Chapter 9 Solutions Expenditures Processes and Controls –
Purchases
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Turner/Accounting Information Systems, 2e
Solutions Manual
Chapter 9
Concept Check
1. d
2. d
3. c.
4. b
5. b.
6. d
7. d
8. c
Discussion Questions
19. (SO 2) Name the first document that should be prepared when a
20. (SO 2) How does the maintenance of a receiving log enhance internal
controls? A receiving log is a sequential listing of all goods received.
21. (SO 2) Why should a receiving clerk be denied access to information
on a purchase order? This practice is called a “blind PO” and the
advantage is that it forces a physical count of goods received. A clerk
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22. (SO 2) Under what circumstances would it be necessary to manually
update accounts payable prior to the receipt of a vendor’s invoice?
When the receipt of goods occurs at the end of a period, but the
invoice is not received until the next period, the liability should be
recorded in the first period even though the invoice has not yet been
received.
23. (SO 4) Which department is responsible for making sure that payments
are made in time to take advantage of vendor discounts? It is the
responsibility of accounts payable.
26. (SO 4,6) What specifically does a cash disbursements clerk do when
he or she “cancels” an invoice? How does this compare to the
procedures used when computer-based matching exists. To cancel an
invoice means to mark or stamp it with the date paid and check
number. The purpose is to help prevent duplicate payment of an
invoice. In an automated matching system, the system would be
programmed to ensure that there were no previous payments that
would make a new payment a duplicate payment.
27. (SO 4) Why should accountants periodically review the sequence of
checks issued? To ensure there are no missing or unaccounted
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humans and this process is time consuming and error prone. Even if a
software system such as Microsoft Dynamics GP is used, there are
30. (SO 5) What are the advantages of BPR? Using BPR to design IT
systems can reduce the amount of paperwork, manual processing and
the costs inherent in paperwork and manual processing. The costs
include wages and salaries for the time to do manual processing and
to correct errors or mismatches that occur in the manual processes.
31. (SO 8) List three examples of BPR used in the expenditures
32. (SO 8) Explain how system logic errors could cause cash management
problems. When there are logic errors in a system, it may cause the
33. Explain how system availability problems could cause cash
management problems. Significant amounts of downtime in the
34. (SO 8) How is an audit trail maintained in an IT system where no paper
documents are generated? Backup files and computer logs of
transactions can serve as part of an audit trail.
35. (SO 8) What can a company do to protect itself from business
interruptions due to power outages? A company should have a
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and the vendor is paid if the purchase order matches the goods
received.
37. (SO 7) Identify compensating controls needed for an effective ERS
system. Some of the compensating controls needed are: Established
procedures in receiving to ensure goods are only accepted when
38. (SO 5) What is typically the most time-consuming aspect within the
expenditures process? It is the matching of documents in a three-way
match system. The time involved is usually very high because of the
39. (SO 8) Identify the category of risk that can be reduced by using
authority tables, computer logs, passwords, and firewalls. The
category of risk that these controls reduce is security and
confidentiality risk, and more specifically, unauthorized access.
40. (SO 6) Explain why the availability of computer systems in the
receiving department is such an important component of an automated
expenditures process. In most automated vendor payment systems,
41. (SO 5,8) Identify three ways that buyers and sellers may be linked
electronically. EDI systems link buyers and sellers electronically, The
electronic link may be in the form of private leased lines, third-party
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43. (SO 9) How are Web browsers used in e-payables systems? In many
44. (SO 10) Explain how procurement cards provide for increased
efficiencies in the accounts payable department. P-cards are used for
purchases of things such as supplies, maintenance, and travel and
entertainment expenses. Without p-cards, many companies find they
Brief Exercises
45. (SO 2,4) Describe what is likely to occur if company personnel
erroneously recorded a purchase transaction for the wrong vendor?
