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Problem 6 (Purchases System - Risks and Controls) System Flowchart

The document describes risks and controls for a purchases system. It identifies four main risks: 1) purchasing unneeded items due to a lack of segregation between inventory and purchasing departments, 2) receiving incorrect quantities or unmatched items, 3) paying for items not received, and 4) inventory misappropriation. It recommends controls like transaction authorization, independent verification through three-way matching of documents, and segregation of duties between inventory updating and warehousing.

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Shi Gianan
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49 views2 pages

Problem 6 (Purchases System - Risks and Controls) System Flowchart

The document describes risks and controls for a purchases system. It identifies four main risks: 1) purchasing unneeded items due to a lack of segregation between inventory and purchasing departments, 2) receiving incorrect quantities or unmatched items, 3) paying for items not received, and 4) inventory misappropriation. It recommends controls like transaction authorization, independent verification through three-way matching of documents, and segregation of duties between inventory updating and warehousing.

Uploaded by

Shi Gianan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOC, PDF, TXT or read online on Scribd
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PROBLEM 6 (PURCHASES SYSTEM — RISKS AND CONTROLS)

SYSTEM FLOWCHART

RISKS AND PHYSICAL CONTROLS


1.) RISK: There is no segregation between the inventory control department and the
purchasing department. There is a risk of purchasing items that are not needed. There
can also be an inventory stock out, and the entity might purchase from unapproved
vendors.

CONTROL: Transaction Authorization

When inventory levels drop to their predetermined reorder points, inventory control
should authorize replenishment with a purchase requisition to trigger purchasing
function. Furthermore, there should be a valid vendor file to ensure the legitimacy of
purchase transactions.

2.) RISK: Receive items that are not included in the order or there can be incorrect
quantities of items received.

CONTROL: Independent Verification

The receiving clerk should use a blind copy of the purchase order to reconcile, count,
and inspect the goods instead of using the packing slip.

3.) RISK: Paying for items or goods not received.

CONTROL: Independent Verification

The accounts payable clerk should peeform a three-way match (purchase order,
receiving report, and invoice). It is to verify that what was ordered was received, and
fairly priced. In the problem, the entity only reconciles the invoice with the purchase
order without the receiving report. There is no evidence that the items were actually
received.

4.) RISK: Inventory Misappropriation

CONTROL: Segregation of Duties

The inventory warehouse clerk should not also have the responsibility of updating the
inventory subsidiary ledger.

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