process can proceed as
depicted in Figures 12.4 and 12.9, including a change in status on the inventory
master data from on site but not available to available for sale or use.
DQ12-5
Figure 12.9 (the DFD depicting the receipt of goods and services) shows an
update to the vendor master data from bubble 3.1 and another update to that
same data from bubble 3.2. Discuss the difference(s) between these two updates.
Be specific as to the nature of the data being updated in each case. How would
your answer to this question be affected by your assumption as to whether the PO
receiving notification entering bubble 3.1 was blind as to quantities? Explain.
ANS.
The update at Figure 12.9, bubble 3.1, will be for the Product Rejection Rate
field. The update at Figure 12.9, bubble 3.2, will be for the Vendor Lead Time and
Product Fill Rate fields. The latter update cannot be performed in bubble 3.1
because current Open Purchase Order master data must be obtained to determine
expected delivery dates and partial shipments-to-date on this purchase order.
If the purchase order receiving notification is not blind, and the quantities on
the receiving notification reflected previous partial receipts, the fill rate field
could be updated at bubble 3.1.
Finally, we could argue that both updates to the vendor master data might better
be accomplished at bubble 3.2 where both the Completed Receiving report and
the Purchase Order master data are available. Also, if we look beyond the logical
description of the logical DFD, we might assume that bubble 3.2 will be
automated and therefore a more efficient place to undertake the Vendor master
data updates.
DQ12-6
ANS.
The receiving department can establish a tickler file to insure complete and
timely processing of receipts. Timely processing should also lead to greater
opportunity to take cash discounts.
By comparing receipts to the purchase order copy, Receiving personnel can
verify that the goods were actually ordered and that they are authorized to
receive the goods.
By establishing validity of receipts before input, we preclude the inefficient
process of backing-out unauthorized receipts.
Note: We could accomplish the same by using the Purchase Order master data that
contains a record for each open purchase order.
b. Having the quantity ordered field blinded on the receiving department copy
of the PO
ANS.
Note: In answering this question, you might want to distinguish between the
person responsible for counting the goods and the person responsible for
recording that quantity or entering the quantity received into a computer. The
person counting need not know the quantity ordered, whereas the person entering
the quantity counted and resolving discrepancies may want to know the quantity
ordered. The person recording might insist on a recount to resolve discrepancies,
and so on.
DQ12-7
ANS.
Several points could be made regarding this statement. Some points relate to the
issues of exposures and controls, whereas others relate to the behavioral issues of
the relationship of the auditor and the organization. The following points, in no
particular order, some in the form of questions, might be discussed:
Which auditor are we talking about, the internal auditor or the external?
Should an auditor have veto power over business process and information
systems features?
An auditor may be required to audit a previously developed paperless process.
In such a case, the auditor must understand the process sufficiently to conduct
the audit or must decline the engagement. Understanding the technology may
allow an auditor to conduct a greater variety of audits.
Do we, as auditors, want to be perceived as a group opposed to the adoption
of modern technology?
Although the development of controls often lags the development of
technology (and abuse of that technology), controls exist to cope with most
aspects of modern technology. So, rather than resist a paperless process, the
auditor should insure that the process will be implemented with sufficient
controls and that the process be auditable.
Problems
Problems 1 and 2
Note: In the pages that follow, we provide solutions for problems 1 and 2 for both of the Case
Studies (Cases A and B) as applicable. Although the solution for each case study comprises
several pages, it is not necessarily comprehensive, nor does it represent the only acceptable
answers. Your or your students answers easily may vary in two areas. First, the grouping on the
annotated table of entities and activities determines the configuration of the current logical DFD.
Second, the analysis of controls may vary as to the effectiveness goals for the operations process
and the control plans included in the control matrix. For example, to simplify the control
matrices, we have intentionally omitted the effectiveness goal comply with the corporate code
of conduct. Further, we have included in the formal controls analysis only a sample of the
possible present and missing controls. At the end of the descriptions of the controls for each case,
we include a list of other controls that you or your students might want to include in a solution.
Stockbridge Company (Purchasing and receiving) Solutions (see Note on pg. 12-5)
P12-1 ANS.
Entities
Para
Activities
Computer
1.
Read inventory database and prepare online report for items that have
reached reorder point.
Supplies clerk
2.
Computer
3.
Inventory manager
4.
5.
Approve purchases over $1000 that are not covered under the blanket
purchase order.
6.
7.
8.
9.
Buyers
Vendor
Receiving
Buyers
Computer
Receiving
Computer
17. Update purchase order and inventory database with quantity received.
18. Update general ledger for inventory received.
Purchase
order
Vendor
Purchasing
process
Packing
slip
FIGURE SM-12.1
Enterprise
database
Approved
purchase
requisition
4.0
Purchasing
Department
Online
report
Request
vendors
Purchase
requisition
Approved
vendors
1.0
Computer
Purchase
order data
Purchase
order
2.0
Supplies
Clerk
Purchase
order
Pending
requisition
Approve
requisition
3.0
Inventory
M anager
Purchase
order data
Quantity
PO
received
number
Vendor
FIGURE SM-12.2
Packing slip
5.0
Receiving
Department
P12-1 ANS.
Entities
Para
Activities
Computer
1.
Supplies clerk
2.
Computer
3.
Inventory manager
4.
5.
6.
7.
8.
9.
Buyers
Computer
Receiving
Process
Receiving
Computer
10
Purchase
requisition data
Vendor
data
1.0
Prepare
purchase
requisition
2.0
Prepare
purchase
order
Purchase
order
Purchase
order data
Vendor
Inventory
data
Packing
slip
3.0
Record
receipt
FIGURE SM-12.3
General
ledger data
FIGURE SM-12.4
Problem 2 part a solutionsystems flowchart for Stockbridge Company (Purchasing and Receiving)
11
12
Control Goals of the Stockbridge Company Purchasing and Receiving Business Process
Control Goals of the Operations Process
Ensure
effectiveness
of
operations:
Recommended control
plans
Ensure
efficient
employment of
resources
(people,
computers)
Ensure
security of
resources
(inventory,
PO master
data)
IV
IC
Present Controls
P-1: Automatic notice of
items reaching
reorder point
P-1
P-2
P-3
P-4
P-5
P-6
P-7: Requisition
confirmation
(update inventory
data)
P-5
P-4
P-5
P-7
IA
For purchase
order master
data, ensure:
UC
UA
IV
IC
IA
For purchase
order master
data, ensure:
UC
UA
13
Control Goals of the Stockbridge Company Purchasing and Receiving Business Process
Control Goals of the Operations Process
Ensure
effectiveness
of
operations:
Recommended control
plans
Ensure
efficient
employment of
resources
(people,
computers)
For purchase
requisition inputs,
ensure:
IV
P-8
Ensure
security of
resources
(inventory,
PO master
data)
IC
IA
P-8
P-9
For purchase
order master
data, ensure:
UC
UA
IV
IC
IA
P-8
P-8
P-9
P-9
M-2
M-2
Missing Controls
M-1: Approve purchase
order
M-2 Compare inputs
with master data
M-1
M-1
M-2
IV = input validity
IC = input completeness
IA = input accuracy
UC = update completeness
UA = update accuracy
See Exhibit SM-12-1 for a complete explanation of control plans and cell entries.
