SOLUTIONS for CHAPTER 12 Discussion Questions - Learnline

Accounting Information Systems, 8e

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SOLUTIONS FOR CHAPTER 12 Discussion Questions DQ12-1

Refer to operations process (effectiveness) goals shown in the control matrix (goals A and B in Figure 12.13). For the two activities (purchasing and receiving) describe a goal other than the one discussed in the chapter.

ANS.

Purchasing operations goals (sample): (Contained in Figure 12.13.) Select a vendor who will provide the best quality at the lowest price by the promised delivery date. Support other organizational units through a prompt purchasing process and through the timely notice of purchases placed. Maintain an adequate stock of vendors to provide a continuous, reliable source of supply. Minimize purchase returns and allowances. Facilitate cash planning. Facilitate logistical (e.g., warehouse, receiving) planning. Insure timely receipt of ordered goods and services. Minimize ordering costs and the costs of the goods purchased. Receiving operations goals (sample): (Contained in Figure 12.13.) Ensure that the right goods in the correct amount are received in acceptable condition in a timely manner. Process only authorized receipts. Promptly notify other organizational units of receipts. Forward goods to the warehouse or other requester in a timely manner. Minimize material handling costs. Promptly return or otherwise dispose of defective goods or goods not in conformity with purchasing specifications.

DQ12-2

Explain why ambiguities and conflicts exist among operations process goals, and discuss some potential ambiguities and conflicts relative to the effectiveness goals you described in Discussion Question 12-1.

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Solutions for Chapter 12

ANS.

Conflicts exist because each organizational unit wants to do its best (or at least be seen as doing its best). However, many (perhaps any) individual units cannot perform at their best because trade-offs must be made so that the organization as a whole can do its best. Ambiguities may exist when it is not clear when a goal has been reached, which could happen, for example, when goals have subgoals. For example, which vendor is the best may not be clear. It may be that the purchasing office cannot find a vendor that can offer price, quality, and delivery date. In addition, some effectiveness goals may conflict with the other operation process goals: efficient employment of resources and security of resources. Conflicts that may exist relative to the processes goals in DQ 12-1 include the following: Adequate research may not precede a quickly prepared purchase order. To insure authorized receipts, we may provide the receiving department with complete copies of the purchase order. Without a blind copy of the purchase order, receiving clerks may not pay attention to counting the goods. To have adequate cash to make timely disbursements, we may sacrifice interest earned on the cash. To maintain an adequate stock of vendors, we may purchase goods with varying degrees of quality. By promptly forwarding goods to the warehouse, we may skimp on inspection and counting. To acquire the best goods at the best price, the purchasing office may spend too much time researching the purchase. To minimize ordering costs and to obtain quantity discounts, the purchasing office may purchase large quantities in each order. The size of these orders makes it difficult for the receiving department to adequately count and inspect the goods and forward them in a timely manner to the warehouse. To minimize purchase returns and allowances, the purchasing office might select vendors that rate highly for quality of product and for accuracy of filling orders but have low ratings for price of products and/or meeting delivery deadlines.

DQ12-3

In designing vendor records, what specific data elements would you include to help you select the best vendor for a particular purchase? Be specific as to the nature of the data to be stored, where it would come from, and how it would be used in the selection process.

ANS.

Accumulate purchase amounts into a year-to-date purchases field to do the following:

Accounting Information Systems, 8e

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Confirm the good relations that have existed with a vendor. Distribute purchases among vendors (to maintain an adequate stock of vendors). Accumulate data about number of on-time deliveries, number of deliveries for which quantities were over or short, and number of deliveries that failed quality inspections to do the following: Select vendors that will deliver on time with acceptable quality. Eliminate vendors that fail consistently to meet quality, quantity, and timeliness standards. Use geographic location (entered at time vendor record is created) to do the following: Select a vendor for which we can minimize transportation time. Use shipping terms (known internationally as Incoterms) and payment terms (entered at time vendor record is created) to do the following: Select a vendor that will pay for the freight. Select a vendor that will allow delayed payments. DQ12-4

Without redrawing the figures, discuss how Figures 12.3, 12.4, 12.6, 12.7, and 12.9 would change as a result of purchasing a technical product that could not be inspected in the receiving department, but rather had to undergo quality control testing before being accepted.

ANS.

Figure 12.9, bubble 3.1, and the related portions of Figure 12.4 would be affected. A copy of the purchase order (including the technical specifications), the packing slip, and the goods must be sent to a quality control department or other department. While the goods are in the inspection process, they should be recorded on the inventory master data as on site but not available for use or sale. After the goods are approved for use, the receiving process can proceed as depicted in Figures 12.4 and 12.9, including a change in status on the inventory master data from on site but not available to available for sale or use.

DQ12-5

Figure 12.9 (the DFD depicting the receipt of goods and services) shows an update to the vendor master data from bubble 3.1 and another update to that same data from bubble 3.2. Discuss the difference(s) between these two updates. Be specific as to the nature of the data being updated in each case. How would your answer to this question be affected by your assumption as to whether the PO receiving notification entering bubble 3.1 was “blind” as to quantities? Explain.

ANS.

The update at Figure 12.9, bubble 3.1, will be for the Product Rejection Rate field. The update at Figure 12.9, bubble 3.2, will be for the Vendor Lead Time and Product Fill Rate fields. The latter update cannot be performed in bubble 3.1

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Solutions for Chapter 12

because current Open Purchase Order master data must be obtained to determine expected delivery dates and partial shipments-to-date on this purchase order. If the purchase order receiving notification is not “blind,” and the quantities on the receiving notification reflected previous partial receipts, the fill rate field could be updated at bubble 3.1. Finally, we could argue that both updates to the vendor master data might better be accomplished at bubble 3.2 where both the Completed Receiving report and the Purchase Order master data are available. Also, if we look beyond the logical description of the logical DFD, we might assume that bubble 3.2 will be automated and therefore a more efficient place to undertake the Vendor master data updates. DQ12-6

In terms of effectiveness and efficiency of operations, as well as of meeting the generic information system control goals of validity, completeness and accuracy, what are the arguments for and against each of the following? a. Sending a copy of the PO from the purchasing department to the receiving department

ANS.

●

The receiving department can establish a tickler file to insure complete and timely processing of receipts. Timely processing should also lead to greater opportunity to take cash discounts. By comparing receipts to the purchase order copy, Receiving personnel can verify that the goods were actually ordered and that they are authorized to receive the goods. By establishing validity of receipts before input, we preclude the inefficient process of backing-out unauthorized receipts.

Note: We could accomplish the same by using the Purchase Order master data that contains a record for each open purchase order. b. Having the quantity ordered field “blinded” on the receiving department copy of the PO ANS.

●

If the purchase order copy is blind as to quantities, Receiving personnel must count every item received, thus ensuring that the right amounts are received. However, if the Receiving personnel knew the quantities ordered, they could double-check their work. This could be more efficient and more accurate than if they did not know the quantities ordered. With a blind copy of the purchase order, Receiving personnel will not know what was ordered and cannot make decisions about whether to accept the goods.

Accounting Information Systems, 8e

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Note: In answering this question, you might want to distinguish between the person responsible for counting the goods and the person responsible for recording that quantity or entering the quantity received into a computer. The person counting need not know the quantity ordered, whereas the person entering the quantity counted and resolving discrepancies may want to know the quantity ordered. The person recording might insist on a recount to resolve discrepancies, and so on. DQ12-7

“Auditors will never allow an organization to adopt a paperless system, so why do we waste our time bothering to study them?” Discuss fully.

ANS.

Several points could be made regarding this statement. Some points relate to the issues of exposures and controls, whereas others relate to the behavioral issues of the relationship of the auditor and the organization. The following points, in no particular order, some in the form of questions, might be discussed: Which auditor are we talking about, the internal auditor or the external? Should an auditor have veto power over business process and information systems features? An auditor may be required to audit a previously developed paperless process. In such a case, the auditor must understand the process sufficiently to conduct the audit or must decline the engagement. Understanding the technology may allow an auditor to conduct a greater variety of audits. Do we, as auditors, want to be perceived as a group opposed to the adoption of modern technology? Although the development of controls often lags the development of technology (and abuse of that technology), controls exist to cope with most aspects of modern technology. So, rather than resist a paperless process, the auditor should insure that the process will be implemented with sufficient controls and that the process be auditable.

Problems Problems 1 and 2 Note: In the pages that follow, we provide solutions for problems 1 and 2 for both of the Case Studies (Cases A and B) as applicable. Although the solution for each case study comprises several pages, it is not necessarily comprehensive, nor does it represent the only acceptable answers. Your or your students’ answers easily may vary in two areas. First, the grouping on the annotated table of entities and activities determines the configuration of the current logical DFD. Second, the analysis of controls may vary as to the effectiveness goals for the operations process and the control plans included in the control matrix. For example, to simplify the control matrices, we have intentionally omitted the effectiveness goal “comply with the corporate code of conduct.” Further, we have included in the formal controls analysis only a sample of the

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Solutions for Chapter 12

possible present and missing controls. At the end of the descriptions of the controls for each case, we include a list of other controls that you or your students might want to include in a solution. Stockbridge Company (Purchasing and receiving) Solutions (see Note on pg. 12-5) P12-1 ANS.

a. Table of Entities and Activities for Stockbridge (Purchasing and Receiving)

Entities

Para

Activities

Computer

2

1.

Read inventory database and prepare online report for items that have reached reorder point.

Supplies clerk

2

2.

Review online report and prepare purchase requisitions.

Computer

2

3.

Update purchase requisition and inventory databases.

Inventory manager

2

4.

Log on to enterprise system to check pending purchase requisitions.

2

5.

Approve purchases over $1000 that are not covered under the “blanket” purchase order.

3

6.

View approved purchase requisitions.

3

7.

Select vendor from the vendor database.

3

8.

Prepare purchase order.

3

9.

Save purchase order and update purchase requisition and inventory databases.

3

10. Print purchase order.

Buyers

3

11. Mail purchase order to vendor.

Vendor

3

Receiving

4

12. Inspect and count goods received from vendor.

4

13. Compare count to the packing slip.

Buyers

Computer

14. Call up open PO. Computer

4

15. Retrieve purchase order from the purchasing database.

Receiving

4

16. Enter quantities received.

Computer

4

17. Update purchase order and inventory database with quantity received. 18. Update general ledger for inventory received.

Accounting Information Systems, 8e

Purchase order

Vendor

Purchasing process

Packing slip

FIGURE SM-12.1

Problem 1, part b solution—context diagram for Stockbridge Company (Purchasing and Receiving)

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Solutions for Chapter 12

Enterprise database

Approved purchase requisition

4.0 Purchasing Department

Online report

Request vendors

Purchase requisition

Approved vendors 1.0 Computer

Purchase order data Purchase order

2.0 Supplies Clerk

Purchase order

Pending requisition

Approve requisition

3.0 Inventory M anager

Purchase order data Quantity PO received number Vendor

NOTE: Only one flow into and out of the enterprise database are shown to represent all interactions.

FIGURE SM-12.2

Packing slip

5.0 Receiving Department

Problem 1, part c solution—physical DFD for Stockbridge Company (Purchasing and Receiving)

Accounting Information Systems, 8e

P12-1 ANS.

d. Table of Entities and Activities (Annotated) for Stockbridge Company (Purchasing and Receiving)

Entities

Para

Activities

Computer

2

1.

Read inventory database and prepare online report for items that have reached the reorder point.

Supplies clerk

2

2.

Review online report and prepare purchase requisition.

Computer

2

3.

Update purchase requisition and inventory databases.

Inventory manager

2

4.

Log on to enterprise system to check pending purchase requisitions.

2

5.

Approve purchases over $1000 that are not covered under the “blanket” purchase order.

3

6.

View approved purchase requisition order.

3

7.

Select vendor from the vendor database.

3

8.

Prepare prenumbered purchase order.

3

9.

Save purchase order and update purchase requisition and inventory databases.

