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M 12 - 13 Expenditure Cycle

The document describes the expenditure cycle, including processes for purchases, cash disbursements, payroll, and fixed assets. It discusses the conceptual systems and flow of transactions, physical systems using basic and integrated technologies, and risks and controls. Key aspects covered include purchase order processing, vouchers payable, cash disbursement, payroll procedures, technology systems, and risks related to unauthorized purchases, receiving incorrect items, inaccurate recording, and misappropriation of cash and inventory.

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0% found this document useful (0 votes)
38 views50 pages

M 12 - 13 Expenditure Cycle

The document describes the expenditure cycle, including processes for purchases, cash disbursements, payroll, and fixed assets. It discusses the conceptual systems and flow of transactions, physical systems using basic and integrated technologies, and risks and controls. Key aspects covered include purchase order processing, vouchers payable, cash disbursement, payroll procedures, technology systems, and risks related to unauthorized purchases, receiving incorrect items, inaccurate recording, and misappropriation of cash and inventory.

Uploaded by

Jevan Marcel
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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Expenditure Cycle

Hall – 5 & 6
Tujuan Pembelajaran
• Recognize the fundamental tasks that constitute the purchases and cash
disbursement process, payroll and fixed assets process
• Identify functional areas involved in purchases and cash disbursements,
payroll and fixed assets process, and trace the flow of these transactions.
• Understand risks associated with purchase, payroll and cash disbursements,
and fixed assets activities, also controls that reduce these risks.
• Be aware of operational features and control implications of technology
used in expenditure cyscle

2
d

The Conceptual System


• Purchase processing procedures:
• Monitor inventory records, prepare purchase order. receive goods, update inventory records,
set up accounts payable.
• Vouchers payable system:
• Alternate to AP procedures that uses cash disbursement vouchers and maintains a voucher
register, providing improved control over cash disbursements. Vouchers payable file
equivalent to AP file.
• GL function posts journal voucher data.
• Cash disbursement system:
• Identify liabilities due, prepare cash disbursements, update AP record and post to general ledger.

3
DFD for Purchase System

4
d

DFD for Cash Disbursement System

5
d

Physical Systems
• Basic Technology Expenditure Cycle:
• Computers tend to be independent PCs.
• Information between departments is communicated via hard-copy
documents.
• Maintaining physical files of source documents is critical to the audit
trail.
• In the following flowcharts note that, in many departments, after an
individual completes his or her assigned task, documents are filed as
evidence task was performed.

6
Physical Systems: Basic Purchases Processing

• Begins when inventory clerk prints purchase requisitions by accessing the purchase
requisition file.
• File created when inventory dropped to reorder point.
• Purchasing department receives the purchase requisition.
• Adds record to the digital open purchase order file.
• PO copies to vendor, inventory control, AP and receiving (blind).
• Receiving reconciles goods with packing slip and blind PO.
• Report to storeroom and purchasing department, files hard copy.
• AP reconciles invoice, purchase order and receiving report.
• Records transaction in the purchases journal.
• Gender ledger department receives journal voucher from AP and account
summary from inventory control.

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Physical Systems: Basic Purchases Processing

8
Physical
PhysicalSystems:
Systems Basic Cash Disbursements System
• AP clerk reviews AP packet in open AP file, identifies items due, and sends
documents to cash disbursements.
• Cash disbursements reviews documents, prepares three-part check and records
pertinent data in the check register.
• Check and supporting documents sent for signature and mailing.
• AP packet and check copy returned to AP.
• Files check copy and sends summary journal voucher to GL.
• AP department removes the liability and sends AP summary to GL department.
• GL department posts to the general ledger control accounts and files the
documents.

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Physical Systems: Basic Cash Disbursements System

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Physical Systems: Integrated Purchases Processing

• Departmental activity lower than basic technology system.


• Purchases computer application reads purchase requisition file for reorders,
prepares and sends PO, updates records.
• Receiving reconciles goods with packing slip and blind PO.
• Record added to receiving report file and PO closed.
• Inventory and GL control accounts automatically updated.
• AP clerk receives invoice, adds record to vendor file and files hard-copy.
• System automatically links vendor invoice, PO and receiving report, reconciles documents and
creates virtual AP packet.
• AP clerk reviews virtual packet and if no discrepancies are found, system automatically approves
payment.

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Physical Systems: Integrated Purchases Processing

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Physical Systems: Integrated Cash Disbursements

• Each day the DUE DATE fields of vendor invoices are scanned for items due to be
paid.
• Checks are automatically printed, signed, and distributed to the mail room for
mailing.
• Large checks receive additional signatures before mailing.
• Payments automatically recorded in check register file.
• Vendor invoices are closed.
• General ledger AP control and cash accounts updated.
• Reports transmitted to AP and cash disbursements departments for management
review and filing.