FIGURE SM-12.5
Problem 2, part b (partial)control matrix for Stockbridge Company (Purchasing and Receiving)
For purchase
order master
data, ensure:
UC
UA
14
Exhibit SM-12.1
Note: Purchase requisition and packing slip inputs result in immediate updates to purchase order
and inventory master data. Therefore, we do not show entries for UC or UA.
P-1:
P-2:
P-3:
P-4:
P-5:
P-6:
15
P-7:
P-8:
P-9:
M-1:
M-2:
16
FIGURE SM-12.6
17
Problem 2, part c solutionannotated systems flowchart for Stockbridge Company (Purchasing and Receiving)
18
Internet Payment Platform (Purchasing and Receiving Processes) Solutions (see the Note
on pg. 12-4)
P12-1 ANS.
Entities
Para
Activities
1.
2.
3.
Store PO in database.
4.
Print PO.
5.
Sign PO.
6.
Mail PO to supplier.
7.
8.
9.
15. Decide if can respond to electronic PO (or wait for paper PO).
Various departments
BEPMIS
CO
BEPMIS
Enterprise adapter
IPP server
Supplier employee
BEP Receiving
department
Warehouse
BEPMIS
Purchase
request
Various
departments
FIGURE SM-12.7
Purchasing
process
Warehouse
Stock
notice
19
20
Purchase
request
Various
departments
PO data
1.0
Contracting
officer
2.0
BEPM IS
Printed
PO
M ailed PO
Extracted
and formatted POs
4.0
Enterprise
adapter
Encrypted
POs in XM L
BEPM IS/IDM S
database
Appreciating
database
3.0
Supplier
5.0
IPP
server
E-mail notice
Receipt
data
Logon
Packing slip
PO data
6.0
BEP
Receiving
Warehouse
NOTE: Only one flow into and out
of the BEPM IS/IDM S database are
shown to represent all interactions.
FIGURE SM-12.8
Stock
notice
P12-1 ANS.
21
Entities
Para
Activities
2.
BEPMIS
3.
Store PO in database.
4.
Print PO.
Contracting officer
5.
Sign PO.
BEPMIS
7.
Enterprise adapter
9.
IPP server
Supplier
BEP Receiving
BEPMIS
Process
22
Various
departments
Purchase
request
1.0
Prepare and
record PO in
BEPM IS
BEPM IS
database
PO data
2.0
Extract,
format, and
record PO in
IPP database
PO
IPP appreciating
database
3.0
Provide goods
and services
Packing
slip
4.0
Record
receipt
Warehouse
Stock notice
FIGURE SM-12.9
BEPM IS/CAS
(IBM M ainframe)
Start
Enterprise Adapter
(Intel Server)
Supplier
Receiving
A
Record PO and
e-mail supplier
Research and
approval process
not show n
Read e-mail
Signed PO
(with FAR text)
Record PO
IPP
Appreciating
database
Key PO data
PO
acceptance
PO (with FAR
text)
Sign and
mail PO
Signed PO
(with FAR text)
IDM S
database
Print PO
Record
receipt data
Manually
initiated daily
batch job
Translate PO data
to XM L, transmit to
IPP server
Packing slip
E-mail notice
from IPP
Retrieve and
display PO
PO display
Receive
goods
Key receipt
data
Provide
goods (or
services)
Signed by
contracting officer
IDM S
database
Packing slip
FIGURE SM-12.10 Problem 2, part a solutionsystems flowchart for Internet Payment Platform
(Purchasing and Receiving Processes)
23
24
Recommended
control plans
Ensure
efficient
employment
of resources
(people,
com-puters)
Ensure
security of
resources
(inventory,
PO master
data)
IV
IC
For PO
master
data,
ensure:
IA
UC
For vendor
packing slip
inputs, ensure:
UA
IV
IC
For PO
master
data,
ensure:
IA
UC
UA
Present Controls
P-1: Research and
approve POs
P-1
P-1
P-3
P-4
P-5
P-5
P-2
P-2
P-3
P-3
P-5
P-6
P-7
P-8
P-5
P-5
P-6
P-6
P-5
P-6
P-7
P-8
P-6
P-5
P-6
P-7
P-8
P-6
P-7
P-8
25
Recommended
control plans
Ensure
efficient
employment
of resources
(people,
com-puters)
Ensure
security of
resources
(inventory,
PO master
data)
For PO
master
data,
ensure:
For vendor
packing slip
inputs, ensure:
IV
IC
IA
UC
UA
M-1
M-1
M-1
M-1
M-1
M-1
IV
IC
For PO
master
data,
ensure:
IA
UC
UA
Missing Controls
M-1: Reconcile batch
totals for
extracted POs
M-1
M-2: Programmed
edits for
formatted and
translated PO
data
M-2
M-3
M-4
M-2
M-3
M-4
FIGURE SM-12.11 Problem 2, part b (partial)control matrix for Internet Payment Platform
(Purchasing and Receiving Processes)
M-3
M-4
IV = input validity
IC = input completeness
IA = input accuracy
UC = update completeness
UA = update accuracy
M-3
M-4
26
Exhibit SM-12.2
P-1:
P-2:
P-3:
Sign PO.
Effectiveness goals A and C and purchase order input validity: The contracting
officers signature ensures that the PO indicates approval of the chosen vendor
(goal A), that the PO complies with FAR (goal C), and that only valid (authorized)
POs have been entered into BEPMIS.
P-4:
P-5:
27
P-7:
P-8:
M-1:
28
Purchase order input validity, input completeness, input accuracy, and purchase
order master data update completeness and update accuracy: Agreement of the
batch totals at these points would ensure that only valid POs comprising the
original batch of extracted POs have been input to IPP (input validity), that all
POs were input (input completeness), and that data elements appearing on the POs
have been input correctly (input accuracy). We assume that the PO master data is
updated simultaneously with the input of the receipt data.
Effectiveness goals A and C: By ensuring that POs are recorded on IPP, we can
ensure timely receipt of the goods in compliance with FAR.
