Procurement Management Cycle by ysg12769


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									City of ______________
Summary and Evaluation of Key Controls
Accounts Payable Disbursements Cycle

The following summarizes the key controls that typically would be relevant to a local government client.
Determine if we have addressed these controls in the activity-level controls matrix attached.

1. Persons processing accounts payable are separate from those ordering or receiving goods or

2. There is an appropriate system for review and approval of vendors.

3. Invoices are properly approved for payment.

4. The accounts payable GL account and list of accounts payable are reconciled regularly.

5. In some governments (espcially larger organizations), there is a formal purchase-order process in

6. There is a process to review, record, and approve retainages and encumbrances at year end.

If there are controls listed above that are not in place, evaluate if there are compensating
controls that achieve the same control objective and list here:

                                                    Summary                                                1
The following is a list of common controls surrounding the AP disbursement
process. This list can be used for reference when populating the controls
matrix. Also refer to list of AP Disbursement key controls in previous tab.
(Note that all of not all of these controls are considered necessary or relevant to every government)

Source: PPC GRX-9a-6: Control Activities Form for Expenditures of Goods and Services and Accounts Payable (PPC risk based audits 2006 edition)

1. Segregation of duties and reviews—control activities tested through inquiry and observation
a. Purchasing is separated from requisitioning, shipping, and receiving functions.
b. Requisitioning, purchasing, and receiving functions are segregated from invoice processing, accounts payable, cash
receipts and disbursements, and general ledger functions.
c. Invoice processing and accounts payable are segregated from the general ledger function.
d. Individuals independent of purchasing and receiving functions follow up on unmatched open purchase orders, receiving
reports, and invoices.
e. There is a periodic review of purchase prices by someone outside the purchasing department.
f.   Vendor statements are periodically reviewed by the appropriate level of management or other responsible person for
overdue items.
g. There are defined cutoff procedures that are continually monitored by the appropriate level of management or another
appropriate person.
h. Employees with purchasing and accounts payable responsibilities are required to take vacations and other employees are
required to perform those functions when an employee is absent.
i.   A current purchasing manual defines restrictions on purchases of goods or services from governing body members,
employees, or other suppliers that would create a conflict of interest.
j.   Purchases are reviewed for compliance with requirements of laws and regulations, the governing body and of funding
sources, if applicable (for example, competitive bidding requirements).
k.   The government has procedures for coding expenditures in compliance with funding and organization accounting
l.   Management periodically compares actual expenses to budgeted expenses and investigates unanticipated variances.

m. Goods received are independently inspected for condition and independently counted, measured, or weighed.

2.    Recording, reconciliations, and reviews—control activities tested through inquiry and document inspection

a. Purchasing
i.   There is an approved vendors list.
ii. Noninventory expenditures are supported by approved invoices, purchase orders, and other supporting documentation as
iii. The following documents (including unused forms) are prenumbered with the sequence controlled and accounted for:

1) Purchase orders.
2) Receiving reports.
3) Debit/credit memos.
4) Vouchers
5) Shipping orders for returned goods.
iv. Purchase orders are reviewed to ensure the expenditure is within budget or other restrictions.
v. Account distributions are recorded by the operating department and reviewed by the accounting department.
vi. There is a proper cutoff of purchases at month-end.
vii. Shipping orders for returned goods are matched with vendors’ credit memos.
viii. The appropriate level of management or another appropriate person periodically compares actual expenditures to
budgeted expenditures and follows up on significant variances.

b.    Accounts payable
i.    Monthly vendor statements are reconciled to the accounts payable trial balance.
ii.   The accounts payable trial balance is compared with individual open invoice totals.

                                                               Complete Controls                                                                 2
iii. The accounts payable trial balance is reconciled to the general ledger control account.
iv. The appropriate level of management or another appropriate person reviews reconciliations between the accounts
payable trial balance and general ledger control accounts.
v.    Accruals are periodically reviewed for reasonableness by the appropriate level of management or another appropriate
vi. Receiving reports are promptly provided to personnel in accounts payable processing and recordkeeping.
vii. Purchase and receiving documents are controlled so that liabilities are recorded for goods or services received but not yet

c. Encumbrances
i.   Open purchase orders are reconciled to the outstanding encumbrance listing at year end.
ii. The outstanding encumbrance listing is reconciled to the reserve for encumbrance general ledger account.
iii. The appropriate level of management reviews reconciliations between the outstanding encumbrance listing and the
general ledger control accounts.

3.    Purchasing—control activities tested by review of supporting documentation for a sample of purchase
a. Purchases are supported by properly authorized and approved requisitions and purchase orders.
b. Invoices are compared to purchase orders and receiving reports and reviewed for correctness of:
i.   Quantities received.
ii. Brand name and product ordered.
iii. Pricing.
iv. Clerical accuracy.
c. Any noninventory expenditures are supported by approved invoices and other supporting documentation, as appropriate.

d.   The mathematical accuracy of invoice is checked.
e.   Purchases are recorded properly as to account, amount, and period.