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Physical Systems: Integrated Cash Disbursements

14
Expenditure Cycle Risks and Internal Controls

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Expenditure Cycle Risks and Internal Controls
• Risk of unauthorized inventory purchases.
• Physical Controls: Transaction authorization
• IT Controls: Automated purchase approval
• Risk of receiving incorrect items, quantities or damaged goods.
• Physical Controls: Independent verification and supervision
• IT Controls: Scanner technology
• Risk of inaccurately recording transactions.
• Physical controls: Transaction authorization, accounting records and
independent verification.
• IT controls: Input data edits, error messages, automated postings, and file
backups.

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Expenditure Cycle Risks and Internal Controls

• Risk of misappropriation of cash and inventory.


• Physical Controls: Supervision, independent verification, segregation of duties –
inventory control from inventory warehouse and accounts payable from cash
disbursements.
• IT Controls: Automated three-way match and payment approval and multilevel
security.
• Risk of unauthorized access to accounting records and reports.
• Physical Controls: Access controls and segregation of duties.
• IT Controls: Password control and multilevel security.

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Conceptual Payroll System

• Personnel dept. prepares personnel action forms to:


• Activate new employees, change pay rates, deductions and job classifications.
• Production employees fill out two forms:
• Job tickets account for the time spent on each job. Cost accounting uses these
tickets to allocate charges to WIP.
• Time cards are used to capture the total time worked each pay period for
payroll calculations.
• After cost accounting allocates labor costs to the WIP accounts, charges are
summarized in a labor distribution summary and forwarded to GL function.

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Conceptual Payroll System
• Payroll dept. receives pay rate and withholding data from the personnel dept. and
hours-worked from production.
• Prepares payroll register, enters information into employee payroll records, prepares
paychecks and sends them to distribute paycheck function, files time cards, personnel action
forms and payroll register copy
• Distribute paychecks.
• Prepare accounts payable.
• Prepare cash disbursement.
• Prepares a single check for entire payroll and deposits it in the payroll imprest account
which is used only for payroll. Copy sent to AP and journal voucher prepared and sent to the
GL function.

19
DFD for Payroll Procedures

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Basic Technology Payroll System

• Personnel action and time and attendance information initiate the payroll
process.
• Payroll department reconciles information, calculates payroll and sends
paychecks to paymaster for distribution to employees.
• Cost accounting receives information regarding time spent on each job for
posting to the WIP subsidiary ledger.
• AP receives payroll register and authorizes cash disbursements to deposit a
check into the bank imprest account from which payroll is drawn.
• GL department reconciles summary information and updates accounts.

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Basic Technology Payroll System
Update General Ledger
• GL function receives labor distribution summary, disbursement voucher and
journal voucher. GL clerk makes entry which must have equal debits and
credits:

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Basic Technology Payroll System

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Advanced Technology Payroll System
• Larger organizations often integrate payroll processing within the human resource
management (HRM) system which captures a wide range of personnel related
data.
• Human resource clerks enter data in employee records in real time.
• Cost accounting enters job cost data in real time to create the labor usage file.
• Biometric time clocks verify employee identify.
• Magnetic swipe ID cards work like credit cards and identify time worked.
• Proximity cards use readers to record time worked.
• Mobile remote devices allow employees to clock in using hand-held devices or
web browsers.
• Data processing is done in batches at the end of the work period.

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Advanced Technology Payroll System
• Labor costs distributed to WIP, overhead and expense accounts.
• Online labor distribution file is created.
• Payroll is calculated and an online payroll register is created.
• Employee record files are updated.
• Paychecks are prepared, signed and distributed.
• Funds to cover payroll are transferred to the payroll imprest account and the
transfer is recorded.
• Digital journal vouchers are entered and system automatically updates the GL.

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Payroll Sistem Risks and Control

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Advanced Technology
Payroll System Risks andPayroll
Internal System
Controls: Risk of
Inaccurately Recording Transactions
• Risks include:
• Incorrectly calculated time and attendance data, unrecorded or incorrectly recorded Wages
Payable, and inaccurate postings.
• Physical Controls - Accounting Records:
• Control objective is to maintain audit trail for payroll records.
• Time cards, job tickets and disbursement vouchers.
• Journal info from labor distribution summary and payroll register.
• Subsidiary and GL accounts.
• Physical Controls – Independent Verification:
• Supervisor verification of time cards and attendance.
• AP clerk verification of payroll register accuracy.
• GL department reconciliation of labor distribution summary and payroll disbursement voucher.