M-2:
M-3:
M-4:
29
30
BEPM IS/CAS
(IBM M ainframe)
Start
Enterprise Adapter
(Intel Server)
Re cord PO
Re cord PO and
e-mail supplier
Research and
approval process
not show n
Re ad e-mail
Signed PO
(with FAR text)
M-4
P-1
IPP
Appreciating
database
Ke y PO data
IDM S
database
PO
acceptance
Supplier
E-mail notice
from IPP
B
P-2
PO (with FAR
text)
P-3
Sign and
mail PO
Signed PO
(with FAR text)
Signed by
contracting officer
Print PO
Manually
initiated daily
batch job
Packing slip
Re trieve and
display PO
PO display
P-5
M-1, M-2
M-1, M-2
Translate PO data
to XM L, transmit to
IPP server
Re ceive
goods
P-6
P-7
Re cord
receipt data
P-8
IDM S
database
Ke y receipt
data
Details not
show n
Provide
goods (or
services)
Packing slip
FIGURE SM-12.12 Problem 2, part c solutionannotated systems flowchart for Internet Payment Platform
(Purchasing and Receiving Processes)
P12-3
31
32
When goods are received, they are immediately entered into the enterprise
system. Goods that require QC are designated as such and are
automatically assigned a status as awaiting QC. These goods are moved
to the QC area.
When QC members have completed their inspection, they change the
status of the items from on hold to available, and the goods are moved
into inventory or to the requester.
A database of purchase requisitions and POs is available for research by
interested parties.
Maintenance Manager
Com puter
Start
Display requisition
and vendor
candidates
Enter
requisition
data
Edit input and
record requisition
33
Enterprise
database
Requisition
screen w ith
vendor
candidates
Convert requisition
to PO, enter selected
vendor, price, term s
Requisition
input screen
Requisitions and
forecasts m ay
be com bined
Internet m ay be used to
find appropriate vendors.
In w hich case a new vendor
record w ould be created.
Approve PO
Requisition
confirm ation
Purchasing m anager
approves only those
POs over X dollars
Translate to EDI
form at and transm it
to vendor (via VAN)
VAN
FIGURE SM-12.13 Problem 3, part b solution (partial)systems flowchart for the purchasing process at Mountain Bay
34
Quality Control
Com puter
A
Enter PO
num ber
Shipping
docum ents
Vendor
Stock notice
Shipping
docum ents
Receiving
report screen
Attach stock
notice to goods
and forw ard
Stock notice
Inspect
goods
Com pare input quantities w ith
PO quantities, update inventory
and PO data, print stock notice.
Send to QC as appropriate
Enterprise
database
Enter status
change
Stock notice
Stock notice
Warehouse or
requester
Attach stock
notice to goods
and forw ard
Stock notice
A
Warehouse or
requester
35
FIGURE SM-12.13 Problem 3, part b solution (partial)systems flowchart for the receiving
process at Mountain BayP12-4 ANS. 1.
I: A manager in the
Purchasing department should review and approve POs to prevent Meyer
Company from ordering unneeded inventory.
Note: We would also like to see a process to review and approve vendors to
determine that there is no conflict of interest between the proposed vendor and
Meyer Company (e.g., ownership by a buyer such as George), before purchases
are made from that vendor.
2. L: Logical and physical access controls over the PO master data should
prevent Marc from creating the bogus PO record.
3. C: A process is needed to review and approve vendors to determine that they
can deliver goods with prices that Winsted, Inc. is willing to pay on an
ongoing basis. Then, the vendor record should be created by someone who
will not be executing purchases from that vendor (i.e., independent vendor
master data maintenance).
Note: We could also argue for a process to create vendors for one-time purchases.
4. F: Emily, who works in the warehouse, should not also work in receiving and
be able to execute a goods receipt.
Note: We could also argue for a segregation of logistics (warehouse and
receiving) from purchasing so that logistics personnel cannot create POs.
5. H: Receiving clerks at Gentry, Inc. should match the goods received with
open POs to determine that the only goods ordered are received.
6. J: Before a PO is issued, buyers should research vendors to determine that
they can provide goods in a timely manner (i.e. review for availability).
7. E: Apparently, goods have gone missing after arriving in the warehouse.
Controls over access to the warehouse should prevent these losses.
8. A: We presume that vendors will send invoices for the goods that they believe
they have shipped (i.e., goods on their packing slips). By matching goods
received to the vendor packing slip, Portland Company can detect and correct
shipping errors as the goods are received.
9. G: Whitneys vendors can use Whitneys public key to open the PO and to
verify that Whitneys purchasing agents have signed the PO with the Whitney
private key. This will verify that the PO is valid.
10. K: Framingham Company should review open POs to determine if the goods
have been received. Goods that have been received and are on the shelf should
be recorded as received. This will close the PO.
Note: This follow-up may find that goods that are not on the shelf and have not
been received. In those cases, a follow-up to the vendor would be in order.
36
Recommended
control plans
Ensure
efficient
employment
of resources
(people,
computers)
Ensure
security of
resources
(inventory,
purchase
order
master
data)
IV
IC
IA
For
purchase
order
master
data,
ensure:
UC
UA
IV
IC
IA
P-7
P-7
P-7
Present controls
P-1: Preformatted
screens
P-1
P-1
P-2
P-2
P-3
P-3
P-4
P-5
P-6
P-7
P-7
P-4
P-5
P-5
P-6
P-6
P-8
For
purchase
order
master
data,
ensure:
UC
UA
37
Recommended
control plans
Ensure
efficient
employment
of resources
(people,
computers)
Ensure
security of
resources
(inventory,
purchase
order
master
data)
IV
IC
IA
For
purchase
order
master
data,
ensure:
UC
UA
IV
IC
IA
Missing controls
None noted
Possible effectiveness goals include the following:
ASelect a vendor who will provide the best quality at the lowest price by the required delivery date
BEnsure that the right goods in the correct amount are received in acceptable condition
CComply with corporate code of conduct
See Exhibit SM 12.3 for a complete explanation of control plans and cell entries.
IV = input validity
IC = input completeness
IA = input accuracy
UC = update completeness
UA = update accuracy
For
purchase
order
master
data,
ensure:
UC
UA
38
Exhibit SM-12.3
P-1:
Preformatted screens.
Efficient employment of resources: By structuring the data entry process,
automatically populating fields, and preventing errors, preformatted screens
simplify data input and save time, allowing a user to input more data over a period
of time.
Purchase requisition input accuracy: As each data field is completed on a
preformatted screen, the cursor moves to the next field on the screen, thus
preventing the user from omitting any required data set. The data for fields that
are automatically populated need not be manually entered, thus reducing input
errors. Incorrectly formatted fields are rejected.
P-2:
Online prompting.
Efficient employment of resources: By asking questions and providing online
guidance, this plan ensures a quicker data entry process and allows the user to
input more data over a period of time.
Purchase requisition input accuracy: The online guidance should reduce input
errors.
P-3:
P-4:
P-5:
39
Purchase requisition input accuracy: Fewer keystrokes and the use of data called
up from existing records reduce the possibility of input errors.
P-6:
Digital signatures.
Security of resources and purchase requisition input validity: Digital signatures
will allow the vendor to determine that the sender of the message has authority to
send it and thus prevents an unauthorized purchase and diversion of resources.
This also determines that the message itself is genuine.
Purchase requisition input accuracy: Detects messages that have been altered in
transit, thus preventing the use of data by the vendor that is not reflected in the
purchase requisition input.
