purchase and payments

What are the four incompatible functions that must be segregated in any cycle?

Authorisation, Custody, Recording, and Independent review/reconciliation.

Why must every purchase order/GRN/requisition be pre-numbered?

To enable a number sequence check so missing documents (and therefore missing/duplicate transactions) can be identified and followed up.

What must happen before a supplier is added to an approved supplier list?

At least 3 competitive quotes/prices should be obtained and suppliers evaluated on price, quality and delivery time before management formally approves the list.

State the control objective for EFT payments relating to authorisation.

To ensure that EFT payments are authorised in terms of the approved company payment policy.

State the control objective for EFT payments relating to validity/occurrence.

To ensure that EFT payments are for transactions that actually occurred and goods/services were actually received.

State the control objective for EFT payments relating to accuracy.

To ensure that EFT payments are recorded/captured at the correct amount paid.

State the control objective for EFT payments relating to classification.

To ensure that EFT payments are classified in the correct accounts in the financial records.

State the control objective for EFT payments relating to posting/summarising.

To ensure that EFT payments are correctly and accurately summarised and posted from the cash book to the general ledger.

State the control objective for EFT payments relating to the correct payee.

To ensure that EFT payments are made to the correct/approved suppliers.

A storeman both identifies inventory needs and receives deliveries. What is the risk?

He can order inventory for personal use, receive it himself, and conceal the fraud, since custody and initiation/authorisation are combined in one person.

Why is a copy of the approved purchase order sent to the receiving/reception area?

So receiving staff can compare goods delivered against what was actually ordered, and reject or query goods that were not ordered or delivered in an incorrect quantity.

Why is a copy of the approved purchase order sent to the accounting division?

So the accounting clerk can later agree/match the order to the supplier invoice and goods received note before recording the transaction.

Why should orders exceeding a certain Rand value require a second signature (e.g. financial manager)?

To provide an additional level of authorisation and oversight for higher-risk, higher-value transactions.

What should happen if there is no satisfactory supplier on the approved supplier list?

The purchasing clerk must first obtain a number of competitive quotations (e.g. 3) before preparing an order.

Why must goods be received by two people rather than one?

To reduce the risk of theft of inventory, since a single receiving clerk could accept and misappropriate goods without detection.

What must receiving staff do with delivery boxes before accepting goods?

Open the boxes (not just check the outside) and compare the nature, quantity and quality of the physical inventory to the supplier delivery note and the approved purchase order.

What is a Goods Received Note (GRN) and who prepares it?

A pre-numbered document prepared by the receiving clerk(s) recording the supplier, date, quantity and description of inventory actually received, based on comparison of the physical goods, delivery note and purchase order.

Why should a second receiving clerk review the GRN after it is prepared?

To check it for mathematical/casting accuracy and confirm it agrees with the inventory description on the boxes — an independent check reduces errors and fraud.

What should the accounting clerk do before recording a supplier invoice in the purchases journal?

Agree/match the invoice to the goods received note, supplier delivery note and approved purchase order, and recalculate the invoice for accuracy, signing as evidence.

Why should a copy of the GRN be sent to the accounting division?

So the accounting clerk can compare it to the invoice and purchase order to confirm the goods were actually received before payment is processed.

What is a creditors reconciliation and why must it be reviewed independently?

A reconciliation of the supplier statement to the company's creditors ledger; independent review is needed so errors or hidden fraudulent entries do not go undetected.

Why should EFT payment requisitions and their supporting documents be cancelled after payment?

To prevent the same invoice/requisition being used to request a duplicate or fraudulent payment.

Why should two independent people approve/load an EFT payment (dual control)?

To reduce the risk of theft or unauthorised payments, since a single person acting alone could make fraudulent payments undetected.

What weakness arises if one accountant prepares the creditors reconciliation, prepares the EFT requisition, AND approves payment?

Insufficient segregation of duties — she could create/approve a fraudulent payment to herself or an associate and hide it in the reconciliation she also controls.

What is the difference between a "weakness", a "consequence" and a "recommendation" in exam answers?

A weakness is what is wrong/missing in the control system; a consequence is the resulting error or fraud risk to the company; a recommendation is the specific control that should be implemented to fix the weakness, mirroring it directly.

Why must exam answers about weaknesses be scenario-specific rather than generic?

