PROBLEM: The accounts payable clerk had recording duties and he authorized payments.
SOLUTION: The functions of recording invoices and authorizing payments should be organizationally independent.
In addition, vendors should only be allowed to purchase goods and services from approved vendors. Controls should be put into place to endure that employees cannot add an unauthorized or unapproved vendor to the vendor master file. The company needs to establish policies and a code of conduct that prohibits conflicts of interest and related party transactions, such as buying goods from a company in which you have ownership interest.
j. A cashier created false purchase return vouchers to hide his theft of several thousand dollars from his cash register. PROBLEM: The cashier had recording (creating return vouchers), custody (cash in the cash register), and authorization (authorize the return of goods) duties.
SOLUTION: These three duties should be performed by three separate people. A cashier should only have custody duties. Cashiers and others with access to cash should not be allowed to have recording or authorization duties. Cashiers should not pay out on cash on purchase return vouchers until they are authorized by a supervisor.
k. A purchasing agent received a 10% kickback of the invoice amount for all purchases made from a specific vendor. PROBLEM:The purchasing agent has both recording (prepare the purchase order) and authorization (select a vendor from a list of authorized vendors) duties. The purchasing agent gets custody to cash when the vendor gives her the kickback.
SOLUTION: Purchasing agents should only be allowed to purchase goods and services from approved vendors. Controls should be put into place to ensure that employees cannot add an unauthorized or unapproved vendor to the vendor master file.
Vendor performance with respect to reliability, quality of goods, and prices charged should be tracked and periodically reviewed. Prices should periodically be compared to those charged by other vendors to make sure they are fair, competitive, and reasonable. Analytical procedures can be performed to track the percentage of business a purchasing agent gives to vendors.
The company needs to establish policies and a code of conduct that prohibits conflicts of interest, related party transactions, and kickbacks.