P-7:
P-8:
40
Cost Center/
Requisitioning Department
Established
needs
P-1
P-2
Enter
requisition
data
Computer
Purchasing
Department
Display requisition
and vendor
candidates
Requisition
input screen
Exception routine
not show n
Approve
requisition
Requisition
screen w ith
vendor
candidates
P-5
P-1
P-2
Enterprise
database
P-1
P-2
Requisitions and
forecasts m ay
be com bined
P-3
Convert requisition
to PO, enter selected
vendor, price, term s
P-3
P-3
May require
contact w ith
vendor
Record approvals
and update
requisition data
PO input screen
Requisition
approval screen
P-4
Approve PO
P-3
Record approval, release
PO, update inventory
m aster data, and confirm
to requester
Requisition
confirm ation
P-4
PO approval
screen
P-6
VAN
P-1
P-2
Error routine
not show n
Receiving
Department
Computer
P-7
Vendor
Enter PO
num ber
Shipping
docum ents
Enterprise
database
Shipping
docum ents
Read data
from RFID
chips in
shipm ent
Shipping
docum ents
Receiving
report screen
Exception
routine not
show n
Stock notice
Warehouse
P-4
Stock notice
Shipping
docum ents
41
42
P12-6 ANS.
Function
Logistics
Risks
Preapprove vendors.
Unauthorized POs
Wrong/unapproved vendor
Create purchasing budgets.
Approve vendor selection.
Goods never ordered
Inventory (debit)
Wrong/damaged goods
??? (credit)
Receiving
Incomplete entry
Note: During the receipt of inventory, a clearing account is credited to balance the debit to
inventory. When the vendor invoice is received, the same clearing account will be debited to
balance the credit to accounts payable. In the SAP system this account is called Goods
Inventory's
purchase
requisition
Inventory
m anagem ent
process
Inventory
m aster data
1.0
Determ ine
requirem ents
Purchase
requisition data
PO
inventory
notification
Requirem ents
PO
departm ent
notification
2.0
Order goods
and services
Vendor
m aster data
Inventory
m aster data
Accounts
payable
process
PO
accounts
payable
notification
PO
receiving
notification
Purchase
receipts data
Purchase
order
Vendor
packing
slip
Stock
notice
3.0
Receive
goods and
services
PO, Packing
slip, goods
Vendor
Purchase order
m aster data
Receiving
report
Vendor
m aster data
Various
departm ents
GL inventory
received update
PO, Packing
slip, inspected
goods
Inventory
m aster data
Quality
control
Warehouse
General
ledger
process
43
44
Vendor
master data
Vendor
packing slip
PO, packing
slip, goods
3.1
Inspect
and count
goods
PO receiving
notification
Quality
control
Reject
PO, packing slip,
inspected goods
Purchase order
master data
Receiving
report
Reject
Purchase
receipts data
3.2
Compare
receiving
report and
purchase order
GL
Inventory
received
update
Stock
notice
Receiving
report
Vendor
master data
Inventory
master data
Inventory
m anagem ent
process
Inventory's
purchase
requisition
Purchase
order
Vendor
PO
inventory
notification
Purchase requisitionsupplies and services
GL inventory
received update
Purchasing
process
Receipt
notification
Various
departm ents
PO
departm ent
notification
Receiving
report
PO
accounts
payable
notification
Custom er
Accounts
payable
process
General
ledger
process
45
46
Inventory's
purchase
requisition
Inventory
m anagem ent
process
Inventory
m aster data
1.0
Determ ine
requirem ents
Purchase
requisition data
PO
inventory
notification
Requirem ents
2.0
Order goods
and services
Vendor
m aster data
Inventory
m aster data
PO
accounts
payable
notification
Accounts
payable
process
Various
departm ents
PO
departm ent
notification
Purchase
order
PO
receiving
notification
Vendor
Purchase order
m aster data
Receiving
report
3.0
Receive
goods and
services
Custom er
Receipt
notification
Vendor
m aster data
GL inventory
received update
Purchase
receipts data
Inventory
m aster data
General
ledger
process
Vendor
master data
Reject
Receipt
notification
3.1
Compare
PO receiving
notification
Purchase order
master data
Receiving
report
Reject
3.2
Compare
receiving
report and
purchase
order
Purchase
receipts data
Vendor
master data
Inventory
master data
GL
Inventory
received
update
Receiving
report
47
48
P12-9 ANS.
Process
Subsidiary Functions
Inputs
Outputs
Requirements
Requirements
Purchase requisition
Purchase requisition
PO department notification
PO inventory notification
PO accounts payable notification
PO receiving notification
Purchase order
Purchase order master data
Inventory master data
PO receiving notification
Receiving report
Reject
49
50
Process
Subsidiary Functions
Inputs
Outputs
Receiving report
Receiving report
Stock notice
Table SM-12.1
Refer to effectiveness goals A and B shown in the control matrix in Figure 13.11. For each activity (accounts payable
and cash disbursements), describe goals other than the one discussed in the chapter.
ANS.
51
52
DQ13-2
Explain why ambiguities and conflicts exist among operations process (effectiveness) goals, and discuss some potential
ambiguities and conflicts relative to the goals you described in Discussion Question 13-1.
ANS.
Conflicts exist because each organizational unit wants to do its best (or at least be seen as doing its best). However,
many (perhaps any) individual units cannot possibly perform at their best because trade-offs must be made so that the
organization as a whole can do its best.
Ambiguities may exist when it is not clear when a goal has been reached, which could happen, for example, when goals
have subgoals. For example, can the cash disbursements process provide both complete and accurate information for
cut-off procedures? In addition, some effectiveness goals may conflict with the other operation process goals in the
efficient employment of resources and security of resources categories.
Conflicts that may exist relative to the processes goals in DQ 13-1 include the following:
To ensure good vendor relations, excessive cash may be kept on hand to be able to pay vendors more quickly than
is required by the terms offered.
To pay invoices quickly to obtain cash discounts, important controls in the receiving and invoice verification
processes may be sacrificed.
DQ13-3
Without redrawing the figures, discuss how Figures 13.3, 13.4, and 13.6 would change as a result of the following
independent situations (be specific in describing the changes):
a. Employing a voucher system that involved, among other things, establishing vouchers payable that covered several
vendor invoices.
ANS.
In Figure 13.4, bubble 1.2, individual invoices would not be received from bubble 1.1 and would not update the
accounts payable master data for individual invoices. Rather, batches of invoices would be accumulated, sorted by
vendor identification code, and would update the accounts payable master data.
Alternatively, individual invoices would be input and would update the accounts payable master data. However, bubble
2.2 in Figure 13.6 would sort the invoices to be paid into vendor identification sequence before forwarding the
approved payments to bubble 2.3. This method accomplishes the same objective as does creating vouchers that cover
many invoices by creating checks that cover many invoices.
Figure 13.3 would not be visibly affected by either of these. The changes are within bubbles 1.0 and 2.0 of that figure.
53
b. Making payments twice per month, on the 5th and 25th of the month, and taking advantage of all cash discounts
offered.
