Documentation Case: Aisinstructions See The Narrative Below

Documentation Case Aisinstructionssee The Narrative Below Which Rep

Perform a flowchart of the Purchasing and Disbursements cycle based on the provided narrative, using manual symbols from Warren Sports and additional symbols for system or electronic aspects. Use on-page and off-page connectors where appropriate, and include a key if custom symbols are used. Identify major risks ("what can go wrong") in the process, and create tickmarks on the flowchart to denote these risks, with an explanation in a tickmark legend. Develop a matrix mapping the process, risks, and controls in a separate worksheet, including an analysis of segregation of duties. The narrative describes Leopards, Inc.'s processes including vendor management, purchase requisitions, purchase order creation, receipt of goods, invoice matching, payment processing, and reconciliation, emphasizing controls and segregation of duties throughout these steps.

Paper For Above instruction

The process of procurement and payment at Leopards, Inc. involves a series of meticulously designed steps aimed at ensuring efficiency, accuracy, and control over purchasing and disbursements. This cycle begins with vendor management, proceeds through requisition, ordering, receipt, and payment, and finally concludes with reconciliation and oversight. Building an effective flowchart that encapsulates each stage, the relevant controls, and potential risks is vital for internal control assessment and fraud prevention.

Developing the flowchart

The initial step in the flowchart involves managing the vendor list, controlled solely by the controller, who ensures the accuracy and legitimacy of vendors added. The use of electronic systems, such as Oracle ERP, automates and documents activities like requisition processing, purchase order generation, and tracking outstanding orders. The procurement process starts with logistics’s review of demand reports and the electronic submission of requisitions, which are then approved electronically by the plant manager before being sent to purchasing. Only the purchasing department has authority to generate purchase orders, which are created in sequential order within the Oracle system, then sent electronically to vendors. The system records each purchase order and maintains the status of open orders, monitored weekly by the purchasing manager to flag overdue items.

The receipt of goods is a physically segregated activity, conducted solely by the receiving department, which inspects, counts, and verifies incoming inventory against purchase orders. This process involves creating a receiving report, comparing the packing slip to received items, and recording receipt data electronically. Discrepancies trigger an investigation, documented and communicated to logistics. The packing slip, stamped with date, receiving number, and signature, is forwarded to purchasing, which signs to approve or notes discrepancies.

The process flows into the disbursement phase, where accounts payable (A/P) receives invoices, which are stamped with receipt date. The A/P clerks match invoices to receiving reports and purchase orders, investigating discrepancies in quantity or price and documenting corrective actions. Once verified, invoice details are entered into Oracle, automatically updating the general ledger and A/P subsystem. Weekly, batch checks are prepared, approved by the controller and treasurer, and printed from the system. Checks, stored securely, are signed, matched with invoices and supporting documents, and filed.

Assessment of risks in this process highlights key points where errors or fraud could occur. Major risks include vendor fraud, unauthorized purchases, duplicate payments, and collusion for inflated invoices. For example, failure to restrict vendor list modifications to authorized personnel or inadequate segregation of duties among requisitioning, approval, and payment authorization can lead to fraud. The process’s controls—such as system automation, restricted access to check printing, dual approval for payments, and reconciliations—serve to mitigate these risks.

Mapping risks and controls

A control matrix in a separate worksheet would align each process step with identified risks and existing controls. For instance, managing vendor setups is controlled via restricted access to the vendor master file, with oversight by the controller. Requisitions and purchase orders are system-initiated and require approval, reducing unauthorized purchases. Receipt inspections prevent acceptance of incorrect or fraudulent shipments. Invoice matching and discrepancy investigation help prevent overpayments. Check authorization and secure storage, plus reconciliation procedures, safeguard against duplicate or fraudulent disbursements.

Segregation of duties analysis

The narrative indicates multiple layers of segregation: the controller manages vendor master data and reviews A/P reports, the logistics department handles requisitions and receipt, purchasing generates POs, and the A/P department processes invoices and payments. This separation prevents an individual from controlling multiple conflicting activities, such as creating a vendor, ordering, receiving, and paying for goods. The limited access to system functions, physical controls (lockable check storage), and supervisory review (controller and treasurer) reinforce this segregation, essential for preventing fraudulent activities and errors.

Conclusion

Constructing a detailed flowchart based on the narrative provides clarity on process flows, controls, risks, and segregation of duties. Visualization facilitates auditing, identifies gaps, and enhances internal control systems. The enterprise’s reliance on Oracle ERP automation, restricted access controls, regular review activities, and proper documentation collectively serve to mitigate risks and promote accurate financial reporting. Management should ensure these controls are effectively implemented and periodically tested to detect and prevent fraud and errors, maintaining the integrity of Leopards, Inc.’s procurement and disbursements operations.

References

• Arens, A. A., Elder, R. J., & Beasley, M. S. (2017). Auditing and Assurance Services. Pearson.
• COSO. (2013). Internal Control—Integrated Framework. Committee of Sponsoring Organizations of the Treadway Commission.
• Hall, J. A. (2018). Accounting Information Systems. Cengage Learning.
• Knapp, M. C. (2013). Internal Auditing: Assurance & Consulting. Cengage Learning.
• Martin, M. W. (2018). Guide to Internal Control. AICPA.
• Norman, G., & Mautz, R. (2019). Ethical and Fraud Risk Management. Journal of Accountancy, 227(4), 32-37.
• Sprouse, R. T., & Moon, C. C. (2005). Internal Control and Fraud Prevention. Journal of Accountancy, 200(1), 54-59.
• Warren, C. (2017). Accounting Information Systems. Cengage Learning.
• Weil, K. (2014). Internal Control for Dummies. Wiley.
• Williams, H. (2020). Fraud Prevention and Detection. Securities & Exchange Commission.