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A university does not have a centralized receiving function for departmental purchases of books, supplies, and equipment. What control will most effectively prevent payment for goods not received, if performed prior to invoice payment?
Vendor invoices should be approved by a departmental supervisor other than the employee ordering the goods.
The departmental supervisors are the most likely to be aware of the goods received by their departments. Moreover, separating ordering authority from payment authority will prevent unauthorized purchases.
An internal control questionnaire indicates that an approved receiving report is required to accompany every check request for payment of merchandise. What procedures provides the greatest assurance that this control is operating effectively? Select and examine
Canceled checks and ascertain that the related receiving reports are dated no later than the checks.
The best procedure is to test whether any checks have been issued without receiving reports. An appropriate sample of canceled checks and the related supporting documentation should be examined. The checks should not have been written before the dates on the receiving reports.
In meeting the control objective of safeguarding of assets, which department should be responsible for
Distribution of Paychecks and the Custody of Unclaimed Paychecks
Segregating paycheck preparation from distribution makes it more difficult for fictitious employees to receive payment. In principle, the payroll function should be divided into its authorization, recording, and custody functions. Authorization of hiring, wage rates, and deductions is provided by human resources. Authorization of hours worked is provided by production. Based upon these authorizations, accounting (the payroll department) calculates and records the payroll and prepares checks. The CFO signs and distributes payroll checks. Consistent with its asset custody function, the CFO should distribute paychecks or cash in a manual system (or make electronic funds transfers in a computerized system) so as to prevent payments to fictitious employees. Furthermore, the CFO, not the payroll department, should receive unclaimed paychecks or cash for safeguarding, and incomplete EFTs should not be returned to any of the other functions.
What question would most likely be included in an internal control questionnaire concerning the completeness assertion for purchases?
Are purchase orders, receiving reports, and vouchers prenumbered and periodically accounted for?
The completeness assertion concerns whether all transactions and accounts that should be presented are so included. Thus, management asserts that all purchases are recorded and included in the accounts. A standard control related to the completeness assertion for purchases is the use of prenumbered documents. Items missing from the numerical sequence may represent unrecorded transactions and accounts.
What would an auditor ordinarily consider the greatest risk regarding an entity’s use of electronic data interchange (EDI)?
Improper distribution of EDI transactions.
Transactions in an EDI system are communicated from computer to computer, often without human intervention. In some cases an EDI system uses a value-added network (VAN) that forwards transactions from the sender to the receiver. Both of these situations increase the risk of miscommunications and improper distribution of messages.