ANS.
Figure 13.6, bubble 2.1 is triggered on the 5th and the 25th of each month. All discount dates reached between the last
payment date and the current payment date are considered available.
Alternatively, Figure 13.4, bubble 1.2 records the payment date for each invoice and that payment date is either the 5th
or the 25th.
Figure 13.3 is not visibly affected by either of these. The changes are within bubbles 1.0 and 2.0 of that figure.
DQ13-4
In terms of effectiveness and efficiency of operations, as well as of meeting the generic information system control
goals of validity, completeness and accuracy, what are the arguments for and against each of the following?
a. Sending a copy of the vendor invoice to the purchasing department for approval of payment
ANS.
Purchasing personnel can review the invoice to insure validity of the receipt (i.e., the items were ordered, etc.).
The purchasing department review will delay establishing the payable and may cause the organization to lose a
discount.
Sending a copy of the purchase order to the accounts payable office may be more efficient. While accounts payable
personnel are examining the invoice, they can compare it to the purchase order.
b. Sending a copy of the vendor invoice to the requisitioning department for approval of payment
ANS.
DQ13-5
An electronic data interchange (EDI) system may present an organization with opportunities and risks:
a. What opportunities might an EDI system present? Discuss your answer.
ANS.
EDI facilitates the timely and efficient flow of data between trading partners. For example, by enabling a just-in-time
process, EDI can reduce the carrying costs of inventory and reduce the time to manufacture a product, thus improving
customer service. The rapid EDI communications actually can prevent a production line from stopping due to a lack of
raw materials.
54
EDI precludes the reentry of data at the receiving organization; this is more efficient, effective (i.e., timely), and
reduces data entry errors.
b. What risks might an EDI system present? What controls other responses might an organization choose to address
these risks?
ANS.
Failure of the communications link threatens the ongoing operation of EDI. To prevent this, the contract with the VAN
should address the availability of the communications link. An organization may contract with alternative VANs to be
used in the event of one VANs failure. Communication via the Internet might also be used in lieu of VANs. Finally,
alternative, non-EDI communications options may be used in the event of communications failures.
Unauthorized incoming or outgoing transactions may be processed. To prevent such occurrences, encryption/digital
signatures may be used along with physical security and logical access controls (passwords, biometrics, and so on) to
prevent unauthorized access to EDI applications.
DQ13-6
In the physical implementation depicted in Figure 13.10, the computer updated the accounts payable data upon receipt
of a vendor invoice (a clerk handled any exceptions). Describe the procedures that you believe should control that
process.
ANS.
We can discuss two categories of procedures and controls, business process/application controls, and entitylevel/pervasive/IT general controls:
Business process/application controls:
The VAN or EDI translator should determine that the invoice was received from a legitimate vendor, and not from
an unauthorized source. A secure mailbox at the VAN and digital signatures might be used for this purpose. The
accounts payable application should also match the incoming invoices to the vendor master data to further validate
that the vendor is real.
The accounts payable program matches the invoice to the receiving report and purchase order. Should there be
significant variation (tolerances should be assigned by management and applied by the program) or should either
the purchase order or receiving report be missing, the computer should reject the invoice.
Entity-level/pervasive/IT general controls:
55
Physical and logical access controls should prevent unauthorized alteration of the vendor, purchase order, and
receiving report datathe data used to validate the invoice.
Program change controls must prevent unauthorized alteration of the program that performs the invoice validation.
Personnel controls, such as selection and hiring, training and education, and supervision, should ensure that AP
clerks handling the exceptions can and do perform their duties in accordance with company policies.
Logical access controls should ensure that only authorized personnel can handle exceptions.
DQ13-7
In the physical implementation depicted in Figure 13.10, the payment order and the remittance advice were either sent
together through the banking system, or the remittance advice was sent directly to the vendor. Which is better? Discuss.
ANS.
Each approach may have advantages. If the two items are sent together, identification and validation of the payment
may be more efficient. However, if the RA is received independent of the payment, we can use the RAs as a tickler to
ensure receipt of the payment.
DQ13-8
With an EDI system, a customers order may be entered directly into the OE/S without human intervention. Discuss
your control concerns under these circumstances.
ANS.
We can discuss two categories of procedures and controls, business process/application controls and entitylevel/pervasive/IT general controls:
Business process/application controls:
The VAN or EDI translator should determine that the order was received from a legitimate customer and not from
an unauthorized source. A secure mailbox at the VAN and digital signatures might be used for this purpose. The
OE/S application should also match the incoming order to the customer master data to further validate that the
customer is real.
In addition to validating the existence of the customer, the order entry/sales program should perform a credit check.
Should there be significant credit shortfall (tolerances should be assigned by management and applied by the
program), the computer should reject the order. The program should also perform an inventory availability check.
Either a credit or availability failure might be displayed to a customer service representative for review and
correction.
Entity-level/pervasive/IT general controls:
56
Physical and logical access controls should prevent unauthorized alteration of the customer, sales order, and
accounts receivable datathe data used to validate the customer and perform the credit check.
Program change controls must prevent unauthorized alteration of the program that performs the validation and
credit check.
Personnel controls, such as selection and hiring, training and education, and supervision, should ensure that
customer service representatives handling the exceptions can and do perform their duties in accordance with
company policies.
Logical access controls should ensure that only authorized personnel can handle exceptions.
DQ13-9
In the section Fraud and the Accounts Payable Function, we described a fraud committed by Stanley and Phoebe
and another by Veronica. For each fraud describe controls and technology that could reduce the risk of those frauds
occurring.
ANS.
Controls and technology that might have reduced the risk of the fraud perpetrated by Stanley and Phoebe include the
following:
Before opening the business account, the bank might have asked for documentation regarding SRJ Enterprises.
Personnel in the Accounting department should not be authorized to create vendor records. This function should be
reserved for the Purchasing department.
Before the vendor record is created the vendor address, telephone number, etc. should be compared to such data on
the organizations personnel file to determine if the vendor and an employee might be related.
Vendor invoices should be matchedmanually or by the computerto open purchase orders and receiving reports
before an accounts payable record is created and the invoice paid.
Controls and technology that might have reduced the risk of the fraud perpetrated by Veronica include the following:
When the vendor invoice is entered, the invoice number should also be entered, and the computer should be
programmed to detect and preclude entry of duplicate invoice numbers.
When the vendor invoice is entered, it should be matched against an open purchase order and a receiving report.
When a second, duplicate, invoice is entered, there would no longer be a PO or receiving report for matching, and
the second invoice would be rejected.
57
Veronicas employer should request that vendors apply overpayments as credits rather than returning the checks.
Problems
Problems 1 and 2
Note: In the pages that follow, we provide solutions for problems 1 and 2 for both of the Case Studies (Cases A and B) as applicable.