3

10. Print purchase order.

4

13. Compare count to the packing slip.

Buyers

Computer

Receiving

Process

1.0 Prepare Purchase Requisition

2.0 Prepare Purchase Order

14. Call up open PO. Computer

4

15. Display purchase order from the system.

Receiving

4

16. Enter quantities received.

Computer

4

17. Update purchase order and inventory database with quantity received.

4

18. Update general ledger for inventory received.

3.0 Record Receipt

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Solutions for Chapter 12

Purchase requisition data Vendor data

1.0 Prepare purchase requisition

2.0 Prepare purchase order

Purchase order

Purchase order data

Vendor

Inventory data

Packing slip 3.0 Record receipt

FIGURE SM-12.3

General ledger data

Problem 1, part e solution—logical DFD for Stockbridge Company (Purchasing and Receiving)

Accounting Information Systems, 8e

FIGURE SM-12.4

Problem 2 part a solution—systems flowchart for Stockbridge Company (Purchasing and Receiving)

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Solutions for Chapter 12

Control Goals of the Stockbridge Company Purchasing and Receiving Business Process Control Goals of the Operations Process Ensure effectiveness of operations:

Recommended control plans

A

Ensure efficient employment of resources (people, computers)

B

Ensure security of resources (inventory, PO master data)

Control Goals of the Information Process For purchase requisition inputs, ensure:

IV

IC

Present Controls P-1: Automatic notice of items reaching reorder point

P-1

P-2: Approve purchase requisition

P-2

P-3: Approve purchase requisition

P-3

P-4: Automatic notice of open purchase requisitions

P-4

P-5: Authorized vendor data

P-5

P-6: Compare vendors for prices, terms, quality, availability

P-6

P-7: Requisition confirmation (update inventory data)

P-5

P-4

P-5

P-7

IA

For purchase order master data, ensure:

UC

UA

For vendor packing slip inputs, ensure:

IV

IC

IA

For purchase order master data, ensure:

UC

UA

Accounting Information Systems, 8e

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Control Goals of the Stockbridge Company Purchasing and Receiving Business Process Control Goals of the Operations Process Ensure effectiveness of operations:

Recommended control plans

A

P-8: Inspect and count goods and match with packing slip

Ensure efficient employment of resources (people, computers)

B

For purchase requisition inputs, ensure:

IV

P-8

P-9: Populate input screens with master data

Ensure security of resources (inventory, PO master data)

Control Goals of the Information Process

IC

IA

P-8

P-9

For purchase order master data, ensure:

UC

UA

For vendor packing slip inputs, ensure:

IV

IC

IA

P-8

P-8

P-9

P-9

M-2

M-2

Missing Controls M-1: Approve purchase order M-2 Compare inputs with master data

M-1

M-1 M-2

Possible effectiveness goals include the following: A -- Select a vendor who will provide the best quality at the lowest price by the promised delivery date B -- Ensure that the right goods are received in acceptable condition

IV = input validity IC = input completeness IA = input accuracy UC = update completeness UA = update accuracy

See Exhibit SM-12-1 for a complete explanation of control plans and cell entries.

FIGURE SM-12.5

Problem 2, part b (partial)—control matrix for Stockbridge Company (Purchasing and Receiving)

For purchase order master data, ensure:

UC

UA

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Solutions for Chapter 12

Exhibit SM-12.1

Problem 2 part b solution (partial)—explanation of cell entries for control matrix in Figure SM-12.5

Note: Purchase requisition and packing slip inputs result in immediate updates to purchase order and inventory master data. Therefore, we do not show entries for UC or UA. P-1:

Automatic notice of items reaching reorder point. Efficient employment of resources: This process relieves individuals of manually reviewing inventory item status to ensure timely preparation of requisitions for stock replenishment.

P-2:

Approve purchase requisition. Purchase requisition input validity: Supply clerks review and approve suggested inventory replenishment purchases to ensure that the purchase should be made. This authorization ensures validity of the purchase requisition.

P-3:

Approve purchase requisition. Purchase requisition input validity: The production manager reviews and approves purchase requisitions. This authorization ensures validity of the purchase requisition.

P-4:

Automatic notice of open purchase requisitions. Efficient employment of resources and purchase requisition input completeness: This process relieves individuals of manually reviewing open purchase requisitions to ensure timely preparation and input of purchase orders.

P-5:

Authorized vendor data. Effectiveness goal A: Buyers in the Purchasing department select vendors by consulting a database of vendors that contains only those vendors with whom the company is authorized to do business. The screening of vendors that preceded their being added to the “authorized” file should help ensure the achievement of goal A: to select a vendor who will provide the best quality at the lowest price by the promised delivery date. Ensure efficient employment of resources: People resources (buyers’ time) are used efficiently because time is not wasted in searching for vendors that might not even supply the required goods or services. Purchase requisition input validity: The blanket approval accorded to vendors who are placed on the authorized vendor file also helps ensure the validity of purchase orders issued.

Accounting Information Systems, 8e

P-6:

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Compare vendors for prices, terms, quality, and availability. Effectiveness goal A: Buyers in the Purchasing department select vendors that are best for this purchase at this time, thus ensuring the achievement of goal A: to select a vendor who will provide the best quality at the lowest price by the promised delivery date.

P-7:

Requisition confirmation (update inventory data). Purchase requisition input completeness: After the purchase order has been entered, the purchase requisition and inventory data are updated. This serves as confirmation of the requisition back to the requester, which is the automated process that produced the original online report of items below reorder point. Confirming the requisition helps to achieve the information control goal of input completeness.

P-8:

Inspect and count goods, and match with packing slip. Effectiveness goal B: Inspection by the receiving clerk ensures that the goods are in acceptable condition. Security of resources: This comparison will ensure that goods that were shipped by the vendor have been received and will be processed into the warehouse and not lost or otherwise diverted. Packing slip input validity and input accuracy: This comparison should ensure that only goods that are actually received (validity) will be entered into the system and will be entered correctly (accuracy).

P-9:

Populate input screens with master data. Efficient employment of resources: Automatic population of inputs from master data results in fewer keystrokes, which should improve the speed and productivity of the Receiving personnel. Packing slip input validity: The code entered by the user calls up data from existing PO records and those data establish authorization for the receipt. Packing slip input accuracy: Fewer keystrokes and the use of data called up from existing records reduce the possibility of input errors.

M-1:

Approve purchase order. Effectiveness goal A: Approval by a purchasing manager would ensure that the vendor selection rules had been followed. Purchase requisition input validity: Approval by a purchasing manager authorizing the purchase would support the validity of the requisition.

M-2:

Compare inputs with master data.

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Solutions for Chapter 12

Efficient employment of resources: The computer would be better able to compare the quantity on order on the PO data to the quantities entered than would the Receiving personnel who must do it manually. Packing slip input validity and input accuracy: The computer comparison should ensure entry only of items on order, and any differences would be flagged for correction and re-input. Solution Note: Several controls not described in the preceding could be included in the solution to this problem, as present or missing, depending on assumptions made. For example: At each data entry location, we could include automated data entry, preformatted screens, online prompting, and confirm input acceptance. As data is entered into the system, we might find programmed edit checks, populate input screens with master data, and compare input data with master data When there are programmed edit checks, manual comparisons, and reconciliation of batch totals, we might find procedures for rejected inputs. Where paper documents are employed, we might find document design, written approvals, and turnaround documents. The packing slips are entered in receiving (i.e., close to the location where the receipt takes place).

Accounting Information Systems, 8e

FIGURE SM-12.6

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Problem 2, part c solution—annotated systems flowchart for Stockbridge Company (Purchasing and Receiving)

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Solutions for Chapter 12

Internet Payment Platform (Purchasing and Receiving Processes) Solutions (see the Note on pg. 12-4) P12-1 ANS.

a. Table of Entities and Activities for Internet Payment Platform (Purchasing and Receiving Processes)

Entities

Para

Activities

Contracting officer (CO)

2

1.

Receive request for purchase from various departments (assumed).

2.

Enter purchase order.

2

3.

Store PO in database.

2

4.

Print PO.

2

5.

Sign PO.

2

6.

Mail PO to supplier.

2

7.

Extract and format POs.

2

8.

Send formatted POs to enterprise adapter.

2

9.

Convert PO into XML.

2

10. Translate and encrypt POs.

2

11. Send POs to IPP.

2

12. Store POs on database.

2

13. Notify supplier via e-mail.

3

14. Log on to IPP and read PO.

3

15. Decide if can respond to electronic PO (or wait for paper PO).

3

16. Provide goods and services.

3

17. Send goods and packing slip (assumed).

3

18. Receive goods.

3

19. Enter receipt data (assumed).

3

20. Send goods to warehouse (assumed).

3

21. Record receipt.

Various departments BEPMIS

CO

BEPMIS

Enterprise adapter

IPP server

Supplier employee

BEP Receiving department

Warehouse BEPMIS

Accounting Information Systems, 8e

Purchase request Various departments

FIGURE SM-12.7

Purchasing process

Warehouse Stock notice

Problem 1, part b solution—context diagram for Internet Payment Platform (Purchasing and Receiving Processes)

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Solutions for Chapter 12

Purchase request

Various departments

PO data

1.0 Contracting officer

2.0 BEPM IS Printed PO

M ailed PO Extracted and formatted POs 4.0 Enterprise adapter

Encrypted POs in XM L BEPM IS/IDM S database

Appreciating database 3.0 Supplier

5.0 IPP server E-mail notice Receipt data

Logon Packing slip

PO data

6.0 BEP Receiving Warehouse NOTE: Only one flow into and out of the BEPM IS/IDM S database are shown to represent all interactions.

FIGURE SM-12.8

Stock notice

Problem 1, part c solution—physical DFD for Internet Payment Platform (Purchasing and Receiving Processes)

Accounting Information Systems, 8e

P12-1 ANS.

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d. Table of Entities and Activities (Annotated) for Internet Payment Platform (Purchasing and Receiving Processes)

Entities

Para

Activities

Contracting officer (CO)

2

2.

Enter purchase order.

BEPMIS

2

3.

Store PO in database.

2

4.

Print PO.

Contracting officer

2

5.

Sign PO.

BEPMIS

2

7.

Extract and format PO.

Enterprise adapter

2

9.

Convert PO into XML.

2

10. Translate and encrypt PO.

IPP server

2

12. Store POs on database.

Supplier

3

14. Log on to IPP and read PO.

3

15. Decide if can respond to electronic PO (or wait for paper PO).

3

16. Provide goods and services.

BEP Receiving

3

19. Enter receipt data (assumed).

BEPMIS

3

21. Record receipt.

Process

1.0 Prepare and record PO in BEPMIS

2.0 Extract, format, and record PO in IPP database

3.0 Provide goods and services

4.0 Record Receipt

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Solutions for Chapter 12

Various departments

Purchase request

1.0 Prepare and record PO in BEPM IS

BEPM IS database

PO data

2.0 Extract, format, and record PO in IPP database

PO

IPP appreciating database

3.0 Provide goods and services

Packing slip

4.0 Record receipt

Warehouse

Stock notice

FIGURE SM-12.9

Problem 1, part e solution—logical DFD for Internet Payment Platform (Purchasing and Receiving Processes)

Accounting Information Systems, 8e

Bureau of Engraving and Printing (BEP) Office of Procurement

BEPM IS/CAS (IBM M ainframe)

Start

Enterprise Adapter (Intel Server)

IPP Server at Xign

Supplier

Receiving

A Record PO and e-mail supplier

Research and approval process not show n

Read e-mail Signed PO (with FAR text)

Record PO IPP Appreciating database

Key PO data

PO acceptance

PO (with FAR text)

Sign and mail PO

Signed PO (with FAR text)

IDM S database

Log onto IPP, request PO display

B

Print PO

Extract and format PO data, transmit to IPP

Record receipt data

Manually initiated daily batch job

Translate PO data to XM L, transmit to IPP server

Packing slip

E-mail notice from IPP

Retrieve and display PO

PO display

Receive goods

Key receipt data

Decide if can respond to electronic PO (or wait for paper PO) Details not show n

Provide goods (or services)

A

Signed by contracting officer

IDM S database

Packing slip

B

FIGURE SM-12.10 Problem 2, part a solution—systems flowchart for Internet Payment Platform (Purchasing and Receiving Processes)

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Solutions for Chapter 12

Control goals of the IPP purchasing and receiving processes Control Goals of the Operations Process Ensure effectiveness of operations:

Recommended control plans

A

B

Ensure efficient employment of resources (people, com-puters)

Ensure security of resources (inventory, PO master data)

C

Control Goals of the Information Process For purchase order inputs, ensure:

IV

IC

For PO master data, ensure:

IA

UC

For vendor packing slip inputs, ensure:

UA

IV

IC

For PO master data, ensure:

IA

UC

UA

Present Controls P-1: Research and approve POs

P-1

P-1

P-2: Print PO with FAR text P-3: Sign PO

P-3

P-4: Send e-mail to supplier

P-4

P-5: Count and inspect goods

P-5

P-5

P-2

P-2

P-3

P-3

P-5

P-6: Enter receipt data in receiving

P-6

P-7: Compare input receipt data to PO data P-8: Monitor open POs

P-7

P-8

P-5

P-5

P-6

P-6

P-5 P-6

P-7

P-8

P-6

P-5 P-6

P-7

P-8

P-6 P-7

P-8

Accounting Information Systems, 8e

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Control goals of the IPP purchasing and receiving processes Control Goals of the Operations Process Ensure effectiveness of operations:

Recommended control plans

A

B

Ensure efficient employment of resources (people, com-puters)

Ensure security of resources (inventory, PO master data)

Control Goals of the Information Process For purchase order inputs, ensure:

For PO master data, ensure:

For vendor packing slip inputs, ensure:

C

IV

IC

IA

UC

UA

M-1

M-1

M-1

M-1

M-1

M-1

IV

IC

For PO master data, ensure:

IA

UC

UA

Missing Controls M-1: Reconcile batch totals for extracted POs

M-1

M-2: Programmed edits for formatted and translated PO data

M-2

M-3: Match PO and receipt M-4: Monitor open POs

M-3 M-4

M-2

M-3 M-4

Possible effectiveness goals include the following: A = Select a vendor that will provide the best quality at the lowest price by the required delivery date. B = Ensure that the right goods in the correct amount are received in acceptable condition. C = Comply with Federal Acquisition Regulation (FAR) See Exhibit SM 12.2 for a complete explanation of control plans and cell entries.