What if a cash disbursement was posted to the wrong vendor? Identify
internal controls that would detect or prevent this from occurring. If a
company erroneously recorded a purchase transaction to the wrong
vendor, it is likely to make a payment to the wrong party. When the
correct vendor does not collect its payment, it will notify the company
and demand payment. This will likely result in the company making a
duplicate payment for the same transaction.
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• When invoices arrive from the vendor companies, there should
be an attempt to match the invoice to the purchase order and
receiving report before the transaction is posted to the vendor
The error may also be discovered when there is a reconciliation of
the accounts payable subsidiary ledger to the general ledger, although
this is not as likely. The reconciliation would still balance even if an
amount is recorded in the wrong vendor account. It is also possible
that this error would not be discovered particularly if there are always
46. (SO 4) Debate the logic used in the following statement: “The person
responsible for approving cash disbursements should also prepare the
bank reconciliation because he is most familiar with the checks that
have been written on that bank account.” It may be true that this
person is more familiar with the checks, but it would not represent a
good internal control process. If a separate person reconciles the
account, it prevents the first person from writing fraudulent checks and
covering it up by altering the bank reconciliation.
47. (SO 8) Expenditure systems are crucial in the automobile
manufacturing industry, where hundreds or thousands of parts must be
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48. (SO 2,4) Describe how the matching of key information on supporting
documents can help a company determine that purchase transactions
have been properly executed. If the company has established proper
segregation of duties and matches documents, there is a likelihood
49. (SO 2,3) Describe how the use of pre-numbered forms for debit
memos can help a company determine that purchase return
transactions have not been omitted from the accounting records. It is
much easier to account for all debit memos if they are pre-numbered.
The sequence of numbers can be checked to ensure all have been
posted.
50. (SO 5,7) Describe how a ERS system could improve the efficiency of
expenditure processes? An ERS is an invoiceless system that pays
vendors if the goods received match the purchase order. This system
51. (SO 10) Describe how a procurement card improves the efficiency of
purchasing supplies. A procurement card is usually used to purchase
supplies or pay for travel and entertainment. Using a p-card for these
purchases eliminates the typically process of PO, receiving report, and
invoice matching. Individual users have much more control over the
purchase of their supplies and central inventories of supplies need not
be maintained.
Problems
52. (SO 2,3,4) Identify an internal control procedure that would reduce the
following risks in a manual system:
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a. The purchasing department may not be notified when goods need
to be purchased. Require that an inventory control department
monitor inventory records and request purchases (purchase
requisition) when goods need to be reordered.
d. Receiving clerks may steal purchased goods. Require good
physical security such as security cameras and good supervision of
receiving employees. Using a “blind” PO at receiving may also help
since constant shortages when goods are stolen is more likely to be
noticed.
e. Payments may be made for items not received. Require a three-
g. Payments may be made for items previously returned. Require a
debit memorandum be completed for any goods returned, and that
a copy of this be forwarded to accounts payable so that the balance
owed can be changed.
h. Receiving clerks may accept delivery of goods in excess of
quantities ordered. First, there must be a clear policy on
overshipments that receiving personnel can apply. For example, a
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53. (SO 1, SO 10) Chris Smith’s coffee and pastry cart and a procurement
card. Suggest some controls that should be in place. Identify some
resources that need to be purchased for this business. The credit card
54. (SO 1,5) Thurston Company and business process reengineering
project (BPR). BPR involves the radical redesign of processes, along
with IT enablement of processes, to improve the efficiency and lower
the cost of processes. BPR in a manual expenditure system would
55. (SO 2,4) The following list presents statements regarding the
expenditure processes. Each statement is separate and should be
considered to be from a separate company. For each statement,
determine whether it is an internal control strength or weakness, then
describe why it is a strength or weakness. If it is an internal control
weakness, provide a method or methods to improve the internal
control.
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The purchasing agent is part of the authorization of orders.
Therefore, he/she should not have record keeping duties for
b. An employee in accounts payable maintains the accounts
payable subsidiary ledger. This is an internal control strength.