Although the solution for each case study comprises several pages, it is not necessarily comprehensive, nor does it represent the only
acceptable answers. Your or your students answers easily may vary in two areas. First, the grouping on the annotated table of entities
and activities determines the configuration of the current logical DFD. Second, we have included in the formal controls analysis only a
sample of the possible present and missing controls. At the end of the descriptions of the controls for each case, we include a list of
other controls that you or your students might want to include in a solution.
58
Stockbridge Company (Accounts Payable and Cash Disbursements Processes) Solutions (see the Note on pg. 13-5)
P13-1 ANS.
a. Table of Entities and Activities for Stockbridge Company (Accounts Payable and Cash Disbursements
Processes)
Entities
Para
Activities
1.
2.
Vendor
Computer
3.
Display PO data.
AP
4.
Computer
5.
6.
Purchasing
7.
Approve variances.
Computer
8.
Record the invoice, and update the PO and general ledger databases.
9.
Computer
Accounts payable
Accounts payable
Invoice
Accounts
payable/ cash
disbursements
process
Vendor
Payment
FIGURE SM-13.1
PO
number
PO data
Invoice
1.0
Accounts
payable
department
Invoice data
Open invoices
Payment selections
Check
Vendor
Checks
NOTE: Only one flow into and out
of the enterprise database are
shown to represent all interactions.
2.0
Computer
Enterprise
database
59
60
FIGURE SM-13.2
P13-1 ANS.
Problem 1, part c solutionphysical DFD for Stockbridge Company (Accounts Payable and Cash
Disbursements Processes)
d. Table of Entities and Activities (annotated) for Stockbridge Company (Accounts Payable and Cash
Disbursements Processes)
Entities
Para
Activities
2.
Computer
3.
Display PO data.
AP
4.
Computer
5.
Computer
8.
Computer
9.
Accounts payable
Computer
Process
FIGURE SM-13.3
61
Problem 1, part e solutionlogical DFD for Stockbridge Company (Accounts Payable and Cash Disbursements
Processes)
62
Accounts payable
department
Accounts payable
department
Computer
Vendor
Retrieve and
display open
invoices
Open
invoices
Invoice
Each
morning
Select invoices
Key PO number
Retrieve and
display PO data
Enterprise
database
Print checks,
update AP and
general ledger
databases
PO data
Checks
Record invoice,
update PO and
general ledger
databases
Vendor
Invoice
data
If necessary,
purchasing must
approve price and
quantity variances
FIGURE SM-13.4
63
Control Goals of the Stockbridge Company Accounts Payable and Cash Disbursements Business Processes
Control Goals of the Operations Process
Ensure
effectiveness
of
operations:
Recommended control
plans
Ensure
efficient
employment
of resources
(people,
computers)
Ensure
security of
resources
(cash,
accounts
payable
master
data)
IV
IC
IA
For accounts
payable
master data,
ensure:
UC
UA
For payment
voucher inputs,
ensure:
IV
IC
Present Controls
P-1: Independent
validation of
vendor invoice
P-2: Match invoice to
PO and receiving
report
P-1
P-2
P-3: Authorize
variances
P-4: Computer
generated list of
vouchers due
(monitor open
invoices)
P-5: Independent
authorization to
make payment
P-1
P-2
P-2
P-3
P-3
P-4
P-4
P-5
P-5
For accounts
payable
master data,
ensure:
IA
UC
UA
64
Control Goals of the Stockbridge Company Accounts Payable and Cash Disbursements Business Processes
Control Goals of the Operations Process
Ensure
effectiveness
of
operations:
Recommended control
plans
Ensure
efficient
employment
of resources
(people,
computers)
Ensure
security of
resources
(cash,
accounts
payable
master
data)
IV
IC
IA
For accounts
payable
master data,
ensure:
UC
For payment
voucher inputs,
ensure:
UA
IV
For accounts
payable
master data,
ensure:
IC
IA
M-2
M-2
Missing Controls
M-1: Monitor open POs
and receiving
reports
M-1
M-2
M-3: Treasurer
authorizes
disbursements
M-1
M-2
M-3
M-3
IV = input validity
IC = input completeness
IA = input accuracy
UC = update completeness
UA = update accuracy
See Exhibit SM 13.1 for a complete explanation of control plans and cell entries.
FIGURE SM-13.5
M-3
UC
UA
Exhibit SM-13.1
65
Note: Vendor invoice and payment voucher inputs result in immediate updates to accounts
payable master data. Therefore, we do not show entries for UC or UA.
P-1:
P-2:
P-3:
Authorize variances.
Vendor invoice input validity, and input accuracy: Purchasing reviews the input
quantities and prices to determine that they are valid and accurate (within limits
prescribed by management).
P-4:
P-5:
M-1:
66
M-2:
M-3:
FIGURE SM-13.6
67
68
Entities
Para
Activities
Supplier
1. Log on to IPP.
2. Flip PO to invoice.
IPP Server
BEPMIS
22. E-mail CO, DO, and Boston Fed with PIF totals.
IPP Server
IPP server
Enterprise adapter
BEPMIS
Enterprise adapter
BEPMIS
Enterprise adapter
Entities
Para
Activities
32. E-mail AP accountant, CO, DO, and Boston Fed with ACH
totals (number and dollar amount of payments).
Boston Fed
FedACH system
IPP server
Suppliers bank
Payment
notice
Supplier
Total of
payments
made
IPP accounts
payable/ cash
disbursements
process
ACH
totals
Total of
payments
made
ACH
totals
Accounts
payable
accountant
FIGURE SM-13.7
ACH
totals
Total of
payments
made
ACH
Total of totals
payments
made
Disbursing
officer
Boston Fed
Contracting
officer
69
70
Appreciating
database
Invoice changes
in XML
Logon
PO data
1.0
Supplier
PIF file
in XML
Payment
notice
PIF file
4.0
BEPMIS
PIF
totals
PIF
approval
PO flip
Invoices
in XML
3.0
Enterprise
adapter
Invoices
2.0
IPP
server
PIF in
ACH format
PIF
approval
BEPMIS/IDMS
database
PIF
totals
7.0
Disbursing
officer
Open
invoices
ACH ACH
totals totals
ACH
totals
8.0
Boston
Fed
PIF in
ACH format
6.0
Contracting
officer
PIF totals
Total of
payments
made
Invoices
to be
paid
PIF
totals
Supplier
ACH
totals
Trigger
payment
process
5.0
Accounts
payable
accountant
9.0
FedACH
System
Treasury and
bank accounts
Boston Fed
Accounts
payable
accountant
Contracting
officer
Disbursing
officer
Total of
payments
made
Total of
payments
made
Total of payments made
FIGURE SM-13.8
Credit
notice
10.0
Supplier's
Bank
Supplier
accounts
P13-1 ANS.