FIGURE SM-12.11 Problem 2, part b (partial)—control matrix for Internet Payment Platform (Purchasing and Receiving Processes)

M-3 M-4

IV = input validity IC = input completeness IA = input accuracy UC = update completeness UA = update accuracy

M-3 M-4

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Solutions for Chapter 12

Exhibit SM-12.2 P-1:

Problem 2, part b solution (partial)—explanation of cell entries for control matrix in Figure SM-12.11

Research and approve POs. Effectiveness goal A: The PO is researched by buyers, contract specialists, and contracting officers in the Office of Procurement to locate vendors who will provide the best quality at the lowest price and by the required delivery date. Purchase order input validity: Approval by the contracting officer helps to ensure validity of the purchase order by reducing the possibility that invalid (unauthorized) POs will be entered into BEPMIS.

P-2:

Print PO with FAR text. Effectiveness goal C: POs with the required FAR text are printed and sent to the suppliers. Purchase order input validity: POs are not valid, for purposes of FAR, unless they include the required FAR text.

P-3:

Sign PO. Effectiveness goals A and C and purchase order input validity: The contracting officer’s signature ensures that the PO indicates approval of the chosen vendor (goal A), that the PO complies with FAR (goal C), and that only valid (authorized) POs have been entered into BEPMIS.

P-4:

Send e-mail to supplier. Effectiveness goal A: By sending an e-mail to the supplier to alert them that a PO has been posted to the IPP, we improve the possibility that goods (or services) will be provided in a timely manner.

P-5:

Count and inspect goods. Effectiveness goals A, B, and C: By counting and inspecting the goods, Receiving personnel can determine the quality of the goods (goal A), that we have received the right goods in the correct amount and in acceptable condition (goal B), and that the supplier has met the requirements of FAR specified on the PO (goal C). Security of resources: By counting and inspecting goods, we ensure that receipts are correctly entered into BEPMIS, thus precluding obligating the government for inappropriate payments. Accurate inventory records can reduce inventory shrinkage and other forms of asset losses. Vendor packing slip input validity and input accuracy, and PO master data update accuracy: By counting and inspecting the goods, we ensure that only actual receipts are recorded (input validity) and are recorded for the correct amounts

Accounting Information Systems, 8e

27

(input accuracy). We assume that the PO master data is updated simultaneously with the input of the receipt data. P-6:

Entr receipt data in receiving. Efficient employment of resources: The direct entry of input data by receiving personnel eliminates the cost associated with the handling of the event data by additional entities. Ensure security of resources: The direct entry establishes the accurate recording of what was received before there is time for shrinkage. If inventory has already been entered, it is easier to detect that a theft has occurred. Easy detection should reduce the likelihood that theft will happen. Vendor packing slip input validity: Because the receipts are captured in the Receiving department, they are more likely to reflect actual product receipts. Vendor packing slip input completeness and PO master data update completeness: Because the receipts are captured at the Receiving department, they are less likely to be lost as they are transported to a data entry location. We assume that the PO master data is updated simultaneously with the input of the receipt data. Vendor packing slip input accuracy and PO master data update accuracy: Because Receiving personnel are familiar with the data being entered, they are less likely to make input errors and can more readily correct these errors if they occur. We assume that the PO master data is updated simultaneously with the input of the receipt data.

P-7:

Compare input receipt data to PO data. Effectiveness goal B and vendor packing slip input validity: By comparing the open purchase order data to received goods, we can ensure that we have received the goods that were ordered. Vendor packing slip input accuracy and PO master data update accuracy. The comparison identifies erroneous or suspect data and reduces input errors. We assume that the PO master data is updated simultaneously with the input of the receipt data.

P-8:

Monitor open POs. Effectiveness goals A and C, vendor packing slip input completeness, and PO master data update completeness. By monitoring and following up on open POs, we can ensure that goods are received in a timely manner (goal A), are in compliance with FAR (goal C), and are input in a timely manner (input completeness). We assume that the PO master data is updated simultaneously with the input of the receipt data.

M-1:

Reconcile batch totals for extracted POs.

28

Solutions for Chapter 12

Purchase order input validity, input completeness, input accuracy, and purchase order master data update completeness and update accuracy: Agreement of the batch totals at these points would ensure that only valid POs comprising the original batch of extracted POs have been input to IPP (input validity), that all POs were input (input completeness), and that data elements appearing on the POs have been input correctly (input accuracy). We assume that the PO master data is updated simultaneously with the input of the receipt data. Effectiveness goals A and C: By ensuring that POs are recorded on IPP, we can ensure timely receipt of the goods in compliance with FAR. M-2:

Programmed edits for formatted and translated PO data. Purchase order input accuracy and purchase order master data update accuracy: Edits at BEPMIS and the Enterprise Adapter would identify erroneous or suspect data and reduce input errors at the IPP server. We assume that the PO master data is updated simultaneously with the input of the receipt data.

M-3:

Match PO and receipt. Effectiveness goal B and vendor packing slip input validity: By comparing the open purchase order data in IPP to received goods, we could ensure that we have received the goods that were ordered. Vendor packing slip input accuracy and PO master data update accuracy. The comparison could identify erroneous or suspect data and reduce input errors. We assume that the PO master data is updated simultaneously with the input of the receipt data.

M-4:

Monitor open POs. Effectiveness goals A and C, vendor packing slip input completeness, and PO master data update completeness. By monitoring and following up on open POs in IPP, we could ensure that goods are received in a timely manner (goal A), are in compliance with FAR (goal C), and are input in a timely manner (input completeness). We assume that the PO master data is updated simultaneously with the input of the receipt data. Solution Note: Several controls not described in the preceding could be included in the solution to this problem, as present or missing, depending on assumptions made. For example: At each data entry location, we could include automated data entry, preformatted screens, online prompting, and confirm input acceptance. As data is entered into the system, we might find programmed edit checks, populate input screens with master data, and compare input data with master data

Accounting Information Systems, 8e

When there are programmed edit checks, manual comparisons, and reconciliation of batch totals, we might find procedures for rejected inputs. Where paper documents are employed, we might find document design, written approvals, and turnaround documents.

29

30

Solutions for Chapter 12

Bureau of Engraving and Printing (BEP) Office of Procurement

BEPM IS/CAS (IBM M ainframe)

Start

Enterprise Adapter (Intel Server)

IPP Server at Xign Re ceiving

Re cord PO

M-1, P-4, M-3

A

Re cord PO and e-mail supplier

Research and approval process not show n

Re ad e-mail Signed PO (with FAR text)

M-4

P-1

IPP Appreciating database

Ke y PO data IDM S database

PO acceptance

Supplier

E-mail notice from IPP

Log onto IPP, request PO display

B P-2

PO (with FAR text) P-3

Sign and mail PO

Signed PO (with FAR text)

A

Signed by contracting officer

Print PO

Manually initiated daily batch job

Packing slip

Re trieve and display PO

PO display

P-5

M-1, M-2

Extract and format PO data, transmit to IPP

M-1, M-2

Translate PO data to XM L, transmit to IPP server

Re ceive goods

P-6

P-7

Re cord receipt data

P-8

IDM S database

De cide if can respond to electronic PO (or wait for paper PO)

Ke y receipt data

Details not show n

Provide goods (or services)

Packing slip

B

FIGURE SM-12.12 Problem 2, part c solution—annotated systems flowchart for Internet Payment Platform (Purchasing and Receiving Processes)

Accounting Information Systems, 8e

P12-3

31

a. ANS. Comments on the efficiency and effectiveness of the purchasing process at Mountain Bay might include the following: Paper requisitions are not efficient and are prone to error. Automated processes would get POs to the purchasing office in a timelier manner. No priority assigned to parts needed immediately. No record of purchase requisitions maintained at the maintenance office (so additional orders might be made). No planning for required levels of inventory. Approved vendor file is paper-based and may not be complete (need a card file of local vendors). No consolidation of orders to each vendor (not practical without computerized purchase requisitions). Do all POs need to be signed? The approval process seems pro-forma. Paper POs are filed by vendor. Is there any way to track an order by part number? No record of receipts until after the complete QC (but they are listed as “on hold”). b. ANS. Automation of the purchasing and receiving processes at Mountain Bay to solve the problems noted in the preceding list might include the following features (see the systems flowchart in Figure SM-12.13): Mountain Bay Company uses an enterprise system for these purchasing and receiving processes. The maintenance manager enters purchase requisitions online. The number of requisitions has been minimized by automatically replenishing many items when they reach reorder points. Purchasing uses a database of approved vendors. When an existing vendor will not satisfy a need, the buyer conducts research for other vendors on the Internet. Whenever possible, purchases to vendors are consolidated. The Purchasing manager approves POs online but only those that exceed a certain dollar limit. POs are not printed; they are stored in the Purchasing database and sent to the vendors electronically.

32

Solutions for Chapter 12

When goods are received, they are immediately entered into the enterprise system. Goods that require QC are designated as such and are automatically assigned a status as “awaiting QC.” These goods are moved to the QC area. When QC members have completed their inspection, they change the status of the items from “on hold” to “available,” and the goods are moved into inventory or to the requester. A database of purchase requisitions and POs is available for research by interested parties.

Accounting Information Systems, 8e

Maintenance Manager

Com puter

Purchasing Departm ent

Start Display requisition and vendor candidates

Enter requisition data Edit input and record requisition

33

Enterprise database

Requisition screen w ith vendor candidates

Convert requisition to PO, enter selected vendor, price, term s

Requisition input screen

Requisitions and forecasts m ay be com bined

Internet m ay be used to find appropriate vendors. In w hich case a new vendor record w ould be created.

Edit input and record PO PO input screen

Approve PO

Requisition confirm ation

Record approval, release PO, update inventory m aster data, and confirm to requester PO approval screen

Purchasing m anager approves only those POs over X dollars

Translate to EDI form at and transm it to vendor (via VAN)

VAN

FIGURE SM-12.13 Problem 3, part b solution (partial)—systems flowchart for the purchasing process at Mountain Bay

34

Solutions for Chapter 12

Quality Control

Com puter

Receiving Departm ent

A Enter PO num ber

Shipping docum ents

Vendor

Stock notice

Shipping docum ents

Receiving report screen

Attach stock notice to goods and forw ard

Stock notice

Inspect goods Com pare input quantities w ith PO quantities, update inventory and PO data, print stock notice. Send to QC as appropriate

Enterprise database

Enter status change

Change status from on hold to available, print stock notice. Stock notice

Stock notice

Stock notice

Warehouse or requester

Attach stock notice to goods and forw ard

Stock notice A

Warehouse or requester

Accounting Information Systems, 8e

35

FIGURE SM-12.13 Problem 3, part b solution (partial)—systems flowchart for the receiving process at Mountain BayP12-4 ANS. 1. I: A manager in the Purchasing department should review and approve POs to prevent Meyer Company from ordering unneeded inventory. Note: We would also like to see a process to review and approve vendors to determine that there is no conflict of interest between the proposed vendor and Meyer Company (e.g., ownership by a buyer such as George), before purchases are made from that vendor. 2. L: Logical and physical access controls over the PO master data should prevent Marc from creating the bogus PO record. 3. C: A process is needed to review and approve vendors to determine that they can deliver goods with prices that Winsted, Inc. is willing to pay on an ongoing basis. Then, the vendor record should be created by someone who will not be executing purchases from that vendor (i.e., independent vendor master data maintenance). Note: We could also argue for a process to create vendors for one-time purchases. 4. F: Emily, who works in the warehouse, should not also work in receiving and be able to execute a goods receipt. Note: We could also argue for a segregation of logistics (warehouse and receiving) from purchasing so that logistics personnel cannot create POs. 5. H: Receiving clerks at Gentry, Inc. should match the goods received with open POs to determine that the only goods ordered are received. 6. J: Before a PO is issued, buyers should research vendors to determine that they can provide goods in a timely manner (i.e. review for availability). 7. E: Apparently, goods have gone missing after arriving in the warehouse. Controls over access to the warehouse should prevent these losses. 8. A: We presume that vendors will send invoices for the goods that they believe they have shipped (i.e., goods on their packing slips). By matching goods received to the vendor packing slip, Portland Company can detect and correct shipping errors as the goods are received. 9. G: Whitney’s vendors can use Whitney’s public key to open the PO and to verify that Whitney’s purchasing agents have signed the PO with the Whitney private key. This will verify that the PO is valid. 10. K: Framingham Company should review open POs to determine if the goods have been received. Goods that have been received and are on the shelf should be recorded as received. This will close the PO. Note: This follow-up may find that goods that are not on the shelf and have not been received. In those cases, a follow-up to the vendor would be in order.

