Purchase Order Processing

MGTP 422

Authorization Controls (3)

• purchase inventory based on actual inventory needs

  • need to have a purchase requisition before preparing a purchase order

  • authorize a department to look into inventory needs

• non-inventory purchases (and purchase requisitions) must be approved by your department manager

• use an approved vendor list when purchases

  • only buy from vendors on the list

  • if looking to purchase from diff vendor, must go through approval process to get them added

Segregation of Duties Controls (3)

• authorization of inventory purchases is separate from purchase order processing

• custody of inventory (receiving) is separate from recordkeeping (inventory control)

• access to different accounting records should be separate

  • purchases journal, inventory subsidiary ledger and general ledger

  • purchases journal and AP journal can be updated by the same department bc we are not making and sending invoices

Supervision Controls (3)

• authorization of payments (AP dept) is separate from payment of bills (cash disbursements dept)

• custody of checks (cash disbursement group) is separate from recordkeeping (AP group)

• when items are received, department supervisors take the packing slip and the receiving department takes the blind PO (shows what items were ordered and expected to be delivered; must count the goods received)

  • supervisor is to reconcile the packing slip and blind PO

Accounting Records Controls (2)

• use prenumbered source documents w unique identifiers

• maintain an adequate record of transactions

  • source documents

  • journals

    • purchases

    • cash disbursements

  • subsidiary ledgers

    • inventory

    • AP (if someone is paying on credit)

  • general ledger

  • files

    • supplier master

    • open/close PO

    • AP pending

    • open/close AP

Physical Access Controls (2)

physical access controls

• access to inventory (direct) physically restricted

• access to accounting records (indirect) is physically and logically restricted

• access to cash/checks (indirect) is physically and logically restricted

computer based access controls

• electronic records to be protected against un/authorized exposure

  • have logical and physical access controls

  • data and programs to be monitored and safeguarded

Independent Verification Controls - Inventory Control

reconcile purchase requisition, purchase order and receiving report

• PR from inventory control

• PO from purchasing (who got RP from inventory control)

• RR from receiving (who got goods from vendor that got PO from receiving)

validation performed to ensure we ordered and received what was initially requested before recording an increase in inventory

Independent Verification Controls - Accounts Payable

reconcile purchase order, invoice, and receiving report

• PO from purchasing

• invoice from vendor (who got PO from purchasing)

• RR from receiving (who got PO from purchasing)

example of a 3 way match; checking that you are only paying for what you ordered/things received

Independent Verification Controls - General Ledger

reconcile purchase summary and inventory summary

• PS from AP (who got RR from receiving)

• IS from inventory control (who got RR from receiving)

performed to validate that the total obligations recorded equal the total inventories received (+ control over inventory control and AP)

What is a voucher package and how is it used in purchase order controls?

voucher package: set of documents (purchase order, receiving report, and invoice) that are to be reconciled for a 3 way match

• use this match when authorizing payment of bills

• making sure you are only paying for what you received and what you ordered