Purchasing Cycle- Accounts Payable Audit3 by I94xU31

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									                    ACCOUNTS PAYABLE AUDIT PROGRAM



PRELIMINARY SURVEY

   1. Obtain a copy of the Policies and Procedures Manual.
   2. Complete the Risk Assessment Questionnaire.
   3. Prepare a flow chart describing the Division’s system of internal controls in the
      areas of ac counts payable and payments. Review flowchart with appropriate
      management.
   4. Perform a transaction walk-through to determine correctness of system
      description. Ensure that stated controls exist and are effectively employed.
   5. Investigate unusual fluctuations between current year, and budgeted amounts for
      A/P, cash disbursements, purchase discounts, and returns.
   6. Review the following for large and unusual items: open p.o. listening; A/P
      register.


Objective:    To ensure that amounts due to vendors and others for goods and services
              received are accurately determined, promptly recorded, classified, and
              properly authorized.

Scope:        Review of policies, procedures, and controls over the following: vendor
              invoices, receiving reports, payment processing, manual check
              preparation, blank check security, and month-end invoice accruals.

   1. Obtain the accounts payable reconciliation and perform the following:
          a. Test mathematical accuracy.
          b. Verify that reconciliations are properly completed and reviewed.
          c. Agree ending balance to the G/L.
          d. Investigate large or unusual reconciling items.
   2. Select a representative sample of purchase orders and other invoices (travel &
      registration, tuition reimbursement, professional services, etc.) paid over the
      period under review in order to test compliance with established policies and
      procedures. Verify the following:
          a. Invoices are checked against receiving reports and P.O.s for agreement on
              quantities, prices, and other key data;
          b. Invoices are checked for extension;
          c. Receiving reports are checked for proper signatures and dates of receipts;
          d. Discounts are properly taken when available;
          e. All invoices are cancelled through proper authorization and signatures;
          f. All invoices are paid from original source documents;
          g. Trace to A/P register.
   3. Select a sample of Requests for Remittances.
          a. Review for evidence of audit and approval prior to payment.
        b. Verify cancellation of supporting documents and invoice after payment.
4. Select a sample of invoices with discrepancies and determine if the invoices are
    actively followed up and the reason for any delay.
5. Sit down with the individual responsible for entering accounts payable
    transactions. Have them attempt to enter the following:
        a. duplicate invoices;
        b. an accounts payable record change to verify that a unique identifier such
            as vendor number and invoice number is used to ensure that the correct
            accounts payable record is being updated;
        c. non-numeric characters in the price and quantity field;
        d. invalid date;
        e. transaction with “”critical fields” left blank.
6. Obtain the accounts payable register and test mathematical accuracy.
7. Select a sample of Returned Goods Advices and ensure that their cost was not
    included in the A/P register. What controls are in place for returned merchandise
    before and after payment?
8. Review open files to determine that unmatched receiving reports,, invoices, etc.,
    are being routinely reviewed an investigated to evaluate the overall controls over
    this process:
        a. Identify current volume of open receiving reports, invoices, retuned goods
            advices in the possession of A/P clerk that are greater than 60 pays from
            receipt. Discuss and investigate.
        b. Determine that there are effective control in place for documents that are
            sent out of the department for explanation or authorization.
9. Determine that the accrual process has necessary controls in place to ensure all
    goods and service received, but not paid for, have been accrued for. Determine the
    following:
        a. All receiving reports are obtained from Materials Management at month
            end.
        b. Accruals are made for routine monthly expenses.
        c. Accounts Payable files are organized in such a manner that an accurate
            accrual can be made.
        d. Verify cut-off for one month.
        e. Test accruals by reviewing a recent month accrual against supporting
            documentation on hand.
        f. Trace to general ledger.
10. Review procedures over vendor statements:
        a. Select several major vendors to review and test the reconciliation
            performed by A/P
        b. Review supervisory controls over this process.
11. Review the aged trial balance report (A/P Status Report) for debit vendor balances
    and any other unusual items. Review with A/P Supervisor.
PAYMENT PROCESSING

  1. Sit down with the individual responsible for entering payment transactions. Have
      them attempt to enter the following:
           a. supplicate payment for an item previously paid;
           b. payment change;
           c. non-numerical characters in the payment field;
           d. invalid date;
           e. transaction with “critical fields” left blank.
  2. If partial payments are made, ensure that they are properly tracked and accounted
      for.
  3. Verify that a record maintained for all recurring charges.
  4. Verify that any checks mailed to vendors which have been returned are followed
      up in a timely manner.
  5. Verify proper controls over hand carried checks.
  6. Obtain the bank reconciliations and test as follows:
           a. Foot the reconciliation and supporting detail.
           b. Trace amounts to their source.
           c. Review the reconciling items for propriety.
           d. Determine that reconciliations are being performed monthly.
           e. Verify that they are being reviewed by management.
  7. Obtain the cash disbursements transaction listing:
           a. Trace selected totals to the ledger.
           b. Test mathematical accuracy.
           c. Investigate large or unusual items.
           d. Determine numerical sequence of check is accounted for.
  8. Select a sample of cancelled checks:
           a. Trace to ash disbursements listing.
           b. Examine for authorized signature, proper endorsement and cancellation by
              the bank.
           c. Ensure checks are not made out to “Cash”
  9. Determine if the department has manual check preparation guidelines. Verify that
      checks are prepared with effective safeguarding measures.
           a. Evaluate the criteria for using manual rather than computer checks to
              ascertain that it is sufficient.
           b. Ascertain that manual checks are not signed by management directly in or
              over the A/P Department.
           c. Evaluate input and output of manual checks to the computer system.
           d. Select a sample of manual checks to determine that polices and procedure
              are complied with.
  10. Review controls over blank checks.
           a. Review voided checks to ensue they are marked VOID.
           b. Review numerical controls over issued and un-issued checks.
           c. Determine there is sufficient separation of responsibilities between
              signature control and blank check access.
d. Determine that un-issued, blank checks are under the control of someone
   outside the A/P Department.
e. Determine that missing check numbers are documented and investigated.
f. Conduct a blank check stock count of the A/P checks.

								
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