36

Solutions for Chapter 12

Control Goals of the Purchasing Business Process Control Goals of the Operations Process Ensure effectiveness of operations:

Recommended control plans

A

B

Ensure efficient employment of resources (people, computers)

Ensure security of resources (inventory, purchase order master data)

C

Control Goals of the Information Process For purchase requisition inputs, ensure:

IV

IC

IA

For purchase order master data, ensure:

UC

UA

For vendor packing slip inputs, ensure:

IV

IC

IA

P-7

P-7

P-7

Present controls P-1: Preformatted screens

P-1

P-1

P-2: Online prompting

P-2

P-2

P-3: Programmed edit checks

P-3

P-3

P-4: Procedures for rejected inputs P-5: Populate input screens with master data

P-4 P-5

P-6: Digital signature P-7: Enter receipt data in receiving P-8: Confirm input acceptance

P-6 P-7

P-7

P-4

P-5

P-5

P-6

P-6

P-8

For purchase order master data, ensure:

UC

UA

Accounting Information Systems, 8e

37

Control Goals of the Purchasing Business Process Control Goals of the Operations Process Ensure effectiveness of operations:

Recommended control plans

A

B

Ensure efficient employment of resources (people, computers)

Ensure security of resources (inventory, purchase order master data)

C

Control Goals of the Information Process For purchase requisition inputs, ensure:

IV

IC

IA

For purchase order master data, ensure:

UC

For vendor packing slip inputs, ensure:

UA

IV

IC

IA

Missing controls None noted Possible effectiveness goals include the following: A—Select a vendor who will provide the best quality at the lowest price by the required delivery date B—Ensure that the right goods in the correct amount are received in acceptable condition C—Comply with corporate code of conduct See Exhibit SM 12.3 for a complete explanation of control plans and cell entries.

FIGURE SM-12.14 Problem 5 solution (partial)—control matrix

IV = input validity IC = input completeness IA = input accuracy UC = update completeness UA = update accuracy

For purchase order master data, ensure:

UC

UA

38

Solutions for Chapter 12

Exhibit SM-12.3 P-1:

Problem 5 solution (partial)—explanation of cell entries for control matrix in Figure SM-12.14

Preformatted screens. Efficient employment of resources: By structuring the data entry process, automatically populating fields, and preventing errors, preformatted screens simplify data input and save time, allowing a user to input more data over a period of time. Purchase requisition input accuracy: As each data field is completed on a preformatted screen, the cursor moves to the next field on the screen, thus preventing the user from omitting any required data set. The data for fields that are automatically populated need not be manually entered, thus reducing input errors. Incorrectly formatted fields are rejected.

P-2:

Online prompting. Efficient employment of resources: By asking questions and providing online guidance, this plan ensures a quicker data entry process and allows the user to input more data over a period of time. Purchase requisition input accuracy: The online guidance should reduce input errors.

P-3:

Programmed edit checks. Efficient employment of resources: Purchase requisition data can be processed on a timelier basis and at a lower cost if errors are detected and prevented from entering the system early in the process. Purchase requisition input accuracy: The edits identify erroneous or suspect data (e.g., unreasonable purchase quantity) and reduce input errors.

P-4:

Procedures for rejected inputs. Purchase requisition input completeness and input accuracy: The rejection procedures (i.e., “Error routine not shown” annotations) are designed to ensure that erroneous data not accepted for processing are corrected (accuracy) and resubmitted for processing (completeness).

P-5:

Populate input screens with master data. Efficient employment of resources: Automatic population of inputs with vendor master data results in fewer keystrokes, which should improve the speed and productivity of the purchasing personnel. Purchase requisition input validity: Data from existing, approved purchase requisition data, as well as existing, approved vendor records are used for the PO.

Accounting Information Systems, 8e

39

Purchase requisition input accuracy: Fewer keystrokes and the use of data called up from existing records reduce the possibility of input errors. P-6:

Digital signatures. Security of resources and purchase requisition input validity: Digital signatures will allow the vendor to determine that the sender of the message has authority to send it and thus prevents an unauthorized purchase and diversion of resources. This also determines that the message itself is genuine. Purchase requisition input accuracy: Detects messages that have been altered in transit, thus preventing the use of data by the vendor that is not reflected in the purchase requisition input.

P-7:

Enter receipt data in receiving. Security of resources: Because the receipt data is captured in receiving, there is less opportunity to divert the receipts because there is a record that the inventory exists and is on the premises. Efficient employment of resources: Because Receiving personnel are familiar with the data being entered, they can more readily correct these errors if they occur. Vendor packing slip input validity: Because the receipts are captured in the Receiving department, they are more likely to reflect actual product receipts. Vendor packing slip input completeness: Because the receipts are captured in the Receiving department, they are less likely to be lost as they are transported to a data entry location. Vendor packing slip input accuracy: Because Receiving personnel are familiar with the data being entered, they are less likely to make input errors and can more readily correct these errors if they occur.

P-8:

Confirm input acceptance. Packing slip input completeness: By advising receiving personnel that input has been accepted, this confirmation helps ensure input completeness.

40

Solutions for Chapter 12

Cost Center/ Requisitioning Department

Established needs

P-1 P-2

Enter requisition data

Computer

Purchasing Department

Edit input and record requisition

Display requisition and vendor candidates

Requisition input screen

Exception routine not show n

Approve requisition

Requisition screen w ith vendor candidates

P-5 P-1 P-2

Enterprise database

P-1 P-2

Requisitions and forecasts m ay be com bined

P-3

Convert requisition to PO, enter selected vendor, price, term s

P-3

P-3

May require contact w ith vendor

Edit input and record PO

Record approvals and update requisition data

PO input screen

Requisition approval screen

P-4 Approve PO

P-3 Record approval, release PO, update inventory m aster data, and confirm to requester

Requisition confirm ation

P-4 PO approval screen

P-6

Translate to EDI form at, encrypt, digitally sign, and transm it to vendor (via VAN)

VAN

FIGURE SM-12.15 Problem 5 solution (partial)—annotated systems flowchart

P-1 P-2

Error routine not show n

Accounting Information Systems, 8e

Receiving Department

Computer

P-7

Vendor

Enter PO num ber

Shipping docum ents

Enterprise database

Shipping docum ents

Read data from RFID chips in shipm ent

Com pare RFID quantities w ith PO quantities, update inventory and PO data, print stock notice, display receiving report num ber P-8

Shipping docum ents

Receiving report screen Exception routine not show n

Attach the Stock Notice to the goods and record receiving report num ber on shipping docum ents

Stock notice

Warehouse

P-4 Stock notice

Shipping docum ents (w ith receiving report num ber)

Shipping docum ents

C

FIGURE SM-12.15 Problem 5 solution (partial)—annotated systems flowchart (continued)

41

42

Solutions for Chapter 12

P12-6 ANS. Function Logistics

Risks

Controls and Technology

Poor supply chain planning: o

Wrong, poor vendors

o

Poor quality of goods

o

Too much inventory, not enough inventory

Preapprove vendors.

Inadequate receiving capacity and security Purchasing

Establish collaborative relationships with suppliers, such as VMI and CPFR.

Unauthorized POs

Audit vendors for process quality (e.g., ISO). Secure receiving area (locks, cameras, etc.). Use purchase requisitions to authorize purchases.

Wrong/unapproved vendor Create purchasing budgets. Approve vendor selection. Goods never ordered

Match receipt to open POs.

Inventory (debit)

Wrong/damaged goods

Inspect and count goods.

??? (credit)

Invalid entry (goods not received)

Receiving

Enter receipts in receiving. Use bar codes or electronic tags (RFID).

Incomplete entry

Monitor open purchase orders for overdue receipts.

Inaccurate entry (quantity, cost)

Match receipt to PO and inventory data. Match receipt to advanced shipping notice (ASN) from vendor. Use standard costs. Use bar codes and RFID to identify goods.

Note: During the receipt of inventory, a clearing account is credited to balance the debit to inventory. When the vendor invoice is received, the same clearing account will be debited to balance the credit to accounts payable. In the SAP® system this account is called “Goods

Accounting Information Systems, 8e

Received/Invoice Received (GR/IR).” Purchasing process -- Level 0 diagram With changes for receiving a technical product.

Inventory's purchase requisition

Inventory m anagem ent process

Inventory m aster data

1.0 Determ ine requirem ents

Purchase requisitionsupplies and services

Purchase requisition data PO inventory notification

Requirem ents

PO departm ent notification

2.0 Order goods and services

Vendor m aster data

Inventory m aster data

Accounts payable process

PO accounts payable notification

PO receiving notification

Purchase receipts data

Purchase order

Vendor packing slip Stock notice

3.0 Receive goods and services

PO, Packing slip, goods

Vendor

Purchase order m aster data

Receiving report

Vendor m aster data

Various departm ents

GL inventory received update PO, Packing slip, inspected goods Inventory m aster data

Quality control

FIGURE SM-12.16 Problem 7 solution

NOTE: The technical product is sent to quality control for testing.

Warehouse

General ledger process

43

44

Solutions for Chapter 12

Purchasing process -- Diagram 3 With changes for receiving a technical product

NOTE: The change is here where the technical product is sent to quality control for testing. We have included that entity here for clarity. Normally, entities are not included on diagrams below level 0.

Vendor master data

Vendor packing slip

PO, packing slip, goods 3.1 Inspect and count goods

PO receiving notification

Quality control

Reject PO, packing slip, inspected goods Purchase order master data

Receiving report

Reject

Purchase receipts data

3.2 Compare receiving report and purchase order

GL Inventory received update

Stock notice Receiving report

FIGURE SM-12.16 Problem 7 solution (continued)

Vendor master data

Inventory master data

Accounting Information Systems, 8e

Purchasing process -- context diagram w ith changes for drop shipm ent. Changes are: -- No packing slip is received from the vendor --The custom er sends a receipt notification (this could com e from the carrier that delivered the goods to the custom er). --There is no stock notice going to the w arehouse.

Inventory m anagem ent process

Inventory's purchase requisition Purchase order

Vendor

PO inventory notification Purchase requisitionsupplies and services

GL inventory received update

Purchasing process

Receipt notification Various departm ents

PO departm ent notification

Receiving report

PO accounts payable notification

Custom er Accounts payable process

FIGURE SM-12.17 Problem 8 solution

General ledger process

45

46

Solutions for Chapter 12

Purchasing process -- level 0 diagram With changes for drop shipm ent. Changes are: -- No packing slip is received from the vendor --The custom er sends a receipt notification (this could com e from the carrier that delivered the goods to the custom er). --There is no stock notice going to the w arehouse.

Inventory's purchase requisition

Inventory m anagem ent process

Inventory m aster data

1.0 Determ ine requirem ents

Purchase requisitionsupplies and services

Purchase requisition data PO inventory notification

Requirem ents

2.0 Order goods and services

Vendor m aster data

Inventory m aster data

PO accounts payable notification Accounts payable process

Various departm ents

PO departm ent notification

Purchase order

PO receiving notification

Vendor

Purchase order m aster data Receiving report 3.0 Receive goods and services

Custom er Receipt notification

Vendor m aster data GL inventory received update

Purchase receipts data

Inventory m aster data

FIGURE SM-12.17 Problem 8 solution (continued)

General ledger process

Accounting Information Systems, 8e

Purchasing process -- Diagram 3 With changes for drop shipment. Changes include: --The packing slip from the vendor has been replaced by the receipt notification from the customer (or carrier). --There is no stock notice coming from bubble 3.2 because the goods do not go to the warehouse.

Vendor master data

Reject

Receipt notification

3.1 Compare

PO receiving notification

Purchase order master data

Receiving report

Reject

3.2 Compare receiving report and purchase order

Purchase receipts data

Vendor master data

Inventory master data

GL Inventory received update Receiving report

FIGURE SM-12.17 Problem 8 solution (continued)

47

48

Solutions for Chapter 12

P12-9 ANS.

1. Approve purchase order: The purchasing agent’s selected vendor should be approved by the purchasing manager. 2. Independent authorization to record receipt: This prevents accepting goods that were not ordered. 3. File completed receiving report in receiving: This will provide an audit trail for goods received and forwarded to the storeroom. 4. Reorder points and automatic generation of alerts: The alerts can take the form of notices on the screens of supply clerks, purchase requisitions sent to buyers, or purchase orders sent directly to the vendor. Alternatively, the organization might assign the responsibility for stock replenishment to the vendor (i.e., vendor-managed inventory [VMI]). 5. Select vendors who can provide goods with appropriate quality: Either in advance, when authorized vendors are selected, or at the time of each purchase, vendors must be examined to determine that they can provide goods with appropriate quality.