                                                      Complete Controls                                                        3
City of Brookfield
Internal Controls Documentation
Procurement Process

                                   Process Documentation                                 Control Procedure

         (A)                                  (B)                                                (C)

                          All City departments have the authority to       The Finance Department monitors
                          purchase goods and services subject to the       compliance with City procurement policies
                          guidelines set forth in the City's Procurement   and procedures. The Accounting Manager
                          Policy. Department heads have the                has been delegated the authority to be the
                          responsibility for procurement issues in their   City's Purchasing Agent.
                          individual departments.
                          In general, purchase orders are required for     Department heads or designated employees
                          all purchases in excess of $1,000 or when a      must approve all purchase requisitions.
                          vendor requests one. Authorized personnel
                          within each department prepare purchase
                          order requisitions and submit them to the
                          Accounting Department for processing.
                          Purchases in excess of $10,000 require           Prior to purchase a Procurement Request
                          additional documentation and approvals           form and Bid Summary sheet must be
Initiation of transaction
                          depending upon the dollar amount as set          submitted to the Accounting Department
                          forth in the City's Procurement Policy.          for review and approval.
                          $10,000 - $25,000: Competitive quotes are
                          required. Department head and Purchasing         The Accounting Manager/Purchasing Agent
                          Agent approvals are required.                    reviews/approves the Procurement Request
                          $25,000 - $50,000: Sealed bids or formal         and bid documentation. Additional approvals,
                          proposals are required. Additional approvals     if required, are obtained and a copy of the
                          include Finance Director and Mayor.              approved Procurement Request is fowarded
                          Over $50,000: Sealed bids or formal proposals    to the requesting department.
                          required. Additional approvals include Finance
                          Committee and Common Council.
                          With approval, purchase orders for unspent       All carry-over purchase orders must be
                          budgeted funds may be carried-over at the        approved by the Director of Finance.
                          end of a fiscal year (General Fund only).        Requests to carry-over purchase orders
                                                                           must be approved by a department head.

                        Each department is responsible for creating        The Accounting Manager is responsible for
                        their own purchase orders/requests using           user access and security as it relates to
                        the City's Procurement Processing software.        the City's Financial Management System
                        Individual users are limited to specific G/L       which includes Procurement Processing
                        accounts that they have access to.                 software.
                        Users cannot issue purchase orders that            The Accounting Manager must approve all
                        exceed $25,000 or that exceed the budgeted         purchase requests that exceed $25,000 and
                        amount of the G/L account that is being            provide override authority for G/L accounts
                        encumbered.                                        that are over budget.
                        The Accounting Department is responsible for       Purchase order forms are kept in a locked
                        printing and mailing of purchase orders.           storage room in the Accounting Department.
                        Purchase orders are run by the Accounts            Purchase order numbers are computer
                        Payable Clerk on a daily basis or as needed        generated and are reset at the beginning of
                        depending upon the volume of requests in the       each year by the Accounting Manager.

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Transaction Recording
                                  Process Documentation                                Control Procedure

        (A)                                    (B)                                              (C)
                      There are four copies of each purchase order.      The yellow receiving copy is returned to the
                      White - Original vendor copy.                      Accounting Department when an order is
Transaction Recording
   and Processing     Blue - Accounting Department copy.                 complete. The purchase order is then closed
                      Pink - Issuing Department's copy.                  out.
                      Yellow - Receiving copy.
                      Once printed, the Accounts Payable clerk           An Open Purchase Order Report is run
                      posts the purchase orders to the general           periodically to review outstanding purchase
                      ledger which creates the encumbrances              orders and encumbrances.
                      against the appropriate expense accounts.
                      As invoices are processed against purchase
                      orders encumbrances are reduced by the
                      amount of the invoice being processed.
                      At the end of each fiscal year all outstanding     All "Non Carry-Over" purchase orders are
                      encumbrances are cleared out of the general        closed out in December of each year.
                      Carry-over purchase orders are recorded as         Carry-over purchase orders are flagged as a
                      an expenditure in the current year with the        part of the year-end close of the Financial
                      offset being a credit to Prior Year Reserve For    System. The appropriate journal entries are
                      Encumbrances. As these funds are spent in          created by the Financial System as a part of
                      the subsequent year, the reserve is debited.       the year-end process. The Accounting
                      (Note: General Fund only)                          Manager reviews and posts these entries.

                         Purchase orders can be modified or voided       Only the Accounting Department can
                         through the "Work With Open Purchase            add/change/delete an updated/posted
   How the incorrect     Orders" function of the procurement software.   purchase order. The Accounting Manager
     processing of       When these changes are updated/posted the       must authorize any changes to existing
transactions is resolved Financial System creates the appropriate        purchase orders.
                         encumbrance adjusting journal entries.

                        Departments have access to encumbrance           The Accounting Department periodically
                        information through general ledger inquiry. In   runs an open purchase order listing to review
                        addition, departments can run an open            all outstanding purchase orders.
Process for reconciling purchase order report for their department.
 detail to the general  An excel spreadsheet is created each year to     The Accounting Manager updates this
         ledger         track transactions by purchase order in the      spreadsheet and reconciles the balance to
                        Prior Year Reserve For Encumbrances G/L          the general ledger.
                        account (101-298-100).

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