Markers award critical-thinking and problem-solving marks only for weaknesses tied to the named people, job titles and facts given in the scenario, not textbook generalities.

What are the seven standard control objectives / assertions to consider for any transaction type?

Occurrence/validity, completeness, accuracy, authorisation, classification, posting & summarising, and cut-off.

What phrasing must control objective answers always use?

They must be phrased as "To ensure that…" statements.

What should you do if a question says "excluding cut-off" or "excluding completeness"?

Do not write control objectives relating to that excluded assertion — doing so wastes time and earns no marks.

Why must a purchase requisition be reviewed and signed by someone independent of the person who raised it (e.g. head storeman)?

To confirm the need for inventory is genuine and the quantity/type requested is appropriate, preventing unnecessary or fraudulent orders.

What weakness exists if inventory is only reordered when levels "appear low" to the storeman?

There is no objective inventory control (no re-order levels/EOQ), so too much or too little inventory may be ordered, or inventory may be ordered for personal use.

What is the recommended solution to subjective "appears low" reordering?

Determine formal re-order levels and optimal order quantities (e.g. based on Economic Order Quantity and sales forecasts) to trigger orders systematically.

Why should the number sequence of purchase orders be reviewed regularly, and by whom?

An independent, senior person (e.g. purchasing/financial manager) should review it periodically and investigate missing numbers, to identify orders that were lost, not placed, or duplicated.

What consequence arises if outstanding purchase orders are never followed up?

Out-of-stock situations can occur (orders never executed) or duplicate orders may be placed for the same requisition.

Why should there be a pre-approved price list for purchases?

So that whoever authorises a purchase can confirm the price is reasonable/approved, preventing purchases at outrageous or fraudulent prices.

What is the risk if there is no approved price list?

The buyer authorises purchases without knowing whether the price is fair, allowing excessive or unauthorised pricing (possible fraud/kickbacks).

What must happen when a manufacturing manager signs a transfer note for finished goods moving to store?

He must only sign after comparing the quality, quantity and description of the physical goods to the details on the transfer note.

In a finished goods transfer system, why is the transfer/issue note prepared in triplicate?

One copy stays in manufacturing as proof and for sequence checks; one accompanies the goods to the finished goods store as proof of transfer; one goes to accounting to update inventory records.

Why should there be limited access to a finished goods store?

To restrict custody of inventory to authorised storemen only, reducing the risk of theft or unrecorded removal of goods.

Why should two inventory clerks (not one) take receipt of transferred finished goods?

To provide segregation of duties/joint custody, comparing physical goods to the transfer note and signing as evidence, reducing fraud and error risk.

State two control objectives for bad debts written off (excluding completeness).

(1) Amounts written off as bad are in fact uncollectable; (2) the debts written off are approved in terms of company policy.

Why is it a weakness if the same person authorises and grants credit AND writes off bad debts?

It creates opportunity for fraud, e.g. writing off legitimately collectable debts or covering up misappropriated receipts.

What documents form the "matching set" that must agree before a purchase is recorded and paid?

The approved purchase requisition, approved purchase order, goods received note, supplier delivery note, and supplier invoice.

Why must every document copy distribution in an exam answer include a reason?

Because markers deduct marks (often half credit) if a destination is stated without the reason the copy is needed there.

What is the audit relevance of ISA 315 (Revised 2019) to this cycle?

It requires the auditor to understand the entity's system of internal control, including control activities in the purchases and payments process, when identifying and assessing risks of material misstatement.

What is the audit relevance of ISA 330 to this cycle?

It governs the auditor's response to assessed risks, including designing and performing tests of controls over purchases and payments where controls are to be relied on.

What is the audit relevance of ISA 265 to this cycle?

It requires the auditor to communicate identified control deficiencies to those charged with governance — exactly what "weaknesses, consequences and recommendations" exam questions simulate.

Which sections of the Companies Act 71 of 2008 are most relevant to internal control over this cycle?

Section 76 (directors' duty of care, including adequate systems of control) and section 94 (audit committee oversight of internal financial controls).

What King IV principles relate to internal control over purchases and payments?

Principle 11 (risk governance) and Principle 15 (assurance), which address the governing body's responsibility for internal financial controls.

Why should long-outstanding purchase requisitions without a matching order be followed up?

Required raw material may never be ordered, causing production delays, or too much/too little material may eventually be ordered.