Accounting Information Systems, 8e

Process

Subsidiary Functions

Inputs

Outputs

1.0 Determine requirements

1.1 Accumulate requests

Inventory’s purchase requisition

Purchase requisition data

Purchase requisition—supplies and services 1.2 Calculate requirements

Purchase requisition data

Requirements

Inventory master data 2.0 Order goods and services

2.1 Select vendor

Requirements

Purchase requisition

Vendor master data 2.2 Prepare purchase order

Purchase requisition

PO department notification

Inventory master data

PO inventory notification PO accounts payable notification PO receiving notification Purchase order Purchase order master data Inventory master data

3.0 Receive goods and services

3.1 Inspect and count goods

PO receiving notification

Receiving report

Vendor packing slip

Vendor master data

Vendor master data

Reject

49

50

Solutions for Chapter 13

Process

Subsidiary Functions

Inputs

Outputs

3.2 Compare receiving report and purchase order

Receiving report

Receiving report

Purchase order master data

Stock notice

Vendor master data

Purchase order master data

Inventory master data

Vendor master data Inventory master data Purchase receipts data GL Inventory received update Reject

Table SM-12.1

Problem 10 Solution—Summary of Purchasing Process’s Processes, Inputs, Outputs, and Data

Accounting Information Systems, 8e

SOLUTIONS FOR CHAPTER 13 Discussion Questions DQ13-1

Refer to effectiveness goals A and B shown in the control matrix in Figure 13.11. For each activity (accounts payable and cash disbursements), describe goals other than the one discussed in the chapter.

ANS.

Possible accounts payable effectiveness goals: (Contained in Figure 13.11.) Optimize cash discounts. Preclude duplicate payments. Prevent unauthorized payments. Provide timely general ledger updates. Furnish timely notice of cost of goods received. Facilitate cash planning. Process purchase returns and allowances in accordance with company policy. Possible cash disbursements effectiveness goals: (Contained in Figure 13.11.) Ensure that the amount of cash maintained in demand deposit accounts is sufficient (but not excessive) to satisfy expected cash disbursements. Maintain good vendor relations. Minimize check preparation and processing costs. Provide accurate and complete information for general ledger cut-off procedures. Preserve the organization’s credit standing.

51

52

Solutions for Chapter 13

DQ13-2

Explain why ambiguities and conflicts exist among operations process (effectiveness) goals, and discuss some potential ambiguities and conflicts relative to the goals you described in Discussion Question 13-1.

ANS.

Conflicts exist because each organizational unit wants to do its best (or at least be seen as doing its best). However, many (perhaps any) individual units cannot possibly perform at their best because trade-offs must be made so that the organization as a whole can do its best. Ambiguities may exist when it is not clear when a goal has been reached, which could happen, for example, when goals have subgoals. For example, can the cash disbursements process provide both complete and accurate information for cut-off procedures? In addition, some effectiveness goals may conflict with the other operation process goals in the efficient employment of resources and security of resources categories. Conflicts that may exist relative to the processes goals in DQ 13-1 include the following: To ensure good vendor relations, excessive cash may be kept on hand to be able to pay vendors more quickly than is required by the terms offered. To pay invoices quickly to obtain cash discounts, important controls in the receiving and invoice verification processes may be sacrificed.

DQ13-3

Without redrawing the figures, discuss how Figures 13.3, 13.4, and 13.6 would change as a result of the following independent situations (be specific in describing the changes): a. Employing a voucher system that involved, among other things, establishing vouchers payable that covered several vendor invoices.

ANS.

In Figure 13.4, bubble 1.2, individual invoices would not be received from bubble 1.1 and would not update the accounts payable master data for individual invoices. Rather, batches of invoices would be accumulated, sorted by vendor identification code, and would update the accounts payable master data. Alternatively, individual invoices would be input and would update the accounts payable master data. However, bubble 2.2 in Figure 13.6 would sort the invoices to be paid into vendor identification sequence before forwarding the approved payments to bubble 2.3. This method accomplishes the same objective as does creating vouchers that cover many invoices by creating checks that cover many invoices. Figure 13.3 would not be visibly affected by either of these. The changes are within bubbles 1.0 and 2.0 of that figure.

Accounting Information Systems, 8e

53

b. Making payments twice per month, on the 5th and 25th of the month, and taking advantage of all cash discounts offered. ANS.

Figure 13.6, bubble 2.1 is triggered on the 5th and the 25th of each month. All discount dates reached between the last payment date and the current payment date are considered available. Alternatively, Figure 13.4, bubble 1.2 records the payment date for each invoice and that payment date is either the 5th or the 25th. Figure 13.3 is not visibly affected by either of these. The changes are within bubbles 1.0 and 2.0 of that figure.

DQ13-4

In terms of effectiveness and efficiency of operations, as well as of meeting the generic information system control goals of validity, completeness and accuracy, what are the arguments for and against each of the following? a. Sending a copy of the vendor invoice to the purchasing department for approval of payment

ANS.

●

Purchasing personnel can review the invoice to insure validity of the receipt (i.e., the items were ordered, etc.). The purchasing department review will delay establishing the payable and may cause the organization to lose a discount. Sending a copy of the purchase order to the accounts payable office may be more efficient. While accounts payable personnel are examining the invoice, they can compare it to the purchase order.

b. Sending a copy of the vendor invoice to the requisitioning department for approval of payment ANS.

Same as the preceding part b.

DQ13-5

An electronic data interchange (EDI) system may present an organization with opportunities and risks: a. What opportunities might an EDI system present? Discuss your answer.

ANS.

EDI facilitates the timely and efficient flow of data between trading partners. For example, by enabling a just-in-time process, EDI can reduce the carrying costs of inventory and reduce the time to manufacture a product, thus improving customer service. The rapid EDI communications actually can prevent a production line from stopping due to a lack of raw materials.

54

Solutions for Chapter 13

EDI precludes the reentry of data at the receiving organization; this is more efficient, effective (i.e., timely), and reduces data entry errors. b. What risks might an EDI system present? What controls other responses might an organization choose to address these risks? ANS.

Failure of the communications link threatens the ongoing operation of EDI. To prevent this, the contract with the VAN should address the availability of the communications link. An organization may contract with alternative VANs to be used in the event of one VAN’s failure. Communication via the Internet might also be used in lieu of VANs. Finally, alternative, non-EDI communications options may be used in the event of communications failures. Unauthorized incoming or outgoing transactions may be processed. To prevent such occurrences, encryption/digital signatures may be used along with physical security and logical access controls (passwords, biometrics, and so on) to prevent unauthorized access to EDI applications.

DQ13-6

In the physical implementation depicted in Figure 13.10, the computer updated the accounts payable data upon receipt of a vendor invoice (a clerk handled any exceptions). Describe the procedures that you believe should control that process.

ANS.

We can discuss two categories of procedures and controls, business process/application controls, and entitylevel/pervasive/IT general controls: Business process/application controls: The VAN or EDI translator should determine that the invoice was received from a legitimate vendor, and not from an unauthorized source. A secure mailbox at the VAN and digital signatures might be used for this purpose. The accounts payable application should also match the incoming invoices to the vendor master data to further validate that the vendor is real. The accounts payable program matches the invoice to the receiving report and purchase order. Should there be significant variation (tolerances should be assigned by management and applied by the program) or should either the purchase order or receiving report be missing, the computer should reject the invoice. Entity-level/pervasive/IT general controls:

Accounting Information Systems, 8e

55

Physical and logical access controls should prevent unauthorized alteration of the vendor, purchase order, and receiving report data—the data used to validate the invoice. Program change controls must prevent unauthorized alteration of the program that performs the invoice validation. Personnel controls, such as selection and hiring, training and education, and supervision, should ensure that AP clerks handling the exceptions can and do perform their duties in accordance with company policies. Logical access controls should ensure that only authorized personnel can handle exceptions. DQ13-7

In the physical implementation depicted in Figure 13.10, the payment order and the remittance advice were either sent together through the banking system, or the remittance advice was sent directly to the vendor. Which is better? Discuss.

ANS.

Each approach may have advantages. If the two items are sent together, identification and validation of the payment may be more efficient. However, if the RA is received independent of the payment, we can use the RAs as a tickler to ensure receipt of the payment.

DQ13-8

With an EDI system, a customer’s order may be entered directly into the OE/S without human intervention. Discuss your control concerns under these circumstances.

ANS.

We can discuss two categories of procedures and controls, business process/application controls and entitylevel/pervasive/IT general controls: Business process/application controls: The VAN or EDI translator should determine that the order was received from a legitimate customer and not from an unauthorized source. A secure mailbox at the VAN and digital signatures might be used for this purpose. The OE/S application should also match the incoming order to the customer master data to further validate that the customer is real. In addition to validating the existence of the customer, the order entry/sales program should perform a credit check. Should there be significant credit shortfall (tolerances should be assigned by management and applied by the program), the computer should reject the order. The program should also perform an inventory availability check. Either a credit or availability failure might be displayed to a customer service representative for review and correction. Entity-level/pervasive/IT general controls:

56

Solutions for Chapter 13

Physical and logical access controls should prevent unauthorized alteration of the customer, sales order, and accounts receivable data—the data used to validate the customer and perform the credit check. Program change controls must prevent unauthorized alteration of the program that performs the validation and credit check. Personnel controls, such as selection and hiring, training and education, and supervision, should ensure that customer service representatives handling the exceptions can and do perform their duties in accordance with company policies. Logical access controls should ensure that only authorized personnel can handle exceptions. DQ13-9

In the section “Fraud and the Accounts Payable Function,” we described a fraud committed by Stanley and Phoebe and another by Veronica. For each fraud describe controls and technology that could reduce the risk of those frauds occurring.

ANS.

Controls and technology that might have reduced the risk of the fraud perpetrated by Stanley and Phoebe include the following: Before opening the business account, the bank might have asked for documentation regarding SRJ Enterprises. Personnel in the Accounting department should not be authorized to create vendor records. This function should be reserved for the Purchasing department. Before the vendor record is created the vendor address, telephone number, etc. should be compared to such data on the organization’s personnel file to determine if the vendor and an employee might be related. Vendor invoices should be matched—manually or by the computer—to open purchase orders and receiving reports before an accounts payable record is created and the invoice paid. Controls and technology that might have reduced the risk of the fraud perpetrated by Veronica include the following: When the vendor invoice is entered, the invoice number should also be entered, and the computer should be programmed to detect and preclude entry of duplicate invoice numbers. When the vendor invoice is entered, it should be matched against an open purchase order and a receiving report. When a second, duplicate, invoice is entered, there would no longer be a PO or receiving report for matching, and the second invoice would be rejected.

Accounting Information Systems, 8e

57

Veronica’s employer should request that vendors apply overpayments as credits rather than returning the checks.

Problems Problems 1 and 2 Note: In the pages that follow, we provide solutions for problems 1 and 2 for both of the Case Studies (Cases A and B) as applicable. Although the solution for each case study comprises several pages, it is not necessarily comprehensive, nor does it represent the only acceptable answers. Your or your students’ answers easily may vary in two areas. First, the grouping on the annotated table of entities and activities determines the configuration of the current logical DFD. Second, we have included in the formal controls analysis only a sample of the possible present and missing controls. At the end of the descriptions of the controls for each case, we include a list of other controls that you or your students might want to include in a solution.

58

Solutions for Chapter 13

Stockbridge Company (Accounts Payable and Cash Disbursements Processes) Solutions (see the Note on pg. 13-5) P13-1 ANS.

a. Table of Entities and Activities for Stockbridge Company (Accounts Payable and Cash Disbursements Processes)

Entities

Para

Activities

Accounts payable (AP)

2

1.

Receive invoice from vendor.

2

2.

Key PO number into computer.

Vendor

2

Computer

2

3.

Display PO data.

AP

2

4.

Key invoice data.

Computer

2

5.

Match invoice with PO data.

2

6.

If price or quantity variances exist, route to purchasing.

Purchasing

2

7.

Approve variances.

Computer

2

8.

Record the invoice, and update the PO and general ledger databases.

3

9.

Read and display open invoices.

3

10. Review open invoices.

3

11. Select invoices that should be paid.

Computer

3

12. Print checks, and update AP and general ledger databases.

Accounts payable

3

13. Mail checks to vendor.

Accounts payable

Accounting Information Systems, 8e

Invoice

Accounts payable/ cash disbursements process

Vendor

Payment

FIGURE SM-13.1

Problem 1, part b solution Disbursements Processes)

context diagram for Stockbridge Company (Accounts Payable and Cash

PO number PO data

Invoice

1.0 Accounts payable department

Invoice data Open invoices

Payment selections Check Vendor

Checks NOTE: Only one flow into and out of the enterprise database are shown to represent all interactions.

2.0 Computer

Enterprise database

59

60

Solutions for Chapter 13

FIGURE SM-13.2 P13-1 ANS.

Problem 1, part c solution—physical DFD for Stockbridge Company (Accounts Payable and Cash Disbursements Processes)

d. Table of Entities and Activities (annotated) for Stockbridge Company (Accounts Payable and Cash Disbursements Processes)

Entities

Para

Activities

Accounts payable (AP)

2

2.

Key PO number into computer.

Computer

2

3.

Display PO data.

AP

2

4.

Key invoice data.

Computer

2

5.