71
Entities
Para
Activities
Supplier
1. Log on to IPP.
2. Flip PO to invoice.
IPP server
Enterprise adapter
BEPMIS
IPP Server
AP accountant
BEPMIS
AP accountant
Enterprise adapter
IPP Server
Contracting officer
(CO)
Disbursing officer
(DO)
IPP server
Boston Fed
FedACH system
Suppliers bank
Enterprise adapter
BEPMIS
Process
72
Supplier
Payment
notice
Treasury and
bank accounts
ACH totals
Total of
payments made
Appreciating
database
1.0
Record
invoices and
invoice
changes
Accounts
payable
accountant
ACH total
3.0
Settle
payments
Total of
payments made
Boston Fed
ACH total
Total of
payments made
Accounts payable
database
2.0
Select and
approve
payments
ACH total
Total of
payments made
Supplier
accounts
FIGURE SM-13.9
Disbursing
officer
Contracting
officer
FIGURE SM-13.10 Problem 2, part a solutionsystems flowchart for Internet Payment Platform
(Accounts Payable and Cash Disbursements Processes)
73
74
Supplier's Bank
FedACH System
P. 1,
A
P. 1,
C
Read e-mail
Read e-mail
P. 1,
B
ACH-Form atted
file
Number of
payments
and dollars
in PIF
Number of
payments
and dollars
in ACH file
Initiate
transfer of
ACH file
Transfer
ACH-formatted
file to FedACH
Credit
supplier's
account
Settle the
payment
Manual intervention is
needed to send ACH file
through several servers
and links to FedACH
Bulk Data
Acknow ledgem ent
includes num ber of
paym ents and dollars
paid
Number of
payments
and dollars
paid
AP
CO
DO
75
76
Control Goals of the IPP Accounts Payable and Cash Disbursements Processes
Control Goals of the Operations Process
Ensure
effectiveness
of
operations:
Recommended
control plans
Ensure
efficient
employment
of resources
(people,
computers)
Ensure
security of
resources
(cash, AP
master
data)
IV
IC
IA
For AP master
data, ensure:
UC
UA
Present Controls
P-1: Match PO and
invoice
(independent
validation of
vendor invoice)
at IPP
P-1
P-2
P-3
P-1
P-1
P-4
P-4
P-2
P-3
P-4
IV
IC
IA
For AP
master data,
ensure:
UC
UA
77
Control Goals of the IPP Accounts Payable and Cash Disbursements Processes
Control Goals of the Operations Process
Ensure
effectiveness
of
operations:
Recommended
control plans
Ensure
efficient
employment
of resources
(people,
computers)
Ensure
security of
resources
(cash, AP
master
data)
IV
P-5
IC
IA
For AP master
data, ensure:
UC
P-6
P-6
P-6
P-7: Follow up on
open POs and
receiving reports
at BEPMIS
P-7
P-7
P-7
P-8
P-9
IV
P-5
P-6: Follow-up on
open POs at IPP
UA
P-9
IC
IA
For AP
master data,
ensure:
UC
UA
78
Control Goals of the IPP Accounts Payable and Cash Disbursements Processes
Control Goals of the Operations Process
Ensure
effectiveness
of
operations:
Recommended
control plans
P- 10: Follow-up on
open invoices at
BEPMIS
P-13: CO and DO
approval
required for
payment
Ensure
security of
resources
(cash, AP
master
data)
IV
IC
IA
For AP master
data, ensure:
UC
UA
IV
IC
IA
P-10
P-11
P-11
P-12
P-11
P-13
P-13
M-1
M-1
M-1
For AP
master data,
ensure:
UC
UA
P-10
P-11
P-12
Missing Controls
M-1: Independent
validation of
vendor invoice
at IPP does not
include a match
to receiving
report
P-10
Ensure
efficient
employment
of resources
(people,
computers)
P-11
P-12
P-13
P-11
79
Control Goals of the IPP Accounts Payable and Cash Disbursements Processes
Control Goals of the Operations Process
Ensure
effectiveness
of
operations:
Recommended
control plans
M-2: Reconcile batch
totals for
invoices and
changes
Ensure
efficient
employment
of resources
(people,
computers)
Ensure
security of
resources
(cash, AP
master
data)
B
M-2
M-2
M-3: Programmed
edits for
translated and
formatted
invoice (and
invoice change)
data
For AP master
data, ensure:
IV
IC
IA
UC
UA
M-2
M-2
M-2
M-2
M-2
M-3
IV
IC
IA
For AP
master data,
ensure:
UC
UA
M-3
M-4: Programmed
edits for
formatted and
translated
payment data
M-4
M-4
M-5: Reconcile
payments made
by BEPMIS to
PIF totals
M-5
M-5
M-5
M-5
M-5
M-5
M-5
M-6: Reconcile
approved
payments to PIF
totals
M-6
M-6
M-6
M-6
M-6
M-6
M-6
80
Control Goals of the IPP Accounts Payable and Cash Disbursements Processes
Control Goals of the Operations Process
Ensure
effectiveness
of
operations:
Recommended
control plans
Ensure
efficient
employment
of resources
(people,
computers)
Ensure
security of
resources
(cash, AP
master
data)
IV
IC
IA
For AP master
data, ensure:
UC
UA
For AP
master data,
ensure:
IV
IC
IA
UC
UA
M-7
M-7
M-7
M-7
M-7
M-7
M-7
M-8: Reconcile
payments made
by ACH to
ACH file (and
PIF totals and
BEPMIS
payment totals)
M-8
M-8
M-8
M-8
M-8
M-8
M-8
IV = input validity
IC = input completeness
IA = input accuracy
UC = update completeness
UA = update accuracy
See Exhibit SM 13.2 for a complete explanation of control plans and cell entries.
FIGURE SM-13.11 Problem 2, part b solution (partial)control matrix for Internet Payment Platform
(Accounts Payable and Cash Disbursements Processes)
Exhibit SM-13.2
P-1:
81
P-2:
P-3:
P-4:
P-5:
P-6:
82
P-7:
P-8:
P-9:
Pay only open invoices and close invoices upon payment (independent
authorization to make payment) at BEPMIS.
Security of resources: Because cash cannot be expended in the absence of a
validated, open vendor invoice (and this invoice was recorded after matching it to
the PO and receiving report), security over the cash asset is also enhanced.
Payment input validity: The accounts payable computer program approves vendor
invoices for payment. Because the invoice was recorded after matching it to the
PO and receiving report, the validity of the payment input is ensured.
P-10:
P-11:
P-12:
83
P-13:
M-1:
Independent validation of vendor invoices at IPP does not include a match to the
receiving report.
Vendor invoice input validity, vendor invoice input accuracy, and vendor invoice
update accuracy: By comparing the invoice to the receiving report (in addition to
the PO), we could ensure that the recorded invoice reflects goods actually
received and ordered (validity) and that items, quantities, prices, and terms are
comparable to data on the PO and receiving report. We assume that the AP master
data is updated simultaneously with the input of the invoice data.
M-2:
M-3:
M-4:
84
Payment input accuracy and payment update accuracy: Edits at BEPMIS and the
Enterprise Adapter would identify erroneous or suspect data and reduce input
errors at the IPP Server. We assume that the AP master data is updated
simultaneously with the input of the payment data.
