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PROBLEMS
1. UNRECORDED LIABILITIES
Term FOB shipping point:
Term FOB destination:
2. INVENTORY ORDERING ALTERNATIVES
a. A purchase requisition is created when an item of inventory is needed
(e.g., fallen below the reorder point) and authorizes its purchase. A
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b. The system shown in alternative two expedites the ordering process by
distributing the purchase orders directly to the vendors and internal users, thus
c. Alternative one provides additional control over the ordering process. For
example, the purchasing agent could manually detect unusual order quantities or
3. SYSTEM FLOWCHART ANALYSIS
b) Doc A = Purchase Order
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c) Process B = Set Up Liability (Post to AP)
d) File C = AP Sub ledger (vendor Invoice file)
e) Terminal Z = Vendor (Supplier)
4. SYSTEM FLOWCHART ANALYSIS.
Part a. and b. below:
1) Risk: Unnecessary purchases of inventory may occur and the potential for
creation of a purchase order. 2) Risk: The organization may receive and
3) Risk: The organization may pay for items that it did not order. The
liability is set up based only on the Invoice and the Rec Rept. Control:
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5. RISK ANALYSIS AND INTERNAL CONTROL SOLUTION,
Part a. (see following page) Part b., c. and d below:
1) Risk: Purchase items not needed, stock outs, purchase from
2) Risk: Receive incorrect quantities of items ordered or defective items.
Control:
3) Risk: Misappropriation of cash through vendor fraud.
Control:
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Part d
IT Controls for this system should include:
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6. RISK ANALYSIS AND INTERNAL CONTROL,
Part a. (see following page) Part b. and c. below:
1) Risk: Purchase items not needed, stock outs, purchase from
unapproved vendors
2) Risk: Receive items not ordered or incorrect quantities.
3) Risk: Pay for items not received.
4) Risk: Misappropriation of inventory
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7. IT APPLICATION CONTROLS:
a. Automated Purchase Approval. Computer logic, not a human
being, decides when to purchase, what to purchase, and from which
b. Automated Three-Way Match and Payment Approval. When the
AP clerk receives the supplier’s invoice, the clerk accesses the
system and adds a record to the vendor invoice file. This act prompts
the system to automatically create a virtual AP packet by linking the
c. Multilevel Security. Multilevel security is a means of achieving
segregation of duties in an integrated data processing environment
where multiple users simultaneously access a common central
d. Automated Posting to Subsidiary and GL Accounts. All of the
record keeping functions are automated in the advanced technology
system. In the advanced technology system, a computer application,
which is not subject to human failings such as yielding to situational