Match the invoice with PO data.

Computer

2

8.

Record the invoice, and update the PO and general ledger databases.

Computer

3

9.

Read and display open invoices.

Accounts payable

3

10. Review open invoices.

3

11. Select invoices that should be paid.

3

12. Print checks, and update account payable and general ledger databases.

Computer

Process

1.0 Record Accounts Payable

2.0 Make Payment

Accounting Information Systems, 8e

FIGURE SM-13.3

61

Problem 1, part e solution—logical DFD for Stockbridge Company (Accounts Payable and Cash Disbursements Processes)

62

Solutions for Chapter 13

Accounts payable department

Accounts payable department

Computer

Vendor Retrieve and display open invoices

Open invoices

Invoice Each morning Select invoices Key PO number

Retrieve and display PO data

Enterprise database

Print checks, update AP and general ledger databases

PO data

Key invoice data

Checks

Record invoice, update PO and general ledger databases

Vendor

Invoice data If necessary, purchasing must approve price and quantity variances

FIGURE SM-13.4

Problem 2, part a solution—systems flowchart for Stockbridge Company (Accounts Payable and Cash Disbursements Processes)

Accounting Information Systems, 8e

63

Control Goals of the Stockbridge Company Accounts Payable and Cash Disbursements Business Processes Control Goals of the Operations Process Ensure effectiveness of operations:

Recommended control plans

A

Ensure efficient employment of resources (people, computers)

Ensure security of resources (cash, accounts payable master data)

B

Control Goals of the Information Process For vendor invoice inputs, ensure:

IV

IC

IA

For accounts payable master data, ensure:

UC

UA

For payment voucher inputs, ensure:

IV

IC

Present Controls P-1: Independent validation of vendor invoice P-2: Match invoice to PO and receiving report

P-1

P-2

P-3: Authorize variances P-4: Computer generated list of vouchers due (monitor open invoices) P-5: Independent authorization to make payment

P-1

P-2

P-2

P-3

P-3

P-4

P-4

P-5

P-5

For accounts payable master data, ensure:

IA

UC

UA

64

Solutions for Chapter 13

Control Goals of the Stockbridge Company Accounts Payable and Cash Disbursements Business Processes Control Goals of the Operations Process Ensure effectiveness of operations:

Recommended control plans

A

Ensure efficient employment of resources (people, computers)

Ensure security of resources (cash, accounts payable master data)

B

Control Goals of the Information Process For vendor invoice inputs, ensure:

IV

IC

IA

For accounts payable master data, ensure:

UC

For payment voucher inputs, ensure:

UA

IV

For accounts payable master data, ensure:

IC

IA

M-2

M-2

Missing Controls M-1: Monitor open POs and receiving reports

M-1

M-2: Reconcile bank account

M-2

M-3: Treasurer authorizes disbursements

M-1

M-2 M-3

Possible effectiveness goals include the following: A - Optimize cash discounts B - Ensure that the amount of cash maintained in demand deposit accounts is sufficient (but not excessive) to satisfy expected cash disbursements

M-3

IV = input validity IC = input completeness IA = input accuracy UC = update completeness UA = update accuracy

See Exhibit SM 13.1 for a complete explanation of control plans and cell entries.

FIGURE SM-13.5

M-3

Problem 2, part b solution (partial)—control matrix for Stockbridge Company (Accounts Payable and Cash Disbursements Processes)

UC

UA

Accounting Information Systems, 8e

Exhibit SM-13.1

65

Problem 2, part b solution (partial)—explanation of cell entries for control matrix in Figure SM-13.5

Note: Vendor invoice and payment voucher inputs result in immediate updates to accounts payable master data. Therefore, we do not show entries for UC or UA. P-1:

Independent validation of vendor invoice. Ensure security of resources, vendor invoice input validity: The Accounts Payable department reviews and approves the vendor invoice. This department is separated from Purchasing, the department that created the purchase order. This provides independent assurance of the validity of the vendor invoice. Because cash will not be expended with an invalid vendor invoice, the security of the cash is ensured.

P-2:

Match invoice with PO and receiving report. Effectiveness goal A, vendor invoice input validity, and input accuracy: The computer matches the input invoice to the PO and receipt data to ensure that the goods were ordered and received (validity) and the items and quantities on the invoice are accurate. By recording the terms accurately we can ensure that appropriate discounts are taken.

P-3:

Authorize variances. Vendor invoice input validity, and input accuracy: Purchasing reviews the input quantities and prices to determine that they are valid and accurate (within limits prescribed by management).

P-4:

Computer-generated list of vouchers due (monitor open invoices). Effectiveness goal A: Action on this list should ensure that payments are made in a timely manner, not too early and not too late (i.e., to optimize cash discounts). Payment voucher input completeness: Action on this list should ensure that all payments are input.

P-5:

Independent authorization to make payment. Ensure security of resources: Because cash cannot be expended in the absence of a validated vendor invoice, the security of the cash is ensured. Payment voucher input validity: The open invoice record is used to authorize execution of a payment.

M-1:

Monitor open POs and receiving reports. Effectiveness goal A and vendor invoice input completeness: The database of open POs and receiving reports should be periodically reviewed to ensure that all invoices are received and input (completeness) in a timely manner to ensure that discounts can be taken when appropriate (i.e., to optimize cash discounts).

66

M-2:

Solutions for Chapter 13

Reconcile bank account. Effectiveness goal A, security of resources, payment voucher input completeness, and input accuracy: Someone other than the disbursing agent should reconcile the bank account to determine that the bank balance agrees with the amount of cash recorded in the database (goal A, security), that all disbursements were recorded (completeness), and that they were recorded accurately (accuracy).

M-3:

Treasurer authorizes disbursements. Security of resources, payment voucher input validity, and input accuracy: Someone other than accounts payable, such as the treasurer, should authorize the disbursements by comparing the disbursement to the invoice, PO, and receiving report so that only authorized disbursements are made (security, validity), and that all disbursements are accurate (accuracy). Solution Note: Several controls not described in the preceding could be included in the solution to this problem, as present or missing, depending on assumptions made. For example: At each data entry location, we could include automated data entry, preformatted screens, online prompting, and confirm input acceptance. As data is entered into the system, we might find programmed edit checks, populate input screens with master data, and compare input data with master data. When there are programmed edit checks, manual comparisons, and reconciliation of batch totals, we might find procedures for rejected inputs. Where paper documents are employed, we might find document design, written approvals, and turnaround documents. We might propose several typical AP/CD controls that we did not include in our analysis, including vendor invoice mathematical accuracy check and electronic payments with digital signatures.

Accounting Information Systems, 8e

FIGURE SM-13.6

Problem 2, part c solution—annotated systems flowchart for Stockbridge Company (Accounts Payable and Cash Disbursements Processes)

67

68

Solutions for Chapter 13

Internet Payment Platform (Accounts Payable and Cash Disbursements Processes) Solutions (see the Note on pg. 13-5) P13-1 ANS.

a. Table of Entities and Activities for Internet Payment Platform (Accounts Payable and Cash Disbursements Processes)

Entities

Para

Activities

Supplier

2

1. Log on to IPP.

2

2. Flip PO to invoice.

2

3. Post invoice to appreciating database.

2

4. Send invoices to the enterprise adapter.

2

5. Translate invoices into XML.

2

6. Send translated invoices to BEPMIS (assumed).

2

7. Post invoices to accounts payable database.

3

8. Perform three-way match of invoice, PO, receipt.

3

9. Extract and format invoice changes.

3

10. Send invoice changes to enterprise adapter.

3

11. Convert changes from IDMS to XML.

3

12. Transmit invoice changes to IPP server.

IPP Server

3

13. Post invoice changes to appreciating database.

Accounts payable accountant

4

14. Trigger payment process.

BEPMIS

4

15. Read and display invoices due for payment (assumed).

Accounts payable accountant

4

16. Review invoices.

4

17. Select invoices for payment.

4

18. Extract and format payments.

4

19. Generate and digitally sign PIF file.

4

20. Transmit PIF to enterprise adapter.

4

21. Notify AP accountant of number and dollar amount of payments.

4

22. E-mail CO, DO, and Boston Fed with PIF totals.

4

23. Convert PIF from IDMS to XML.

4

24. Transmit PIF to IPP server.

IPP Server

4

25. Post PIF to appreciating database.

Contracting officer (CO)

4

26. Log on to IPP.

IPP server

Enterprise adapter

BEPMIS

Enterprise adapter

BEPMIS

Enterprise adapter

Accounting Information Systems, 8e

Entities

Para

Activities

4

27. Approve PIF.

4

28. Log on to IPP.

4

29. Approve PIF.

5

30. Generate ACH-formatted file from PIF.

5

31. Send ACH-formatted file to Boston Fed.

5

32. E-mail AP accountant, CO, DO, and Boston Fed with ACH totals (number and dollar amount of payments).

5

33. E-mail supplier that a payment is coming.

Boston Fed

5

34. Transfer ACH file to FedACH system.

FedACH system

5

35. Settle payment (debit Treasury’s account and credit supplier’s bank’s account).

5

36. Notify supplier’s bank of credits.

5

37. Send Bulk Data Acknowledgement (number and dollar amount of payments) to AP accountant, CO, DO, Boston Fed.

5

38. Credit supplier’s account.

Disbursing officer (DO)

IPP server

Supplier’s bank

Payment notice Supplier Total of payments made

IPP accounts payable/ cash disbursements process

ACH totals

Total of payments made ACH totals Accounts payable accountant

FIGURE SM-13.7

ACH totals

Total of payments made ACH Total of totals payments made

Disbursing officer Boston Fed

Contracting officer

Problem 1, part b solution—context diagram for Internet Payment Platform (Accounts Payable and Cash Disbursements Processes)

69

70

Solutions for Chapter 13

Appreciating database

Extracted and formatted invoice changes

Invoice changes in XML

Logon

PO data 1.0 Supplier

PIF file in XML

Payment notice

PIF file

4.0 BEPMIS

PIF totals

PIF approval

PO flip

Invoices in XML

3.0 Enterprise adapter

Invoices

2.0 IPP server

PIF in ACH format PIF approval

BEPMIS/IDMS database

PIF totals

7.0 Disbursing officer

Open invoices

ACH ACH totals totals

ACH totals

8.0 Boston Fed

PIF in ACH format

6.0 Contracting officer PIF totals

Total of payments made

Invoices to be paid

PIF totals

Supplier ACH totals

Trigger payment process

5.0 Accounts payable accountant

9.0 FedACH System Treasury and bank accounts

Boston Fed

Accounts payable accountant

Contracting officer

Disbursing officer

Total of payments made Total of payments made Total of payments made

FIGURE SM-13.8

Credit notice

10.0 Supplier's Bank

NOTE: Only one flow into and out of the appreciating and IDMS databases are shown to represent all interactions.

Problem 1, part c solution—physical DFD for Internet Payment Platform (Accounts Payable and Cash Disbursements Processes)

Supplier accounts

Accounting Information Systems, 8e

P13-1 ANS.

71

d. Table of Entities and Activities (Annotated) for Internet Payment Platform (Accounts Payable and Cash Disbursements Processes)

Entities

Para

Activities

Supplier

2

1. Log on to IPP.

2

2. Flip PO to invoice.

IPP server

2

3. Post invoice to appreciating database.

Enterprise adapter

2

5. Translate invoices into XML.

BEPMIS

2

7. Post invoices to accounts payable database.

3

8. Perform three-way match of invoice, PO, receipt.

3

9. Extract and format invoice changes.

3

11. Convert changes from IDMS to XML.

3

12. Transmit invoice changes to IPP server.

IPP Server

3

13. Post invoice changes to appreciating database.

AP accountant

4

14. Trigger payment process.

BEPMIS

4

15. Read and display invoices due for payment (assumed).

AP accountant

4

16. Review invoices.

4

17. Select invoices for payment.

4

18. Extract and format payments.

4

19. Generate and digitally sign PIF file.

Enterprise adapter

4

23. Convert PIF from IDMS to XML.

IPP Server

4

25. Post PIF to appreciating database.

Contracting officer (CO)

4

26. Log on to IPP.

4

27. Approve PIF.

Disbursing officer (DO)

4

28. Log on to IPP.

4

29. Approve PIF.

IPP server

5

30. Generate ACH-formatted file from PIF.

Boston Fed

5

34. Transfer ACH file to FedACH system.

FedACH system

5

35. Settle payment (debit Treasury’s account and credit supplier’s bank’s account).

Supplier’s bank

5

38. Credit supplier’s account.

Enterprise adapter

BEPMIS

Process

1.0 Record Invoices and invoice changes

2.0 Select and approve payments

3.0 Settle payments

72

Solutions for Chapter 13

Supplier Payment notice

Treasury and bank accounts

ACH totals Total of payments made Appreciating database

1.0 Record invoices and invoice changes

Accounts payable accountant

ACH total

3.0 Settle payments

Total of payments made

Boston Fed

ACH total Total of payments made

Accounts payable database 2.0 Select and approve payments

ACH total Total of payments made

Supplier accounts

FIGURE SM-13.9

Disbursing officer

Problem 1, part e solution—logical DFD for Internet Payment Platform (Accounts Payable and Cash Disbursements Processes)