What weakness exists if a purchasing clerk selects suppliers AND receives goods with the storeman?

He is positioned to order unnecessary items and then receive and steal them (custody + initiation combined) — a segregation of duties failure.

Why must inventory adjustment/write-off forms be pre-numbered, pre-printed, and signed by a senior official?

To allow number sequence checks (preventing unrecorded/duplicate adjustments) and to ensure adjustments are genuine, approved and supported by documentation before being recorded.

What should a financial manager do before signing an inventory adjustment/write-off form?

Reperform the calculations for accuracy and be satisfied the adjustment is valid and supported by proper documentation before approving it.

Why should management periodically review total inventory written off?

To assess reasonability and detect unusual trends that may indicate theft, poor quality control, or process failures.

What is the standard structure required when answering a "design a system of internal control" question?

A logical, step-by-step description of controls in the order events occur (e.g. requisition → authorisation → order → receipt → recording), each control linked to a specific responsible person and a stated purpose.

What communication skills marks are commonly available in this topic and how are they earned?

Marks for using the exact required tabular format, for clear "To ensure that…" formulation of control objectives, and for logical/bulleted presentation of system designs.

What time-management benchmark should you use for exam questions in this topic?

Approximately 1.5 minutes per mark, e.g. a 36-mark question should take about 54 minutes.

Why is it a weakness if a buying clerk has "sole discretion" over which suppliers to use?

It removes independent oversight of supplier selection, enabling favouritism, kickbacks, or purchases from unapproved/inferior suppliers.

What weakness and consequence arise when GRN copies are not sent to the accounting department?

Weakness: no copy reaches accounting; Consequence: invoices may be paid for goods never received, or transactions recorded inaccurately.

What weakness and consequence arise when purchase order copies are not sent to the accounting department?

Weakness: no copy reaches accounting; Consequence: invoices may be paid for items never ordered, or inaccurate/incomplete recording of the transaction.

Why is it important that the person reviewing a purchase order compares it to BOTH the requisition and the approved supplier/price list?

To confirm the order reflects an actual approved need (requisition) and was placed at an approved price with an approved supplier (preventing both unnecessary and overpriced/fraudulent purchases).

What should be done with cancelled/used supporting documents after an EFT payment is approved?

They should be cancelled (e.g. stamped "paid") to provide evidence of payment and to prevent the same documents being used to request a duplicate payment.

Why is dual control over online banking access (separate usernames/passwords for loading vs approving) a strong control?

It ensures no single person can both request and approve an EFT payment, reducing the risk of fraudulent, unauthorised transfers.

What is the risk if only the outside of delivery boxes is checked against the delivery note, without opening them?

Incorrect, missing, or poor-quality inventory (or goods never even ordered) may be accepted, leading to financial losses only discovered later.

Why should management maintain a suspense/outstanding file for orders and un-invoiced GRNs?

To enable regular follow-up on transactions that have not progressed to invoicing/payment, identifying missing deliveries or unbilled goods in good time.

What is the exam-marking significance of the phrase "specific to the scenario" (Y1 critical thinking mark)?

At least two weaknesses must be clearly linked to specific facts/names in the given scenario (not generic bullet points) to earn the critical-thinking mark.

What is the exam-marking significance of "problem solving" (Y3) marks in system design or recommendation questions?

Marks are awarded where the recommendation is formulated to directly and logically address the specific weakness identified in that scenario, not a generic textbook control.

Give the standard mnemonic idea for spotting segregation of duties weaknesses.

For every named person in the scenario, list every task they perform; if any one person combines Authorisation, Custody, Recording or independent Review, flag it as a weakness.

Why should a copy of the goods received note be sent to the store/inventory records area?

So inventory records can be updated for goods physically received, keeping the perpetual inventory system accurate and complete.

What should happen if a receiving clerk finds a discrepancy between the delivery note and the physical goods?

The discrepancy should be recorded on the supplier's delivery note, and both the receiving clerk and delivery person should sign to acknowledge it before goods are accepted.

Why is it a control weakness if the same person prepares and reviews their own reconciliation or documents?

Self-review removes independent oversight, meaning the person's own errors or fraudulent entries are unlikely to be detected.

Why is limiting purchases to an "approved supplier list" important beyond price?

It also controls quality and delivery reliability, and helps prevent purchases from fictitious or related-party suppliers.