The payable should be recorded when the invoice arrives and it
matches a purchase order and receiving report.
c. Purchasing agents purchase items only if they have received an
approved purchase requisition. This is an internal control
strength. The purchasing agents cannot initiate purchases
without proper approval from a separate department or person.
e. The receiving dock employee compares the packing list to the
goods received and if they match, forwards the packing list to
accounts payable. This is an internal control weakness. Goods
should not be compared to the packing list, they should be
compared to the purchase order. A comparison to the packing
list will not reveal any undershipments, overshipments, or
product substitutions. The improvement would be to compare
the goods received to the purchase order and forward a
receiving report, not the packing list, to accounts payable.
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56. (SO 2) Chasner, Inc. computerization.
Required:
Assume that Chasner, Inc. is preparing to computerize the manual
input processes such as completing a receiving report. Use Microsoft
57. (SO 4) Since the accounts payable system of matching purchase
orders, invoices, and receiving reports can often be complex,
organizations must routinely check to ensure they are not making a
duplicate payment. The text book Web site contains a spreadsheet
titled “invoices.xls”. Using your knowledge of spreadsheets and the
characteristics of duplicate payments, identify any payments within
58. (SO 8) Volpner and EDI Controls.
Required:
Describe the IT controls that Volpner should include when it
implements an internet EDI system. For each control you suggest,
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effective. General controls include: user IDs, passwords, log-in
procedures, access levels, authority tables, firewalls, encryption of
data, vulnerability assessment, penetration testing, intrusion
59. (SO 2,3,4) Zifner Company and segregation of duties:
a. Accounts payable record keeping.
b. Authorization of new vendors
c. Authorization of purchase returns
d. Authorization of purchases
Required:
For each of the three employees (supervisor, employee 1, and
employee 2), consider the duties you would assign to each employee.
In assigning duties, no employee should have more than three tasks
and there should be a proper separation of duties to achieve
appropriate internal control. List the three people, the duties you
Supervisor: duties F, G, and H. The supervisor would be the most
logical person to sign checks. As a supervisor, he/she can override
internal controls so it is not as much a problem that there may be some
incompatibility for a supervisor.
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60. (SO 7) Using a search engine, search the internet for information
about Evaluated Receipt Settlement, or ERS. You may have more
success by searching for the terms ERS and invoices together in one
search. Based on what you read about ERS on the web, what appears
to be the difficulties encountered when a company chooses to
implement ERS? The most frequent problem appears to be the
61. (SO 9) Using a search engine, search the internet for information
about Electronic Invoice Presentment and Payment. You may have
more success by searching for the terms EIPP and invoices together in
one search. Based on what you read about EIPP on the web, what are
the advantages and disadvantages of EIPP? One of the concepts
about EIPP is that is should benefit both the buying company and the
selling company. What do you think the benefits are to buyer, and
what are the benefits to the seller? The website
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33% increase in invoice processing efficiency; (2) error reduction; (3)
quicker settlement which leads to the supplier receiving payment more
quickly; (4) Improved visibility from the 24/7 availability of archived e-
documents. This improves the ability to forecast cash flow and makes
audits more efficient.
A large bank Website described the benefits as follows:
Bank XYZ’s Electronic Invoice Presentment and Payment (EIPP)
solution allows billers and payers to manage the entire invoice and
payment cycle online, shortening days sales outstanding and
eliminating costs traditionally associated with paper-based systems.
With EIPP, clients can enjoy:
Improved cash-flow visibility as the status of each invoice can be
viewed online
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62. (SO 9) Using a search engine, search the Internet for an article titled
63. (SO 11) You are an accounts payable clerk for a small home
improvements contractor. Speculate on the type of fraud that could be
in process here. What (if anything) could you do to ascertain the
propriety of the transaction and still make the payment today? It is
64. (SO 11) Two of the most common ways that employees commit fraud
against their employers is the misstatement of reimbursable expense
accounts and the misuse of office supplies for personal purposes.
Cases
65. Kludney Incorporated has the following processes related to
purchasing.