Contracting officer

Accounting Information Systems, 8e

FIGURE SM-13.10 Problem 2, part a solution—systems flowchart for Internet Payment Platform (Accounts Payable and Cash Disbursements Processes)

73

74

Solutions for Chapter 13

FIGURE SM-13.10 Problem 2, part a solution—systems flowchart (continued)

Accounting Information Systems, 8e

Federal Reserve Bank

Supplier's Bank FedACH System

Federal Reserve Bank of Boston

P. 1, A

P. 1, C

Read e-mail

Read e-mail

P. 1, B

ACH-Form atted file

Number of payments and dollars in PIF

Number of payments and dollars in ACH file

Initiate transfer of ACH file

Transfer ACH-formatted file to FedACH

Credit supplier's account

Settle the payment

Send Bulk Data Acknowledgement to AP, CO, DO, Boston Fed

Manual intervention is needed to send ACH file through several servers and links to FedACH

Bulk Data Acknow ledgem ent includes num ber of paym ents and dollars paid

Number of payments and dollars paid AP

FIGURE SM-13.10 Problem 2, part a solution—systems flowchart (continued)

CO

DO

75

76

Solutions for Chapter 13

Control Goals of the IPP Accounts Payable and Cash Disbursements Processes Control Goals of the Operations Process Ensure effectiveness of operations:

Recommended control plans

A

Ensure efficient employment of resources (people, computers)

Ensure security of resources (cash, AP master data)

B

Control Goals of the Information Process For vendor invoice inputs, ensure:

IV

IC

IA

For AP master data, ensure:

UC

UA

Present Controls P-1: Match PO and invoice (independent validation of vendor invoice) at IPP

P-1

P-2: Cancel PO when invoice recorded at IPP P-3: Record invoice due dates and payment terms P-4: Match PO and receiving report to invoice (independent validation of vendor invoice) at BEPMIS

P-2

P-3

P-1

P-1

P-4

P-4

P-2

P-3

P-4

For payment inputs, ensure:

IV

IC

IA

For AP master data, ensure:

UC

UA

Accounting Information Systems, 8e

77

Control Goals of the IPP Accounts Payable and Cash Disbursements Processes Control Goals of the Operations Process Ensure effectiveness of operations:

Recommended control plans

A

P-5: Cancel PO and receiving report when invoice recorded at BEPMIS

Ensure efficient employment of resources (people, computers)

Ensure security of resources (cash, AP master data)

B

Control Goals of the Information Process For vendor invoice inputs, ensure:

IV P-5

IC

IA

For AP master data, ensure:

UC

P-6

P-6

P-6

P-7: Follow up on open POs and receiving reports at BEPMIS

P-7

P-7

P-7

P-8: Select invoices for payment based on due dates

P-8

P-9

IV

P-5

P-6: Follow-up on open POs at IPP

P-9: Pay only open invoices and close invoices on payment (independent authorization to make payment) at BEPMIS

UA

For payment inputs, ensure:

P-9

IC

IA

For AP master data, ensure:

UC

UA

78

Solutions for Chapter 13

Control Goals of the IPP Accounts Payable and Cash Disbursements Processes Control Goals of the Operations Process Ensure effectiveness of operations:

Recommended control plans P- 10: Follow-up on open invoices at BEPMIS

A

P-13: CO and DO approval required for payment

Ensure security of resources (cash, AP master data)

B

For vendor invoice inputs, ensure:

IV

IC

IA

For AP master data, ensure:

UC

UA

IV

IC

IA

P-10

P-11

P-11

P-12

P-11

P-13

P-13

M-1

M-1

M-1

For AP master data, ensure:

UC

UA

P-10

P-11

P-12

Missing Controls M-1: Independent validation of vendor invoice at IPP does not include a match to receiving report

For payment inputs, ensure:

P-10

P-11: Digitally sign electronic payments P-12: Follow-up on open invoices (at IPP)

Ensure efficient employment of resources (people, computers)

Control Goals of the Information Process

P-11

P-12

P-13

P-11

Accounting Information Systems, 8e

79

Control Goals of the IPP Accounts Payable and Cash Disbursements Processes Control Goals of the Operations Process Ensure effectiveness of operations:

Recommended control plans M-2: Reconcile batch totals for invoices and changes

A

Ensure efficient employment of resources (people, computers)

Ensure security of resources (cash, AP master data)

B M-2

M-2

M-3: Programmed edits for translated and formatted invoice (and invoice change) data

Control Goals of the Information Process For vendor invoice inputs, ensure:

For AP master data, ensure:

IV

IC

IA

UC

UA

M-2

M-2

M-2

M-2

M-2

M-3

For payment inputs, ensure:

IV

IC

IA

For AP master data, ensure:

UC

UA

M-3

M-4: Programmed edits for formatted and translated payment data

M-4

M-4

M-5: Reconcile payments made by BEPMIS to PIF totals

M-5

M-5

M-5

M-5

M-5

M-5

M-5

M-6: Reconcile approved payments to PIF totals

M-6

M-6

M-6

M-6

M-6

M-6

M-6

80

Solutions for Chapter 13

Control Goals of the IPP Accounts Payable and Cash Disbursements Processes Control Goals of the Operations Process Ensure effectiveness of operations:

Recommended control plans

A

Ensure efficient employment of resources (people, computers)

Ensure security of resources (cash, AP master data)

B

Control Goals of the Information Process For vendor invoice inputs, ensure:

IV

IC

IA

For AP master data, ensure:

UC

UA

For payment inputs, ensure:

For AP master data, ensure:

IV

IC

IA

UC

UA

M-7: Reconcile ACH totals to PIF totals and approved PIF totals

M-7

M-7

M-7

M-7

M-7

M-7

M-7

M-8: Reconcile payments made by ACH to ACH file (and PIF totals and BEPMIS payment totals)

M-8

M-8

M-8

M-8

M-8

M-8

M-8

Possible effectiveness goals include the following: A = Optimize cash discounts. B = Ensure that the amount of cash maintained in demand deposit accounts is sufficient (but not excessive) to satisfy expected cash disbursements).

IV = input validity IC = input completeness IA = input accuracy UC = update completeness UA = update accuracy

See Exhibit SM 13.2 for a complete explanation of control plans and cell entries.

FIGURE SM-13.11 Problem 2, part b solution (partial)—control matrix for Internet Payment Platform (Accounts Payable and Cash Disbursements Processes)

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Exhibit SM-13.2 P-1:

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Problem 2, part b solution (partial)—explanation of cell entries for control matrix in Figure SM-13.11

Match PO and invoice (independent validation of vendor invoice) at IPP. Vendor invoice input validity, vendor invoice input accuracy, and vendor invoice update accuracy: By comparing the invoice to the PO, we ensure that the recorded invoice reflects goods actually ordered (validity) and that items, quantities, prices, and terms are comparable to data on the PO. We assume that the AP master data is updated simultaneously with the input of the invoice data.

P-2:

Cancel PO when invoice recorded at IPP. Security of resources and vendor invoice input validity. The PO flip feature prevents the matching of more than one invoice for each PO, thus ensuring that funds are not expended inappropriately (security of cash) and that invalid invoices are not recorded.

P-3:

Record invoice due dates and payment terms. Effectiveness goals A and B: Recording of terms and due dates allows cash discounts as appropriate (goal A) and ensures that there is sufficient cash on hand to make those payments (goal B).

P-4:

Match PO and receiving report to invoice (independent validation of vendor invoice) at BEPMIS. Vendor invoice input validity, vendor invoice input accuracy, and vendor invoice update accuracy: By comparing the invoice to the PO and receiving report, we ensure that the recorded invoice reflects goods actually ordered and received (validity) and that items, quantities, prices, and terms are comparable to data on the PO and receiving report. We assume that the AP master data is updated simultaneously with the input of the invoice data.

P-5:

Cancel PO and receiving report when invoice is recorded at BEPMIS. Security of resources and vendor invoice input validity: The PO and receiving report are canceled upon performing the three-way match, thus preventing the matching of more than one invoice for each PO and receiving report. This ensures that funds are not expended inappropriately (security of cash) and that invalid invoices are not recorded.

P-6:

Follow up on open POs at IPP. Effectiveness goal A, vendor invoice input completeness, and vendor invoice update completeness: By following up on open POs (i.e., those with no matching invoice), we can ensure that invoices are received in time to take advantage of discounts (goal A) and are input in a timely manner (input completeness). We assume that the PO master data is updated simultaneously with the input of the receipt data.

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P-7:

Solutions for Chapter 13

Follow up on open POs and receiving reports at BEPMIS. Effectiveness goal A, vendor invoice input completeness, and vendor invoice update completeness: By following up on open POs and receiving reports (i.e., those with no matching invoice), we can ensure that invoices are received in time to take advantage of discounts (goal A) and are input in a timely manner (input completeness). We assume that the PO master data is updated simultaneously with the input of the receipt data.

P-8:

Select invoices for payment based on due dates. Effectiveness goal A: Ensures that payments are made in a timely manner, not too early and not too late (i.e., to optimize cash discounts).

P-9:

Pay only open invoices and close invoices upon payment (independent authorization to make payment) at BEPMIS. Security of resources: Because cash cannot be expended in the absence of a validated, open vendor invoice (and this invoice was recorded after matching it to the PO and receiving report), security over the cash asset is also enhanced. Payment input validity: The accounts payable computer program approves vendor invoices for payment. Because the invoice was recorded after matching it to the PO and receiving report, the validity of the payment input is ensured.

P-10:

Follow up on open invoices at BEPMIS. Effectiveness goal A, payment input completeness, and payment update completeness: By following up on open invoices (i.e., those due for payment), we can ensure that payments are made in time to take advantage of discounts (goal A) and are input in a timely manner (input completeness). We assume that the AP master data is updated simultaneously with the input of the payment data.

P-11:

Digitally sign electronic payments. Security of resources, payment input validity, payment input completeness, payment input accuracy, payment update completeness, and payment update accuracy: When the digital signatures are authenticated at IPP, they will know that the sender has the authority to send the PIF, which prevents the unauthorized diversion of resources (security of resources). This also determines that the PIF itself is genuine (validity), has not been altered in transit, and thus is complete and accurate. We assume that the AP master data is updated simultaneously with the input of the payment data.

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P-12:

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Follow up on open invoices (at IPP). Effectiveness goal A, payment input completeness, and payment update completeness: By following up on open invoices (i.e., those due for payment), we can ensure that payments are made in time to take advantage of discounts (goal A) and are input in a timely manner (input completeness). We assume that the AP master data is updated simultaneously with the input of the payment data.

P-13:

CO and DO approval required for payment. Security of resources, payment input validity, and payment input accuracy: A contracting officer and a disbursing officer reviews each PIF to ensure that each payment is authorized (validity), accurate, and is not a misuse of resources.

M-1:

Independent validation of vendor invoices at IPP does not include a match to the receiving report. Vendor invoice input validity, vendor invoice input accuracy, and vendor invoice update accuracy: By comparing the invoice to the receiving report (in addition to the PO), we could ensure that the recorded invoice reflects goods actually received and ordered (validity) and that items, quantities, prices, and terms are comparable to data on the PO and receiving report. We assume that the AP master data is updated simultaneously with the input of the invoice data.

M-2:

Reconcile batch totals for invoices and invoice changes. Efficient employment of resources: Using batch totals to reconcile the invoice data is more efficient than reviewing each invoice. Security of resources and vendor invoice input validity: Determining that invoice inputs (and changes) reflect only those sent from IPP (or BEPMIS) ensures that cash will not subsequently be disbursed inappropriately (security of resources) and ensures the validity of the vendor invoice inputs (and changes). Vendor invoice input completeness, vendor invoice input accuracy, vendor invoice update completeness, and vendor invoice update accuracy: By comparing totals received from IPP (or BEPMIS) to those produced after the update, we ensure that all vendor invoices (or changes) were input (input completeness) and that all vendor invoices (or changes) were input correctly (input accuracy). We assume that the AP master data is updated simultaneously with the input of the invoice data.

M-3:

Programmed edits for formatted and translated invoice data. Vendor invoice input accuracy and vendor invoice update accuracy: Edits at BEPMIS and the Enterprise Adapter would identify erroneous or suspect data and reduce input errors at the IPP server. We assume that the AP master data is updated simultaneously with the input of the receipt data.

M-4:

Programmed edits for formatted and translated payment data.

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Solutions for Chapter 13

Payment input accuracy and payment update accuracy: Edits at BEPMIS and the Enterprise Adapter would identify erroneous or suspect data and reduce input errors at the IPP Server. We assume that the AP master data is updated simultaneously with the input of the payment data. M-5:

Reconcile payments made by BEPMIS to PIF totals. Efficient employment of resources: Using batch totals to reconcile the payment data is more efficient than reviewing each payment. Security of resources, payment input validity, payment input completeness, payment input accuracy, payment update completeness, and payment update accuracy: By reconciling batch totals, the AP accountant can ensure that payments sent to IPP reflect only those authorized, that cash is not disbursed inappropriately (security of resources), that only legitimate payments are sent to the IPP (input validity), that all data are sent (input completeness), and that all data are input accurately. We assume that the AP master data is updated simultaneously with the input of the payment data.

