July 9, 2012
Internal Controls for Outflows
Internal control over outflows helps to prevent mistakes and detect fraud within the acquisition and expenditure cycle, including the payroll cycle. Errors found in financial statements occur most commonly because of improper recording of expenses or fraudulent capitalization of expenses. Fraud can occur in a company’s outflow because of weak internal controls. This proposal explains and describes the importance of internal controls over outflows for purchasing, accounts payable, cash disbursements, finance, investment, and payroll. Internal Controls for Cash Disbursements
A cash disbursement is the final process in the acquisition and expenditure cycle. Prior events in the cycle affect the issuing of a cash disbursement for a product or service. To begin the cycle a company will make a purchase as a result of a company need, the company receives the products or services, and the accounts payable department enters the invoices. Once the company completes these steps in the cycle the next step is to request a cash disbursement. As with internal controls over inflows, internal controls over outflows and specifically, cash disbursements is important to prevent fraud. Segregation of duties involves different people in the different departments carrying out separate functions for the processing of a cash disbursement (Louwers, Ramsay, & Sinason, p. 297, 2007). A combination of two or more of these functions increases the potential for errors and fraud. Cash disbursements should not occur without proper supporting documentation for invoices. All new vendors set up in the accounting system should have proper documentation before creating the vendor and entering any subsequent invoices into accounts payable system. This includes a W9 form with a proper tax identification number and other documentation that laws and regulation require. An important...