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Required:
1. Draw a document flowchart of the purchase processes of Kludney.
2. Identify any weaknesses in internal controls within the purchase
processes and indicate the improvements you would suggest.
Weakness: No one person or department has been assigned
responsibility to monitor inventory levels and determine when to
order. Improvement: Assign responsibility to a department such as
inventory control.
Weakness: No copy of the purchase order is forwarded to accounts
payable for a document match. Improvement: Forward a copy of
the PO to accounts payable.
Weakness: The packing slip is forwarded to accounts payable
instead of the receiving report. Improvement: The receiving report
is forwarded to accounts payable.
Weakness: The accounts payable matches the invoice to the
packing slip. Improvement: the accounts payable department
should match the invoice to the purchase order and receiving
report.
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66. Jounta Enterprises is a wholesaler that purchases consumer
merchandise from many different suppliers.
Required:
1. List any strengths and weaknesses in the internal control
procedures of Jounta enterprises.
STRENGTHS:
A manager in purchasing approves the PO before it is mailed.
The PO is prepared in 4 parts and these copies are forwarded
to appropriate departments for future use.
If no PO exists for a shipment, it is returned.
WEAKNESSES:
There is no separate inventory control department to maintain
inventory records.
The requisition should come from inventory control, not the
warehouse.
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2. Draw a document flowchart of the expenditure processes. Refer
to the separate Microsoft Excel file “Chapter 9 Solutions
3. Describe any benefits that Jounta may receive by installing a
newer, IT system to process purchases, goods received,
accounts payable, and checks. Be specific as to how IT
systems could benefit each of the processes described. There
are many types of IT systems for purchases, so the exact
benefits would be somewhat dependent on the system chosen.
However, any IT system would reduce the number of manual
tasks which would improve efficiency, reduce costs, and
decrease errors. Examples would be:
67. Crandolf Metals. is a manufacturer of aluminum cans for the beverage
industry.
Required:
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a. Draw two process maps to reflect the business processes at
Crandolf. One process map should depict the purchase processes
flowchart does show document flows, it is easier to see where
some potential control weaknesses exist when viewing the
document flowchart.
c. Describe any weaknesses in these processes or internal controls.
As you identify weaknesses, also describe your suggested
improvement.
Weakness: The purchase automatically goes to the last vendor
used.
Improvement: Purchasing agents should find the best price and not
automatically use the last vendor.
Weakness: No purchasing journal is used. Improvement:
Purchasing updates the purchases journal as purchase orders are
completed.
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not exist.
Weakness: No copy of the purchase order is forwarded to accounts
payable.
Improvement: A copy of the PO should be forwarded to accounts
payable.
Weakness: No copy of the receiving report is forwarded to
inventory control.
Improvement: A copy of the receiving report should be forwarded to
inventory control so that inventory records can be updated.
Weakness: the cash disbursements department forwards a copy of
the check to the general ledger department. Improvement: The
cash disbursements department should send a summary journal
voucher of check amounts, not a copy of each check. These
subtotals are posted to the general ledger, not each individual
check.
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68. The United States General Accounting Office (GAO), Office of Special
Investigations was charged with investigating a potential purchase
fraud case. The man who committed the alleged fraud was a former
civilian employee of the Air Force, Mark J. Krenik.
Required:
Describe internal controls that should be in place at the Air Force to
help prevent such fraud. Internal controls that may help prevent or
detect this are:
A segregation of approval so that the person requesting the payment
cannot also verify that work was completed or deliveries made.
69. The following document flowchart shows part of the purchases and
cash disbursements processes for Roufler, Inc., a small manufacturer
of gadgets and widgets. Some of the flowchart symbols are labeled to
indicate operations, controls, and records.
Required:
Chapter 9 Solutions Expenditures Processes and Controls –
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For each of the symbols (numbered 1. through 12.), select one
response (lettered A. through T.) from the answer lists below. Each
response may be selected once or not at all.