M-6:

Reconcile approved payments to PIF totals. Efficient employment of resources: Using batch totals to reconcile the payment data is more efficient than reviewing each payment. Security of resources, payment input validity, payment input completeness, payment input accuracy, payment update completeness, and payment update accuracy: By reconciling batch totals, the CO and DO can ensure that payments approved at IPP reflect only those authorized, that cash is not disbursed inappropriately (security of resources), that only legitimate payments are approved at IPP (input validity), that all data are input (input completeness), and that all data are input accurately. We assume that the AP master data is updated simultaneously with the input of the payment data.

M-7:

Reconcile ACH totals to PIF totals and approved PIF totals. Efficient employment of resources: Using batch totals to reconcile the payment data is more efficient than reviewing each payment. Security of resources, payment input validity, payment input completeness, payment input accuracy, payment update completeness, and payment update accuracy: By reconciling batch totals, the AP accountant, DO, CO, and Fed can ensure that payments sent to the Fed reflect only those authorized, that cash is not disbursed inappropriately (security of resources), that only legitimate payments are sent to the Fed (input validity), that all data are sent (input completeness), and that all data are input accurately. We assume that the AP master data is updated simultaneously with the input of the payment data.

M-8:

Reconcile payment made by ACH to ACH file (and PIF totals and BEPMIS payment totals).

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Efficient employment of resources: Using batch totals to reconcile the payment data is more efficient than reviewing each payment. Security of resources, payment input validity, payment input completeness, payment input accuracy, payment update completeness, and payment update accuracy: By reconciling batch totals, the AP accountant, DO, CO, and the Fed can ensure that settled payments reflect only those authorized, that cash is not disbursed inappropriately (security of resources), that only legitimate payments are made (input validity), that all payments are made (input completeness), and that all payments are made accurately. We assume that the AP master data is updated simultaneously with the input of the payment data. Solution Note: Several controls not described in the previous list could be included in the solution to this problem, as present or missing, depending on assumptions made. For example: At each data entry location, we could include automated data entry, preformatted screens, online prompting, and confirm input acceptance. As data is entered into the system, we might find programmed edit checks, populate input screens with master data, and compare input data with master data. When there are programmed edit checks, manual comparisons, and reconciliation of batch totals, we might find procedures for rejected inputs. Where paper documents are employed, we might find document design, written approvals, and turnaround documents.

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Solutions for Chapter 13

FIGURE SM-13.12 Problem 2, part c solution—annotated systems flowchart for Internet Payment Platform (Accounts Payable and Cash Disbursements Processes)

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FIGURE SM-13.12 Problem 2, part c solution—annotated systems flowchart (continued)

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Solutions for Chapter 13

Federal Reserve Bank

Supplier's Bank FedACH System

Federal Reserve Bank of Boston

P. 1, A

P. 1, C

Read e-mail

Read e-mail

P. 1, B

ACH-Form atted file

Number of payments and dollars in PIF

Number of payments and dollars in ACH file M-7

Transfer ACH-formatted file to FedACH

Initiate transfer of ACH file

Send Bulk Data Acknowledgement to AP, CO, DO, Boston Fed

Manual intervention is needed to send ACH file through several servers and links to FedACH

M-8

Credit supplier's account

Settle the payment

Number of payments and dollars paid

Bulk Data Acknow ledgem ent includes num ber of paym ents and dollars paid M-8

AP

M-8

CO

FIGURE SM-13.12 Problem 2, part c solution—annotated systems flowchart (continued)

M-8

DO

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P13-3 ANS.

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1. K: Before invoices are accepted and recorded, Otis Company must validate the invoice by comparing it to the related purchase order and a receiving report to ensure that the invoice is for items that were ordered and received. 2. D: Durham Company should compare incoming invoices to vendor master data to determine that the invoices are from authorized vendors. The invoices should also be compared to the related purchase order and receiving report to reduce the possibility that the invoice is fraudulent. 3. F: Albany, Inc. should follow up on open POs and receiving reports—those for which there is no invoice—to ensure that invoices are received and recorded in a timely manner. 4. C: Because the invoices are entered in batches, there is an opportunity for personnel in the AP department to reconcile batch totals to ensure that all of the invoices are recorded correctly. 5. I: LaFond must have procedures in place to ensure that invoices identified as in error are corrected and re-input to ensure input completeness. 6. J: The duties of Janice, the AP clerk, should be segregated from those of programmers so that only authorized changes to programs are made by programmers. Program change controls will ensure that this segregation is effective. 7. E: By matching the PO, invoice, and receiving report, Kennedy Company can ensure that invoices are accurately recorded. The matching would, for example, determine that only 10 widgets were received and that the invoice for 15 is incorrect. 8. A: Smithfield Company should perform a bank reconciliation. By matching authorized payments (e.g., the cash disbursements journal) to checks cleared by the bank (e.g., the bank statement), they would detect the unauthorized checks written by Sue Granville. 9. B: Gary should not be able to get access to, and makes unauthorized changes to, the vendor master data. Access control software can restrict data maintenance activities to authorized personnel. 10. L: Disbursements should be only for invoices that have been recorded by accounts payable. John should not be able to prepare disbursements unless there is an invoice that was independently authorized and recorded (e.g., by accounts payable).

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P13-4 ANS.

Part a. Solution: There are no changes to Figure 13.3. See Figure SM 13.13 for changes to Figures 13.4 and 13.6.

AP/CD process -- diagram 1 Changes for situations in DQ13-3 and P13-4

PO accounts payable notification

Reject

Receiving report Vendor invoice

1.1 Validate invoice

Vendor master data

Validated vendor invoices

Inventory master data

Part a. solution: The data flow v alidated vendor invoice has been changed to a data store to emphasize that invoices are accumulated and processed in batches. Alternatively, the invoice could be batched prior to entry and validation.

Accounts payable master data

Purchase events data

Part b. solution: Record payment date of 5th or 25th

1.2 Record payable GL payable update

FIGURE SM-13.13 Problem 4 Solution

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P13-4 Part b. solution: Process 2.1 would be triggered on the 5th and 25th of each month. No changes to the figures is required. FIGURE SM-13.13 Problem 4 Solution (continued) P13-5 ANS.

1. Check digit (a programmed edit): This control will detect most keying errors (such as transpositions) as the number is input. It is best suited to numbers such as credit card numbers, customer numbers, and vendor numbers where the check digit is calculated, appended to the account numbers, and used each time the account number is entered to ensure that the number has been accurately entered. 2. Reconcile batch totals: Because the documents were scanned, we can assume that they were entered into the computer. However, we are told that they were not recorded. Batch totals for the input documents prior to scanning should be compared to totals for documents that are recorded to ensure that all documents are scanned and accurately recorded. 3. Reasonableness test: Either the disbursement amount, the ending balance, or both, must not have conformed to normal (i.e., reasonable) trends and would have been detected before the update was completed. 4. Check the mathematical accuracy of vendor invoices (dollar totals): The accuracy of the invoice should be checked prior to recording the payable.

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Note: We could also match the invoice, PO, and receiving report. However, the invoice may be for an open PO and receipt and simply be incorrect in its totals. 5. One-for-one checking of the receiving report and the invoice: This prevents paying for goods that were not received. 6. One-for-one checking of the purchase order and the vendor invoice: This prevents paying for goods that were not ordered or that were ordered at prices and terms other than those on the purchase order. 7. Match invoice with PO: Accounts payable should not create a payable without an open PO. When the PO is used to validate the invoice, it should then be marked as closed (or linked to the invoice) so that it cannot be used again. If this process is followed, the second or duplicate invoice would have been discovered because no PO would match to the invoice. 8. Reconcile run-to-run totals: If the GL is updated as a batch, then a reconciliation of batch totals, or run-to-run totals, would detect any errors. Note: We could also argue that the subsidiary and controls accounts should be updated simultaneously so that they remain in balance. 9. Match invoice with PO and receiving report: At the time that the vendor invoice is input, the accounts payable process should match the invoice to an existing vendor record, an open PO, and a receiving report, and should not create a payable if this match fails. 10. Tickler file of open purchase orders and/or receiving reports: A periodic review of open purchase orders and/or open receiving reports (i.e., those for which no invoice has been received) will find and input the missing invoices in a timely manner. P13-6 ANS.

A. GL inventory received update NOTE : Situations 3-5 do not apply to this flow. 1.Merchandise is purchased, and a periodic inventory process is used. No entry is made (Note A) 2.Merchandise is purchased, and a perpetual inventory process is used. Dr.

Inventory Cr.

Clearing account (Note A)

B. GL payable update 1.Merchandise is purchased, and a periodic inventory process is used. Dr.

Purchases Cr.

Accounts payable

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2.Merchandise is purchased, and a perpetual inventory process is used. Dr.

Clearing account (Note A) Cr.

Accounts payable

3. Office supplies are purchased. Dr.

Office supplies on hand Cr.

Accounts payable

4. Plant assets are purchased. Dr.

Land or buildings or equipment Cr.

Accounts payable

5. Legal services are purchased. Dr.

Legal fees expense (Note B) Cr.

Accounts payable

C. GL cash disbursement update NOTE: The same entry applies to all five situations Dr.

Accounts payable Cr.

Cash (Note C)

NOTES: A. In a periodic inventory system, inventory balances are only calculated and recorded at the end of each accounting period. However, under a perpetual system, inventory is recorded as received. Because the vendor invoice is often received and input at a different time and in a different location, a clearing account must be used to record the credit when the inventory is received and the debit when the invoice is received and input. B. Assumes that the services are not connected with the acquisition of an asset. If they were, the debit would be to an account such as Patents or Organization Costs. C. Assumes either that the payable for merchandise purchased (see entry a or b previously) was first recorded net of the allowable discount or that no discount was offered by the vendor. If the original purchase in a or b had been recorded gross and the invoice was then paid within the discount period, the payment entry would record the discount taken as a credit to either Purchase Discounts (periodic system) or to Inventory (perpetual system).

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P13-7 ANS. Function

Risks

Finance

Nonoptimal cash balances (too much, too little).

Controls and Technology Cash planning (from before or at the same time that POs are issued). Requires that POs be recorded so that we can plan for eventual payments. Purchasing budgets.

Cash is lost.

Electronic payments. Segregate controller and treasurer.

Accounts payable

Opportunity to take discounts is lost.

??? (debit)

Follow up on open POs and receiving reports to ensure timely input of invoices. Record due dates and payment terms when entering invoices.

AP (credit) Invalid invoice (bogus [goods not ordered and/or not received], unauthorized, or duplicate invoices are recorded). Inaccurate invoice (e.g., incorrect vendor, invoice number, amount).

Match invoices to PO and receiving report and cancel PO and receiving report (or link them together). Edit on input. Compare to vendor record, PO, and receiving report.

Incomplete invoices.

Periodically examine open POs and open receiving reports for invoices not received and/or not recorded (tickler file).

Discounts are lost.

Automatic selection of invoices for payment based on due dates.

Cash (credit)

Invalid payment (unauthorized or duplicate payment is made).

Pay only for actual, unpaid invoices and close those invoices when paid.

Discounts taken (credit)

Inaccurate payment (e.g., wrong vendor, wrong amount is paid).

Electronic payments with digital signatures.

Cash disbursements AP (debit)

Populate payment with vendor and invoice data. Match each payment with unpaid invoice. Match payment batch totals to total of invoices being paid. Incomplete payments.

Periodically examine unpaid invoices (tickler file).

Note: During the receipt of inventory, a clearing account is debited. When the vendor invoice is received, the same clearing account will be debited. In the SAP R/3 system, this account is called “Goods Received/Invoice Received (GR/IR).”

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TABLE SM-13.1 Process 1.0 Establish payable

Problem 8 Solution—Summary of AP/CD Process’s Processes, Inputs, Outputs, and Data Subsidiary Functions

Inputs

Outputs

1.1 Validate invoice

PO accounts payable notification

Validated vendor invoice

Receiving report

Vendor master data

Vendor invoice Vendor master data 1.2 Record payable

Validated vendor invoice

Accounts payable master data

Inventory master data

GL payable update Inventory master data Purchase events data

2.0 Make payment

2.1 Prepare proposed payments

Accounts payable master data (Note a)

Proposed payments

2.2 Select and record payments

Proposed payments

Approved payments

Accounts payable master data

Accounts payable master data

Approved payments

Vendor payment

Accounts payable master data

Cash disbursements event data

2.3 Issue and record disbursements

GL cash disbursements update Accounts payable master data Note a: Process 2.1 is triggered by a temporal event—namely, payment due dates as reflected by the accounts payable master data.

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