Overview
Procurement is the business process of
selecting a source, ordering, and acquiring
goods or services.
The goods or services might be obtained
internally or purchased.
1
Control Objectives
All transactions are properly Authorized
All recorded transactions are valid
All valid,authorized transaction are
recorded
All transactions are recorded accurately
Assets are safeguarded from Loss of theft
Business activities are performed efficiently
and effectively.
2
The Procurement
Business Process
Procurement business process generally
includes the following activities.
– purchase requisition
– request for quotation
– quotation
– purchase order
– Receiving
– Payment
3
The Procurement
Business Process
Requirement Issue
Determination Purchase Order
Selection of Receipt of
Source the Goods
Request for Invoice
Quotation Verification
Selection of Vendor
a Vendor Payment
4
Requisitioning
Receiving
Prepare Verify Report
Requisition Purchase Goods
Database Delivery
Goods
Requisition
Receipt Receiving
Processing
Processing
Accounts
Payable
Purchase Receiving
Requisition Report
Purchasing 5
Purchasing
Competitive Bidding Vendor
Purchase Select Invoice
Requisition Vendor Purchase
Database
Prepare Order Invoice
Order Processing Verification
Purchase Invoice
Order Accounts
Vendor Payable 6
Receiving
Vendor Purchase
Match to Database
Delivery
Purchase
Order
Blind Enter Order
Count Receipt Processing
Receiving
Delivery
Report
Stores Stores
7
Edit Checks When Entering Data
Validity Check
Vendor account & Inventory Item
Field checks
Numeric & text fields
Reasonableness test
Quantity & amount
Range checks
Expected delivery date
Completeness Check
All appropriate data items
8
Accounts Payable
Purchase On Due Date Accounts
Requisition Prepare Payable
Purchase Voucher
Order Voucher
Receiving Voucher Register
Report Processing
Invoice
Voucher Journal
Retrieve Voucher
Check Voucher
Documents
Purchase
Database
Cash Disbursements General Ledger
9
Accounts Payable
Accounts payable is responsible for
initiating payments to vendors.
What documents are available to document
a purchase transaction?
– purchase requisition
– purchase order
– receiving report
– invoice 10
Accounts Payable
The use of a voucher system to support
payments is a major transaction cycle
control over procurement.
What is a voucher system?
It is essentially a review technique to ensure
that all appropriate documentation is
assembled, verified, and reviewed prior to
actual payment of invoice.
11
Accounts Payable
What are additional control features?
Purchasing does not control the actual
goods.
Receiving is separate from final custody of
the delivery.
Accounts payable handles only documents.
Purchase requisitions should be
independently reviewed. 12
Accounts Payable
Invoices should be routed to purchasing for
review and approval prior to being sent to
accounts payable.
Purchase terms should be reviewed.
Inventory records should be updated to
reflect the receipt of goods.
13
Integrity of the Procurement
Business Process
Purchase documentation simply ensures that
individual orders are received as expected.
Purchase orders and receiving reports
control individual purchases.
They do not directly exercise control over
the procurement business process.
Control centers on the integrity of the
buyer-vendor relationship.
14
The Attribute-Rating Approach to
Vendor Selection
The attribute-rating approach to vendor
selection is appropriate whenever an
objective evaluation of the opinions of
several independent evaluators is desired.
What are the steps involved?
Identify and list the attributes to be included
in the evaluation.
15
The Attribute-Rating Approach to
Vendor Selection
Assign a weight to each attribute, based
on relative importance and objectivity.
Have individual evaluators rank each
vendor on each attribute.
Total the individual evaluations.
16
Cash Disbursements
Business Process
The cash disbursement business process
controls check disbursements as well as
actual cash disbursement.
Checks are used for the majority of
disbursements.
Currency disbursements are restricted to
small amounts drawn from and accountable
to a petty cash imprest fund.
17
Cash Disbursements
Business Process
What is an imprest fund?
It is a fund maintained at a specified,
predetermined amount.
The imprest fund concept is not restricted
to petty cash control.
Imprest payroll funds and imprest charge
or expense funds are common in systems
design.
18
Cash Disbursements
Voucher Sign Cancel
Check Checks Voucher
Accounts after
Payable Voucher Signing
Voucher Voucher Check
Check
Check
Register Post
General
Ledger
Forward Voucher Control
Direct to Check Total
Payee 19
Internal Audit
Cancelled Independent of
Checks Cash Disbursements
Bank Bank
Reconciliation
Bank
Statement Check
Register
Bank
Reconciliation
20
Voucher Systems
The real control over disbursements is a
final review of documents evidencing the
entire transaction prior to the authorization
for payment.
Authorization may take different forms.
What are these forms?
21
Voucher Systems
– physically signing off on a voucher package
– preparing a document to authorize an entry
in the voucher register
– entering data into a computer device
It is the review process, not the actual
signing of checks, that is the control.
22
Voucher Systems
Accounts payable generally refers to trade
accounts.
A vouchers payable system encompasses
all expenditures.
Vouchers can take several forms, ranging
from a simple form or envelope to a
voucher-check combination.
23
Voucher Systems
A basic question in the design of a voucher
system concerns when invoices are to be
posted to vouchers payable.
After invoices have been approved for
payment, they may be held until the due
date and formally posted at that time.
Alternatively, they may be booked at the
time of approval.
24
Voucher Systems
What are built-up voucher systems?
These systems accumulate several invoices
from the same vendor and pay them with a
single check.
Three files are necessary to maintain useful
information.
What are these files?
25
Voucher Systems
1 A file of approved but unpaid invoices
2 A file of paid invoices
3 A vendor file showing both paid and unpaid
amounts, ordered by vendor ID
26
Information Needs
Basic Operational information needs
Determine when & how much inventory to order
Select the appropriate vendors from whom to
order.
Verify the accuracy of vendor invoices
Decide whether purchase discounts should be
taken.
Monitor cash flow needs to pay outstanding
obligations.
27
Information Needs
Information for Strategic & Performance evaluation
Efficiency and effectiveness of purchasing
department
Analyze vendor performance such as ontime
delivery, quality and so on.
Time taken to move the goods from receiving
dock to production
Percentage of purchase discount taken.
28
Summary
The efficiency and effectiveness of procurement
cycle activities can significantly affect a
company’s overall performance
Deficiencies in requesting and ordering necessary
inventory and supplies can lead to production
bottle necks that can lead to lost sales and
customer dissatisfaction.
Expenditure cycle database should provide
information to make sound operational decisions
along with transaction information.
29