Threats and Controls in the Expenditure Cycle

Topics: Inventory, Procurement, Purchase order Pages: 12 (3853 words) Published: December 29, 2012
Accounting Information system
There are four activities in revenue cycle namely; sales order entry, shipping, billing and cash collection. The table below shows the activities and the related actions to be conducted by company employees:- Revenue cycle activities| Activity|

Sales Order Entry | Process orders from customers |
Shipping | Deliver merchandise or services to customers (outbound logistics) | Billing | Send invoices to customers |
Cash Collections | Process payments from customers |

PBL Session 2 Question b:
In expenditure cycle, the four activities conducted are ordering materials, supplies, and services, receiving materials, supplies, and services, processing invoices and cash disbursements. The table below shows the activities and the related actions to be conducted by company employees:- Expenditure cycle activities| Activity|

Ordering Materials, Supplies, and Services | Send orders to supplier | Receiving Materials, Supplies, and Services | Receive merchandise or services from suppliers (inbound logistics) | Processing Invoices | Review and approve invoices from suppliers | Cash Disbursements | Process payments to suppliers |

PBL Session 2 Question c:
All expenditure cycle activities depend on the integrated database that contains information about suppliers, inventory, and purchasing activities. There are several general threats and controls that may be experienced by Proterm Automobile Industries Sdn Bhd in its expenditure cycle. The first general threat is inaccurate or invalid master data. When errors occur in the supplier master data, there is a tendency that the employees of Proterm Automobile Sdn Bhd may order goods from unapproved suppliers, purchase inferior quality materials, schedule for untimely deliveries, send payments to wrong address and fraudulent disbursements to fictitious suppliers. Errors in the inventory master data may lead to unexpected shortages of primary materials that cause delays in production or higher cost incurred due to excess purchases and inventory holding. Not only that, errors in the purchasing master data can cause unauthorized purchases and failure to take advantage of negotiated discounts. One way for Proterm Automobile to control this type of threat is to employ the data processing integrity controls. They must also restrict the access to expenditure cycle master data and configure the system so that only trusted, authorized employees can make changes to master data. Furthermore, Proterm Automobile needs to review their configuration settings to ensure proper segregation of duties. The second general threat in the expenditure cycle is unauthorized disclosure of sensitive information, such as banking information related to suppliers and special pricing discounts offered by preferred suppliers. Sensitive information cannot be leaked to ensure Proterm Automobile’s competitiveness. The mean of control for this threat is to configure the system to employ strong access controls that limit who can view the information. It is also important to limit the employees’ ability to use the system’s built in query capabilities to specific tables and fields. In addition, Proterm should encrypt their sensitive data to prevent IT employees who do not have access to the ERP system to view sensitive information and avoid the information exchanged with suppliers over the Internet from being leaked. The third threat is loss or destruction of master data. This can lead to problems similar to that of the previous threats. To mitigate the risk of this threat, Proterm Automobile should employ the backup and disaster recovery procedures. A best practice is to implement the ERP system as three separate instances. One instance, referred to as production, is used to process daily activities. A second instance is used for testing and development. A third instance should be maintained as an online backup to the production system to provide near real-time...
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