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Payroll System Risks and Internal Controls: Risk of
Inaccurately Recording Transactions
• IT Controls - Data Input Edits:
• Verify the integrity of transaction data.
• Include: missing data checks, numeric-alphabetic data tests, tests for invalid data values and
check digits.
• IT Controls – Error Messages and File Backup:
• Any mismatch when posting time card or personnel action data to an employee record should
produce an error message.
• Backup procedures should be in place to reduce risk of data loss.
• IT Controls – Automated Posting to Accounts:
• Record keeping functions are automated in advanced technology systems.
• Eliminating the human element reduces potential for error and significantly improves efficiency.

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Payroll System Risks and Internal Controls: Risk of
Misappropriate of Cash through Payroll Fraud
• Two general forms:
• Paying nonexistent employee by submitting fictitious timecards or the overpayment of employee.
• Physical Controls – Transaction Authorization:
• Personnel action form helps payroll keep employee records current.
• Physical Controls – Segregation of Duties:
• Timekeeping and personnel functions should be separated.
• Because payroll has both asset custody (paychecks) and record-keeping responsibility
(employee payroll records), assign AP the responsibility of reviewing payroll register and
approving payment.
• Use an independent paymaster to distribute checks to help verify the existence of
employees.
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29
distributed with a certain product or
Payroll System Risks and Internal Controls: Risk of
Misappropriate of Cash through Payroll Fraud
• Physical Controls – Supervision:
• Supervisor should observe timekeeping and reconcile time cards with actual attendance.
• Physical Controls – Access Control:
• Prevent improper access to accounting records.
• IT Controls – Input Controls:
• Limit tests to detect excessive hours reported per period.
• Biometric scanners, swipe cards, and PINs help ensure that individuals clocking in are valid
employees.
• Automated tests to validate timecards against up-to-date employee files.
• Paycheck direct deposit.

30
Payroll System Risks and Internal Controls: Risk of Unauthorized
Access to Payroll Records and Confidential Employee Data

• Motives include:
• Malicious acts such as corrupting or deleting payroll data.
• Theft of confidential information such as Social Security Numbers, pay rates and other
personal data.
• Attempts to perpetrate a payroll fraud..
• IT Controls:
• Password protected payroll files.
• Multilevel security techniques limit access to HR, accounts payable, cash disbursements, cost
accounting and general ledger.

31
The Conceptual Fixed Asset System

• Fixed assets are the property, plant and equipment used in the operation of a
business.
• Fixed asset system processes transactions pertaining to acquisition, maintenance and
disposal of assets.
• Specific objectives:
• Process fixed asset acquisition as needed and in accordance with formal management approval and
procedures.
• Maintain adequate account records of asset acquisition, cost, description, and physical location in
the organization.
• Maintain accurate depreciation records.
• Provide management with needed information.
• Record retirement and disposal of assets.

32
The Conceptual Fixed Asset System

• Asset acquisition begins when manager determines asset needs to be replaced


or a new fixed asset is warranted.
• Asset maintenance involves adjusting FAS subsidiary account balances as assets
depreciate.
• Depreciation calculations are internal transactions that the FAS system bases upon a
depreciation schedule.
• Physical improvements must also be recorded to increase the subsidiary account balance and
depreciation schedule.
• At the end of an asset’s useful life (or earlier), asset must be removed from FAS
subsidiary ledger (asset disposal).
• Disposals require disposal request forms and disposal reports as source documents as well as
proper approval.

33
DFD for Fixed Asset System

34
Acquisition Procedures

• Process begins when the fixed asset accounting clerk receives a receiving report
and a cash disbursement voucher.
• Clerk creates a record of the asset in the FAS ledger and the system automatically updates the GL
and prepares journal vouchers and reports including depreciation schedules.

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Asset Maintenance and Disposal

• Computerized FAS automatically:


• calculates current period’s depreciation.
• updates accumulated depreciation and book-value
fields in the subsidiary records.
• posts total depreciation to the affected GL accounts.

• records depreciation transactions.


• When an asset record is deleted from the FAS,
the system:
• posts an adjusting entry to the fixed asset control
account in the GL.
• records losses or gains associated with the disposal.
• prepares a journal voucher.
36
DFD for Fixed Asset System

37
Fixed Assets Risks and Controls

• Authorization controls should be formal and explicit.


• Written request and independent approval for high-value items.
• Supervision controls are an important element in the physical security of fixed assets.
• Ensure assets are used in accordance with organizational policies and that they are
not taken home for personal use unless authorized.
• Independent verification controls should be used by internal auditors to test for
reasonableness of fixed asset acquisitions and approvals.
• Verify location, condition, and fair value of fixed asset against the fixed asset
records in the subsidiary ledger.
• Check programming logic for automatic calculations (depreciation).

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