M-5:
M-6:
M-7:
M-8:
Reconcile payment made by ACH to ACH file (and PIF totals and BEPMIS
payment totals).
85
86
FIGURE SM-13.12 Problem 2, part c solutionannotated systems flowchart for Internet Payment Platform
(Accounts Payable and Cash Disbursements Processes)
87
88
Supplier's Bank
FedACH System
P. 1,
A
P. 1,
C
Read e-mail
Read e-mail
P. 1,
B
ACH-Form atted
file
Number of
payments
and dollars
in PIF
Number of
payments
and dollars
in ACH file
M-7
Transfer
ACH-formatted
file to FedACH
Initiate
transfer of
ACH file
Manual intervention is
needed to send ACH file
through several servers
and links to FedACH
M-8
Credit
supplier's
account
Settle the
payment
Number of
payments
and dollars
paid
Bulk Data
Acknow ledgem ent
includes num ber of
paym ents and dollars
paid
M-8
AP
M-8
CO
M-8
DO
P13-3 ANS.
89
1. K: Before invoices are accepted and recorded, Otis Company must validate
the invoice by comparing it to the related purchase order and a receiving
report to ensure that the invoice is for items that were ordered and received.
2. D: Durham Company should compare incoming invoices to vendor master
data to determine that the invoices are from authorized vendors. The invoices
should also be compared to the related purchase order and receiving report to
reduce the possibility that the invoice is fraudulent.
3. F: Albany, Inc. should follow up on open POs and receiving reportsthose
for which there is no invoiceto ensure that invoices are received and
recorded in a timely manner.
4. C: Because the invoices are entered in batches, there is an opportunity for
personnel in the AP department to reconcile batch totals to ensure that all of
the invoices are recorded correctly.
5. I: LaFond must have procedures in place to ensure that invoices identified as
in error are corrected and re-input to ensure input completeness.
6. J: The duties of Janice, the AP clerk, should be segregated from those of
programmers so that only authorized changes to programs are made by
programmers. Program change controls will ensure that this segregation is
effective.
7. E: By matching the PO, invoice, and receiving report, Kennedy Company can
ensure that invoices are accurately recorded. The matching would, for
example, determine that only 10 widgets were received and that the invoice
for 15 is incorrect.
8. A: Smithfield Company should perform a bank reconciliation. By matching
authorized payments (e.g., the cash disbursements journal) to checks cleared
by the bank (e.g., the bank statement), they would detect the unauthorized
checks written by Sue Granville.
9. B: Gary should not be able to get access to, and makes unauthorized changes
to, the vendor master data. Access control software can restrict data
maintenance activities to authorized personnel.
10. L: Disbursements should be only for invoices that have been recorded by
accounts payable. John should not be able to prepare disbursements unless
there is an invoice that was independently authorized and recorded (e.g., by
accounts payable).
90
So
P13-4 ANS.
Part a. Solution: There are no changes to Figure 13.3. See Figure SM 13.13 for
changes to Figures 13.4 and 13.6.
PO accounts
payable notification
Reject
Receiving
report
Vendor
invoice
1.1
Validate
invoice
Vendor
master data
Validated
vendor
invoices
Inventory
master data
Accounts payable
master data
Purchase
events data
1.2
Record
payable
GL payable
update
91
P13-4 Part b. solution: Process 2.1 would be triggered on the 5th and 25th of each month. No
changes to the figures is required.
FIGURE SM-13.13 Problem 4 Solution (continued)
P13-5 ANS.
1. Check digit (a programmed edit): This control will detect most keying errors
(such as transpositions) as the number is input. It is best suited to numbers
such as credit card numbers, customer numbers, and vendor numbers where
the check digit is calculated, appended to the account numbers, and used each
time the account number is entered to ensure that the number has been
accurately entered.
2. Reconcile batch totals: Because the documents were scanned, we can assume
that they were entered into the computer. However, we are told that they were
not recorded. Batch totals for the input documents prior to scanning should be
compared to totals for documents that are recorded to ensure that all
documents are scanned and accurately recorded.
3. Reasonableness test: Either the disbursement amount, the ending balance, or
both, must not have conformed to normal (i.e., reasonable) trends and would
have been detected before the update was completed.
4. Check the mathematical accuracy of vendor invoices (dollar totals): The
accuracy of the invoice should be checked prior to recording the payable.
92
So
Note: We could also match the invoice, PO, and receiving report. However, the
invoice may be for an open PO and receipt and simply be incorrect in its totals.
5. One-for-one checking of the receiving report and the invoice: This prevents
paying for goods that were not received.
6. One-for-one checking of the purchase order and the vendor invoice: This
prevents paying for goods that were not ordered or that were ordered at prices
and terms other than those on the purchase order.
7. Match invoice with PO: Accounts payable should not create a payable without
an open PO. When the PO is used to validate the invoice, it should then be
marked as closed (or linked to the invoice) so that it cannot be used again. If
this process is followed, the second or duplicate invoice would have been
discovered because no PO would match to the invoice.
8. Reconcile run-to-run totals: If the GL is updated as a batch, then a
reconciliation of batch totals, or run-to-run totals, would detect any errors.
Note: We could also argue that the subsidiary and controls accounts should be
updated simultaneously so that they remain in balance.
9. Match invoice with PO and receiving report: At the time that the vendor
invoice is input, the accounts payable process should match the invoice to an
existing vendor record, an open PO, and a receiving report, and should not
create a payable if this match fails.
10. Tickler file of open purchase orders and/or receiving reports: A periodic
review of open purchase orders and/or open receiving reports (i.e., those for
which no invoice has been received) will find and input the missing invoices
in a timely manner.
P13-6 ANS.
Inventory
Cr.
B. GL payable update
1.Merchandise is purchased, and a periodic inventory process is used.
Dr.
Purchases
Cr.
Accounts payable
93
Accounts payable
Accounts payable
Accounts payable
Accounts payable
Accounts payable
Cr.
Cash (Note C)
94
So
P13-7 ANS.
Function
Risks
Finance
Cash is lost.
Electronic payments.
Segregate controller and treasurer.
Accounts payable
??? (debit)
AP (credit)
Invalid invoice (bogus [goods
not ordered and/or not received],
unauthorized, or duplicate
invoices are recorded).
Inaccurate invoice (e.g.,
incorrect vendor, invoice
number, amount).
Incomplete invoices.
Cash (credit)
Discounts
taken (credit)
Cash disbursements
AP (debit)
Note: During the receipt of inventory, a clearing account is debited. When the vendor invoice is received, the
same clearing account will be debited. In the SAP R/3 system, this account is called Goods Received/Invoice
Received (GR/IR).
TABLE SM-13.1
Process
1.0 Establish payable
Inputs
Outputs
Receiving report
Vendor invoice
Vendor master data
1.2 Record payable
GL payable update
Inventory master data
Purchase events data
Proposed payments
Proposed payments
Approved payments
Approved payments
Vendor payment
95